(Yawn)

What happened to the much-anticipated RAND report? Players across the industry expected the study, ordered by the Securities and Exchange Commission, to provide guidance about how broker-dealers and investment advisors ought to be regulated in the future. It should have been the year’s hottest read.

Instead, it’s lining recycle bins. The critics have not been kind. As Don Trone, president of the Foundation for Fiduciary Studies, observes, “Was it all for naught? Yeah. Let me put it this way: I haven’t even saved it to my hard drive.”

Trone says the 219-page report, which will be released in final form this month, fails at a fundamental level because it never asks the following question: Given the sea change in the industry since the Investment Advisers Act was legislated in 1940, is the current regulatory structure appropriate?

Lou Harvey, president of the Boston-based Dalbar consulting firm, characterizes the report as a classic example of coulda, woulda, shoulda. “This could have been the guiding light for moving forward,” he says. “Instead, it carefully documents current practices without really focusing on the outcome of those practices. There’s very little guidance here and also very little incentive to change anything. For me, it’s the worst of all worlds in that it leaves this veil of ambiguity over the industry in place.”

The study was commissioned in May after a controversial SEC rule exempting brokers from registering as advisors in some circumstances was overturned in court last year. What does the RAND report actually conclude? First, it doesn’t make any policy recommendations nor does it evaluate the legal or regulatory environment itself. Overall, the study addresses two driving questions: What are the current business practices of broker-dealers and investment advisors? And, do investors understand “the differences between and relationships among” broker-dealers and investment advisors?

The think tank’s report determines that business models have blurred to the extent that even the most experienced investors do not understand the differences between brokers and investment advisors when it comes to their fiduciary duties, disclosure documents and the fees they charge. It also concludes that the vast majority of investors who use financial advisors are satisfied with the services they receive.

Industry pundit Bob Veres, in a blistering e-column titled “Report from Neverland,” calls the report na?ve and ill-informed. He and others fault RAND for using researchers who have little or no background in financial services. “With each reading, you find yourself discovering new, previously missed depths of unfamiliarity with the basic situation on the ground in the securities industry and the investment advisory landscape,” Veres writes. “I found myself asking, more than once, often with a queasy feeling in the pit of my stomach: We’re going to make government regulation out of THIS?”

A pre-publication copy of the report, labeled “Investor and Industry Perspectives on Investment Advisers and Broker-Dealers,” was posted on the SEC’s website in January. At the time, SEC Chairman Christopher Cox said in a statement: “The report will assist the commission’s efforts to update our regulations to improve investor protections in today’s marketplace. Our staff is now studying the report and the potential regulatory implications of its findings.” Cox has asked SEC staff to deliver policy options based on the report’s findings by the end of next month.

What RAND MissedMany industry observers say the RAND report is more noteworthy for what it missed than what it included in its research and findings. Among the missing talking points: consumer confusion involving advertising, marketing and designations.

“My expectations weren’t, quite frankly, that high,” says Duane Thompson, managing director of the Financial Planning Association’s Washington, D.C. office. “But they could have done better.” Thompson said the report fails, for example, to investigate the difference in advertising and marketing restrictions that govern brokers and investment advisors, which he says contributes to consumer confusion.

And RAND researchers didn’t dig deep enough on the issue of designations and how advisors hold themselves out to the public, according to Thompson. The report’s content analysis only went back to 2001 when it should have gone back to the late 1980s when, as Thompson puts it, “account reps” or “brokerage reps” began using more “financial planner-like” terms.

“The holding out of titles is so important because the SEC in a rule overturned by the court tried to split the baby down the middle by saying brokers couldn’t call themselves financial planners but could call themselves financial advisors,” says Thompson. “It’s left a dilemma for consumers. Meanwhile, the SEC has now been told twice by studies that they don’t understand the differences.”

Thompson also says the SEC and the RAND report err in saying that brokers and advisors are “converging” in their business models. “To me, that would suggest they are moving to the middle. I haven’t seen a lot of investment advisors opening their own broker-dealers. Clearly, it’s a case of brokers moving to the advisory model,” he adds. “Go back in time, look at the titles used, and you would find out that brokers are migrating to the advisory platform. I hate to see the SEC engage in revisionist history on this.”

Harvey, meanwhile, says RAND researchers failed to investigate three critical points. First, are people offering services they are not authorized to give? If you are a registered rep, for example, are you offering investment advice that should be off-limits? Second: Are advisors being paid for services they are failing to deliver? And third, are advisors selecting investments in order to earn an incentive?

“These are the three areas I’ve been concerned about — and we’ve all heard and read and thought about them. I was hoping this report would come back and tell us whether there’s a problem that needs fixing or whether it’s just spurious nonsense,” Harvey says. “Instead, they’re telling us investors are blissfully ignorant about anything that’s going on and here are the practices in place without clarifying that there’s a problem or saying, ‘Gee, we didn’t find anything.’”