Let the lobbying begin. Two articles this weekend highlighted the Investor Protection Act of 2009, which would may make brokers comply with a fiduciary standard.

From “Fiduciary Duty Hits The Street – Sort Of” in the WSJ:

“Wall Street finally has agreed to put its brokers under the tougher fiduciary standard for their dealings with customers. Now a fight looms over how tough that standard will be.

As part of its regulatory overhaul, the Obama administration proposed holding brokers who give investment advice to the higher fiduciary duty – a legal standard that would compel them to act in their clients’ best interests. Currently, brokers are held to a more lenient ‘suitability’ standard, which means they can’t put clients in inappropriate investments. Many investment advisers, by contrast, have operated under the fiduciary standard for nearly 70 years.

The changes could transform the brokerage industry by changing the way products are sold and marketed and even how brokers are paid. Requiring brokers to operate under the existing fiduciary standard could force them to recommend more investments that are less costly and more tax-efficient.

They would have to tell clients about any potential conflicts of interest, such as when they stand to gain personally by favoring one product over another. For example, a broker who recommends a mutual fund with a higher fee — and one he gets a bigger commission for selling — would have to disclose that potential conflict upfront.”

I’m thrilled that this change is being seriously considered. Of course, I’m biased, being a registered investment adviser and a fiduciary. But it’s stunning that it has taken this long.

Alas, nothing is set in stone yet. There’s still plenty of time for Wall Street to neuter the bill.

“For years, they’ve opposed the fiduciary duty,” said Barbara Roper, director of investor protection at the Consumer Federation of America, a consumer-advocacy group. “Now they’ve embraced it in order to gut it.”

Here’s the graphic from the WSJ article. Glad to see they made it better than the last one.

On the same topic, there was another article in Barron’s this weekend titled “Relationship Rehab, Washington-Style.” Here it is in its entirety (emphasis mine):

When is a financial advisor not really a financial advisor?

That’s not a trick question. Harold Evensky, a Florida-based investment advisor, points to “feel good” ads run by one brokerage house in recent years showing a broker at the graduation of a client’s daughter. “That suggests that the broker is always on your side, doing whatever it takes,” Evensky says. “In fact, they are legally permitted to put their own interests first, and the obligation is on you to look out for your own interests.”

The Obama administration agrees — and intends to do something about it. In the coming months, members of Congress will take up a new piece of legislation from the administration, the Investor Protection Act of 2009.

The legislation, spurred by the financial crisis of the past year, would force brokers to adhere to the same “fiduciary” standard required of registered investment advisors — a requirement to always put client interests above their own. Brokers, even those called “advisors,” traditionally have been required only to make sure investments are “suitable” for their customers. But most investors, the Treasury Department has said, can’t really tell the difference between the two kinds of advice, and rely on recommendations provided by the two groups in much the same way.

It’s too early to call the outcome of the debate, which will unfold in Rep. Barney Frank’s House Financial Services Committee. But investors curious as to just who is giving them financial advice and how much they can trust that advice would do well to follow the proceedings.

The current requirements — fiduciary for registered advisors, suitability for brokers — were set forth in the Investment Advisors Act of 1940. While the regulations have remained intact, the financial-services industry has undergone dramatic changes in the nearly 70 years since these lines were drawn. Brokers and registered investment advisors now compete much more directly: Brokers routinely offer advice in order to compete with the advisors, and advisors now have ready access to investment products that once were reserved for brokerage-firm clients.

The line separating the two groups is blurring, and many brokers end up acting in a way that’s indistinguishable from the way fiduciaries act. Indeed, brokers are now widely referred to as financial advisors. “Everyone is trying to become the client’s ‘trusted advisor,’ ” says Richard Salmen, president of the Financial Planning Association. “We’ve come a long way from the 1980s, when brokers got their clients into toxic products like some limited partnerships, just in order to pocket big commissions.”

Still, there is a difference between advisors who must act in a client’s best interest and those who probably will — and many investors may not realize that. “Once you provide advice to a client, that client has an expectation that anything you do after that — if you suggest a product or execute a trade — you’ll be doing with their best interests in mind, above your own,” says Ron Rhoades, chief compliance officer for Joseph Capital Management, an investment advisory firm in Hernando, Fla. “When people realize that that might not be true, depending on what kind of firm or advisor you’re working with, it comes as a real shock to them.”

WHILE THE LEGISLATION AIMS to clear up such confusion, the debate over the measure may itself become something less than lucid: It’s already headed toward a hair-splitting exercise over the meaning of the word “fiduciary.”

The Securities Industry and Financial Markets Association, an industry group representing the likes of Citigroup and Merrill Lynch, announced last month that, rather than support the extension of traditional fiduciary duties, it “unanimously supports a new federal fiduciary standard” that would apply to anyone providing investment advice.

Exactly what “new standard” the group has in mind is unclear. But Rhoades, for one, is suspicious. “There is only one fiduciary duty, and that’s the one that is already well-established in case law,” he says. “You can’t have anyone rewrite that and still call it a ‘fiduciary’ standard.”

Still, some securities lawyers suggest that applying the standard definition of fiduciary to all brokers could limit the services provided to investors. Robert Kurucza, a former Securities and Exchange Commission official who now heads the financial-services practice for the law firm Goodwin & Proctor, says it’s entirely possible for a single financial consultant to wear two hats. “If you call someone and suggest that buying a bank stock might be a great idea, but make it clear to them that you only get paid if they agree with you on that, I think that’s fine,” Kurucza says. “And it doesn’t mean that you can’t also be the person they turn to for help figuring out their asset allocation or running a discretionary account.”

Without question, it will take lawmakers and courts a long time to iron out all the issues. In the meantime, says Los Angeles lawyer Fred Reish, “it will be up to investors to question every advisory relationship and understand what the people they are working with are really committed to doing for them.”

Stay tuned. It’s The Fiduciary vs. The Conflicted in a Texas steel cage match that’s sure to go 12 rounds. Let’s hope the good guy wins.