Fiduciary Thinker: Scholar Tamar Frankel

One of Wealth Manager’s 50 Top Women in Wealth for 2010, Tamar Frankel has been in demand for decades as a top scholar in fiduciary law–perhaps never more than this past year, however, as the debate continues over whether brokers who provide advice should have fiduciary duty to their clients.

When Tamar Frankel got to Harvard Law School as visiting scholar from Israel, she thought it would be for a “relatively short time.” But she ended up deciding to stay, “got married” and went to Harvard Law School for her master of laws, LLM degree, and then the SJD–the PhD law degree for those interested in scholarship and teaching of law. “I wanted to teach very much,” she says. En route to teaching, Frankel worked at law firms in Boston and Washington, and after doing some work for the government, began to teach at Boston University School of Law.

Along the way, Frankel spent a year at the Brookings Institution in Washington–”that’s where I heard the word ‘securitization,’” in 1987. Since then, Frankel has become one of the nation’s foremost authorities on trust and fiduciary issues, particularly as they relate to investing and securities. She was a visiting scholar at the Securities and Exchange Commission (SEC), and has lectured at many top universities. She literally “wrote the books” on securities regulation and investor trust, including: “The Regulation of Money Managers,” (2d ed. 2001 Aspen Publishers), her treatise on mutual funds with Ann Taylor Schwing; “Securitization,” (2nd ed. 2006 Fathom Publishing Company), with Ann Schwing; and “Investment Management Regulation,” (3rd ed. 2005, Fathom Publishing Company), with Clifford E. Kirsch.

There is a new book in the works: “Abuse of Trust (Con Artists and Ponzi Schemes),” (Oxford University Press). It is a “theory of fiduciary law,” that she hopes will be published, “hopefully, in the next year.”

Ponzi schemes don’t start out “necessarily, as Ponzi schemes,” Frankel explains. “Every company borrows on the one hand and pays a dividend on the other hand–so you have two groups of investors: one receives an obligation and the other receives money. When does it become a Ponzi scheme? When there is no money in the institution or the company itself–when the company is not productive. And it can happen to an entrepreneur. They had an idea and it didn’t work out.”

What happens next is what is important, says Frankel: “At that point the question is what a person does. A person may say ‘I goofed, I didn’t do it right, I’ll return the money and that is it; I’ll try again.’ And some people say, ‘Something will come around, I’m going to continue.’ And it is at that point that it becomes a Ponzi scheme where the money of some investors is paid to other investors.”