Ever since the recent financial crisis ripped away at the portfolios of so many clients, trust in the banking industry “to do what is right” dropped by 38%, according to a study quoted by Mark Harbour, an ethics instructor for the organization and wealth manager at Morgan Stanley Smith Barney.

Harbour brought that to the attention of the many advisors who attended his session at this past week’s IMCA conference in New York. He also presented several challenging scenarios that would test the mettle of the most honorable advisor. Here is one of them.

As a senior member of a high production team at a major wirehouse, you have a great reputation. Your firm comes to you to keep ideas flowing to advisors. Two of your internal colleagues and friends visit you to get you to join them at a new independent advisory firm’s shop. They plan to deploy a substantial sum of money to buy special and secret access for an investment strategy that clearly puts them in conflict with your current firm and entices clients to the new firm. They ask you to be discreet and not talk to your branch manager about this.

What should you do?

Harbour says you have to tell your friends that you are going to have to break the rules with someone. Of course, Harbour seemed to imply that the advisor who was approached has no intention of leaving his current firm. In that case, the advisor has an obligation to go to management and tell them that he was approached.

Separately, Securities and Exchange Commissioner Elisse B. Walter, in a speech last night at the PLI Center in New York, gave an eloquent statement on her position about the uniform fiduciary standard. According to the SEC website, she said:

“I think establishing a uniform fiduciary standard is central to protecting retail investors given that the lines between investment advisers and broker-dealers continue to blur, with both sets of professionals providing investment advice to my Aunt Millie and the rest of the retail investing public, and often “changing hats” when they do. Investors are understandably confused by the differences between, and the different labels attached to the financial professionals.”

Commissioner Walter went on to say: “Determining that a person should be subject to a fiduciary standard is only the beginning of the analysis. We need to explain what that duty requires. I believe that it is important for the Commission to do a better job here.

“Of course, the devil is always in the details. As the Commission moves to implement the uniform fiduciary standard for investment advisers and broker-dealers, I will be paying close attention to ensure that the fiduciary standard is not weakened or watered down. I look forward to having conversations with the broker-dealer and investment advisory communities and other interested parties to get their views on how the Commission should proceed, especially with respect to offering interpretive guidance.”

Commissioner Walter further noted: “Investment advisers and broker-dealers perform similar services for the investing public, but are regulated differently. Those are the facts of life in 2011. We know about the history behind that divide, but I, for one, have not received a satisfactory answer to the question why those investor protections should continue to differ as business models continue to merge. Investing is hard enough. I simply do not believe that investors should also bear the burden of understanding distinctions between financial professionals that have become increasingly less relevant over the years, in order to understand the levels of protection they are entitled to under the law. Rather, I am convinced that the regulation of a financial professional should depend on what she does, not what she calls herself or how she is paid, and that investors should receive the same level of protection when they purchase comparable products and services, regardless of the financial professional involved.”