By Suzanne Barlyn

Feb 8 (Reuters) - Tamar Frankel knows it will be hard to shrink a sales-driven culture amongst securities brokers - an ethos that can force investors to become financial experts to safeguard their interests.

But the Boston-based legal scholar says imposing higher ethical standards on securities brokers can still be achieved, in part, by spelling out a few critical facts to their customers. Among them, a simple disclosure that includes an explanation of how much a broker earns for selling certain securities.

Frankel is well-positioned to opine. A professor at Boston University Law School since 1968, Frankel has written extensively on fiduciary law - a requirement that certain financial advisers and other types of professionals act in their clients' best interests. While the concept sounds simple, applying it on Wall Street has led to a long tussle between the securities industry, regulators and investor advocates.

At issue is a controversy about the differences in responsibilities securities brokers, who register with the Financial Industry Regulatory Authority (FINRA), have to their clients compared to those of registered investment advisers (RIAs), another type of financial adviser overseen by the U.S. Securities and Exchange Commission.

While RIAs must act as fiduciaries, putting the best interests of clients first at all times, brokers now need only recommend securities that are "suitable" for clients, based on factors such as risk tolerance and age.

But suitable can often mean selling investors products that are more costly than similar securities, according to Frankel, and keeping them in the dark about other available options.

The securities industry says it supports a fiduciary standard but wants a version that will accommodate certain business practices. That includes selling securities branded with the brokerage name, which brokerages promote, even when cheaper alternatives are available.

Frankel recently spoke to Reuters about her concerns. Edited excerpts follow:

Q: Can you really apply a fiduciary standard to Wall Street?

A: I think so. It will help to show who is a real salesman and who is a person who sells something but also has advice. Brokerage customers are not always in the position to make that distinction. For example, when I buy a dress and the saleswoman tells me that I look beautiful, I can judge for myself if that's true because I can look in a mirror and see I'm fat. But if a doctor or lawyer says the best thing for you is to have heart surgery or go to court, I have no idea about whether that advice is for my benefit.

Q: Is selling securities different than selling products or services in other industries?

A: Yes. That is because financial assets are not assets. They are promises (of growth and return) for the future. There is a much weaker ability to test them. We can't physically see assets. It's not like a car that I can get in and drive - and it either drives or does not. I rely on a car salesperson less than I rely on someone who sells me promises for the future because I can test the car myself.

Q: How is a suitability standard different than a fiduciary standard?

A: Suitability is tremendously broad - and right now, the standard does not include some important elements (including) explaining how much the "suitability" of an investment costs the buyer, and whether the buyer has an opportunity to a better or the same suitable security for less. That's where the joker lies because that amount is collected by the sales person. So the recommendation may be suitable, but for a much larger amount.

Q: How would you fix this?

A: The first thing is to tell the buyer everything that is relevant about the salesperson and their recommendations. But giving the buyer every detail doesn't work. It's inefficient because it's complicated. You can't require everyone to become an expert in finance just as you can't expect everyone to become an expert in medicine.

Q: Can the securities industry give buyers the information they need without overwhelming them?

A: Yes. I would give clients a document with my name and photo. It would also include answers to about eight questions, including where I work, that I passed exams, my education, and whether I've had problems in the industry. Then comes the clincher: as a client, I would want to know whether the broker gets money for selling securities to me, how much, and who pays him. For example, an insurance company pays a lot more for someone to sell a variable annuity than the government pays to sell government securities.

Q: Is simplified disclosure, by itself, enough to protect investors and consumers in general?

A: We have to start with culture. The more people behave in a certain way, the more others are going to behave in a certain way. Leadership can bring that about in a way that is larger than any one particular person who can affect family and friends. If we want to change, we also have to reduce the size of the financial system, which is double what it once used to be. That is unhealthy because, as a society, we should produce and not merely move promises from one person to another.

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