The fiduciary rule is here, at long last. But through the whole process, both sides seemed to be talking past each other.

Consumer advocates want more transparency and investor protection. Meanwhile, advisers often say they are already acting in their clients’ best interest and the new rule is simply unnecessary, burdensome compliance.

And to a large degree, I can see both arguments. In all honesty, I’ve gone back and forth so if I were in politics, I’d be branded with the dreaded “flip-flopper” moniker. That said, I see the problem as basically boiling down to this: There’s a third side to this story, which is the real culprit driving the issue but it isn’t getting the attention it deserves.

Apart from the consumer advocates (pro rule) and the advisers (generally anti-rule), there are the relatively few advisers who actually break the existing rules and commit fraud.

Last year, a study entitled “The Market for Financial Adviser Misconduct” by professors from the University of Minnesota, the University of Chicago and Stanford University analyzed all the brokers in FINRA’s database from 2005 to 2015. It concluded that roughly 7% have misconduct records.

Bloomberg News

That may sound like a high number, but it backs up the notion that most advisers, the other 93%, are good people and doing the best they can. (Some may not be great at their jobs, but they’re not fraudsters.) So from the individual perspectives of the vast majority of advisers, they see a new fiduciary rule mandating what they already do but adding a lot of time and trouble.

Clearly, nobody is defending fraudsters. But implicitly, I think the consumer advocates have lumped them together with the advisers who sell expensive financial products and collect commissions.

And I think the industry hasn’t helped itself by not cracking down harder on the 7% that are the relatively few true bad apples.

The idea that consequences are too light for these advisers’ misconduct appears to have some backup in the academic study. Consider just one stat: Of those who lose their jobs after misconduct, almost half (44%) are re-employed in financial services within a year.

To be sure, we’ve written articles about some advisers who are banned from the industry for life, but even that can seem like a small risk for the worst offenders, say those who set out to swindle elderly clients. And most of them never even confirm (or deny) the conclusions of the regulator's investigation.

To be clear, I think the new rule is a great idea, and made with the best of intentions. But what can be done to help alleviate the real problem (the relatively small percentage of real wrong-doers?)

First, some common ground needs to be staked out. Consumer advocates see billions of dollars being spent in fees that could instead go toward boosting underfunded retirement portfolios. But they are piling on rules that aren’t necessary for most advisers, and probably not sufficient to catch the real wrongdoers. As the often-cited paraphrase says, “Good people do not need laws to act responsibly, while bad people won’t follow them anyway.”

Most advisers I’ve heard speak about the rule acknowledge that it was made with good intentions. But, they add, it will have unintended consequences. The most obvious is that the smallest clients will get cut loose because there is simply no way to serve them in this environment. They may end up using a robo, but many of them won’t have much guidance.

Consumer financial education, on a major scale, could go a long way to helping on all fronts. Better educated clients may appreciate a fee-only relationship and comprehensive planning. And for the small investors who find themselves without professional help may find a handful of ETFs and understand the importance of re-balancing once a year.

Only then can both sides get down to the real problem: meting out stricter punishment to the 7%.

Editor's Note: An earlier version of this article appeared in our March InDepth series.

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