It's widely known in financial services that investment advisors and broker-dealers are held to different fiduciary standards when dealing with customers. But the Dodd-Frank reforms gave the SEC authority to create a uniform fiduciary duty for retail investment advice. The provision of reform law was not a mandate for the SEC to do so, however.

While broker-dealers and investment advisors offer services that seem the same, brokers primarily act in a sales capacity, whereas offering financial advice is the bailiwick of investment advisors. So these investment providers have been held to different standards of care.

In short, broker-dealers are required to ensure products and services fit clients' needs, otherwise known as the "suitability standard." Investment advisors are held to a tighter standard of "fiduciary duty." This means putting the client's best interest first, acting with prudence, using professional judgment, and providing full and fair disclosure of all important facts.

Last November, the SEC Investor Advisory Committee voted to set a uniform fiduciary standard for most brokers and registered investment advisors to act in the best interest of their clients when offering financial advice. 

Of course, financial industry lobbying groups have pushed back. In the meantime, this matter is on the back burner of the SEC's 2014 regulatory agenda as the agency considers additional commentary from industry participants about the potential impact of its proposal. So a new rule is not due anytime soon. 

Why it matters

If the new standard is adopted, I believe it will merely impose additional -- if not redundant -- compliance burdens. Broker-dealers and investment advisors have been regulated by laws that were originally enacted in the wake of the stock market crash in 1929. Perhaps federal agencies could have been more proactive in enforcing these laws before the financial crisis of 2008?

Meanwhile, a retirement planning outfit like Ameriprise Financial (AMP 0.47%) presently adheres to the fiduciary duty standard. Moreover, insurance companies like Primerica (PRI 0.32%) and Allstate (ALL 0.66%), that offer products like mutual funds, annuities, and blended insurance products coupled with investment tranches, must comply with state "blue sky" laws. Furthermore, their sales reps obtain their Series 7 and Series 63 licenses, and fulfill other requirements to maintain such licenses.

It is arguable whether investors will actually benefit from a uniform standard. And the real beneficiaries could end up being the regulatory agencies that are charged with overseeing broker-dealers and investment advisors. New rules invariably require more resources. In other words, more people will be needed to implement and enforce these rules. And the size of the federal bureaucracy will continue to grow.

New rules will also result in higher operating and compliance costs as companies grapple with new licensing and educational requirements for sales people. And these costs may invariably be passed onto consumers in the form of higher transaction fees. In any event, investment providers will still prosper regardless of the size of the regulatory umbrella.

But one has to wonder whether or not a uniform standard is needed. The pre-existing federal regulatory scheme has met the needs of the investing public for several decades.

In the Sturm und Drang of the 2008 financial crisis, many politicos and pundits rang the populist bell and called for new regulations to rein in those big bad wolves of Wall Street. And this clarion call was the impetus for the new regulatory mousetrap of Dodd-Frank.

But a Hollywood tale about wolves prowling The Street is akin to a scary adolescent campfire story. To borrow a line from Public Enemy, "don't believe the hype!" Most investment professionals ethically provide needed services to investors. And boiler room operations portrayed in cinematic scenarios are the exception not the rule.

Of course, the financial crisis and the lingering stifled economic growth have been painful. And there's plenty of blame to go around from suburban Main Streets to Wall Street, and those up on Capitol Hill. But there were already plenty of regulations at the federal and state level to handle the bad guys. 

Foolish bottom line

In my view, it is disingenuous for any politician to pitch a policy by saying so-called fat cats on Wall Street were solely responsible for the financial tsunami.

The fact that federal and state securities laws were there to be enforced should cause investors to question the role of state and federal agencies in enabling the train to run off the track. Meanwhile, you have the power as an investor and voter to hold corporate executives and lawmakers accountable.

At the end of the day, wolves preying on Wall Street are about as real as those werewolves of London. Ultimately, the rule of thumb for investors still applies. Caveat Emptor -- let the buyer beware -- regardless of whether the SEC eventually crafts a silver bullet in the shape of a uniform fiduciary standard.