The two biggest issues facing financial advisors -- a fiduciary standard and a self-regulatory organization (SRO) -- probably won't be resolved until next year -- maybe not even until after the November election.

This appears to be the consensus of regulators, lobbyists and politically active advisors.

On requiring all who give investment advice (including insurance agents selling products tied to the stock market) to live by a fiduciary standard, the SEC probably won't unveil a proposed ruling until sometime in 2012.

There are strong forces working both for and against a fiduciary standard for all. Working for it are the Financial Coalition, which includes the Financial Planning Association (FPA) and the Certified Financial Planner (CFP®) Board, along with consumer groups and special committees set up for the expressed purpose of lobbying for it.

Their strongest message is the "motherhood and apple pie" argument. How can anyone possibly be against putting the client's interests first, which the fiduciary standard requires.

But powerful insurance interests, led by the National Association of Insurance and Financial Advisors (NAIFA) and many broker/dealers whose reps sell insurance products, see it differently. They see fiduciary as a "loosey-goosey" standard that will invite a multitude of lawsuits. A literal interpretation of the fiduciary standard would put insurance reps out of business, they argue.

The insurance interests and others prefer the less-stringent suitability standard, under which they now function. This standard holds only that investor advice must be suitable for a client based on his/her age, risk tolerance and general financial health.

Fiduciary proponents respond that to relieve consumer confusion, all financial professionals giving investment advice should be held to the same standard. And that standard should put the consumer's interest first -- ahead of, for example, an advisor's commission.

Countering the argument that a fiduciary standard would put thousands of reps out of business, Kevin H. Keller, chief executive of the CFP Board said the number of CFP® certificants (including insurance people) has grown by 13% since 2007 when adhering to a fiduciary standard became a requirement for the certification.

In another survey, 29% of RIAs said the fiduciary standard is the biggest reason they're winning new clients -- well head of price and service, the top reason cited by 20%.

Proponents have had a powerful and steadfast ally in SEC Chair Mary Schapiro, whose agency will determine the rules for a fiduciary standard. Ms. Schapiro was tapped by President Obama to reinvigorate the SEC after it was caught flat-footed in the lead-up to the 2008 financial crisis and failed to detect the Madoff Ponzi scheme. She got off to a sizzling start with a sweeping reorganization of the SEC's enforcement division.

Last month, Ms. Schapiro told colleagues she plans to to stay for another year, if not longer. But some of her glitter has worn off in the wake of some recent embarrassments. There was an ethics scandal involving the formal general counsel who allegedly had a conflict in his participation in the agency's investigation of the Maddoff scheme. There were unfavorable court decisions, such as a federal appeals court throwing out a rule that would have given investors more power to oust corporate directors. And there was internal disarray, one instance surrounding an aborted attempt to lease $500 million in Washington office space in anticipation of new responsibilities imposed by the new Dodd-Frank financial "reform" law.

All this seemed to reduce the SEC's -- and Ms. Schapiro's -- influence in Congress. This was manifested when a House committee sought to reduce the SEC's budget despite hundreds of new mandates under Dodd-Frank.

What's more, opposition to the fiduciary standard is building in Congress because the fiduciary proponents are unable to produce any empirical evidence that suitability-regulated reps are leading consumers into bad investments to collect commissions.

"Do you have anything other than anecdotal examples -- hard factual data -- to show that the suitability standards have been disserving to those served by broker-dealers?" asked Rep Scott Garrett (R-NJ), chairman of the House Financial Services subcommittee on Capital Markets.

The SRO issue is about a regulator for Registered Investment Advisors (RIAs). Currently, RIA's with more than $1 million under management are regulated by the SEC. But the SEC has neither the funding nor staff to do this adequately. But who can? Who should?

For months, the favorite has been the Financial Industry Regulatory Authority (FINRA), the SRO that oversees 4,500 broker-dealers and, by extension, their 634,000 registered reps. These groups have endorsed FINRA as the logical SRO for investment advisors.

But these advisors not associated with broker-dealers want no part of FINRA. The reason cited most often is culture. Critics have long maintained that FINRA operates under a lack of accountability, transparency and oversight and has no experience enforcing the fiduciary standard.

Countering this criticism, FINRA has said time and again that it would set up separate machinery to deal with the differences between broker-dealers and investment advisors.

But just as FINRA was pushing to expand its authority, it was taken to task by its boss -- the SEC -- for inadequate internal policies and procedures stemming from document doctoring in its Kansas City office.

"This could have real political fallout for FINRA," one securities attorney told Investment News.

There is widespread feeling that no SRO legislation could pass the current Congress. Duane Thompson, former chief Washington lobbyist for the FPA and now the senior policy analyst at fi360, tells those eagerly awaiting an SRO outcome:

Wait until after the 2012 election.

FA

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