Perhaps things began to unravel when the creators of Dodd-Frank went soft on the fiduciary standard.

Indeed, as Clark Blackman II explains in a recent interview, a universal fiduciary standard is not “workable under Dodd-Frank” (see “Exclusive Interview: Clark Blackman Says SEC Fiduciary Fix ‘Not Tough Stuff’; Proposed DOL Fiduciary Rule a ‘Band-Aid’,” FiduciaryNews.com, December 15, 2015).

As he points out, “a conflict that causes me to act in my best interest, or my firm’s best interest, and not in my client’s sole best interest has to be avoided--it cannot be disclosed away.”

Read: Broker-dealer advisors at historic crossroads

You would think the “incidental advice” rule in the 40 Act would be enough for the SEC to solve the dilemma of the fiduciary standard, a controversy stemming from the fact non-registered investment advisers are allowed to skirt registration by calling themselves “advisors.”

This is where Blackman brought up something that not many may remember.

In a nutshell, during the mid-1980s the CPA industry began exploring ways to offer financial planning services to its clients. It made sense to do this from a tax planning stand-point, but it was hard to connect the dots and see where investment advice could also become a part of this service.

The CPA firms didn’t want to be required to register under the 40 Act. They sought specific exclusion from this by asking the SEC to rule that their acting as a financial planner fell under the “incidental advice” rule of the 40 Act, precluding them from the necessity of registering.

The SEC declined. Its answer, covered in SEC Release IA-1092 in part says:

Section 202(a)(II) of the Advisers Act defines the term “investment adviser” to mean:

… any person who, for compensation, engages in the business.of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities…

And with that, any CPA firm that desired to hold itself out as offering investment advice was required to register as an investment adviser with the SEC.

Fast forward several decades to today. The brokerage industry seems to have had the same innovative idea as the CPA industry did.

Only, for some reason, the SEC hasn’t enforced its own rule regarding the provision of investment advice.

For want of a single vowel, the broker industry appears to have to have seized upon the Holy Grail of loopholes.

By referring to themselves as “advisors” rather than “advisers,” they have duped the SEC into believing their bread-and-butter business is merely “incidental” to their business model.

Well, SEC (and DOL if you’re listening), providing investment advice isn’t incidental to their business model, it IS their business model.

If government regulators don’t know the difference between competing business models, how can we expect the investing public to?