(FORTUNE Magazine) – There's a merchant banking fetish afoot on Wall Street. I've run out of fingers and toes counting the number of well-known investment banking firms that want to be considered merchant bankers (those listed in the table among them). This fetish has the air of both the European antiques shop and the American used-car lot, ready to make a deal at any cost to the customer. To be sure, merchant banking has a fine foreign heritage and an aura of prestige. The preferred meaning of merchant bank, according to the Dictionary of Finance and Investment Terms, is a ''European financial institution that engages in investment banking, counseling, and negotiating in mergers and acquisitions . . .'' Shades of the Rothschilds and Hambro. What the new merchant banks of Wall Street are flashing to would-be customers, however, is a readiness to be principals in lending for high-margin activities such as junk bond financing, bridge loans, and leveraged buyouts. This business has the smell of doing a deal at any price -- as long as the investment banking firm involved receives superfees as the principal providing or controlling the financing. Corporate and other customers of investment banks once went to the Street to receive our dead-level best financial advice. Sure, they expected to pay high ; fees if deals were done or specific services provided. But clients counted on objectivity. They paid for bankers to serve primarily as their honest agents. I'm afraid that the new merchant bankers -- despite their respected old names -- are badly confusing the time-honored distinction between agency and principal. Agency has taken a back seat -- the banker becomes the principal, and principles are forgotten. I'm not one for turning back the clock. We can't make over -- even cosmetically -- the changes in investment banking. But we had better understand the dangers of abandoning our agency role. It may be that the largest corporations and financial institutions prepared the ground for this blurring of roles. As long ago as the 1960s the corporations started to perform in-house many functions that their bankers had provided. Then came the end to fixed brokerage commissions in the 1970s, causing commissions to shrink. How daring, we thought at the time, were those new-wave trading firms, such as Salomon Brothers, which would hold large amounts of liquid securities for a short time (they hoped) with the aim of adding value and profit in the final trade. Nowadays we wonder why we gulped about that. The securities were immediately marketable stocks and bonds. The risk of holding them was minimal to the nimble and smart. But, my, how the very same firms that once worried about this activity are now investing as principals in billions of dollars of long-term, very junior, nonmarketable securities with every intention of holding rather than selling. One major investment bank recently had commitments to make bridge loans -- short-term loans to finance a deal until permanent financing is arranged -- that came to 3 1/2 times its capital. IT SEEMS THAT OUR BIGGEST and supposedly brightest on the Street just can't say no anymore. No, that this deal is too risky. Or no, this one won't really work over the long term for the client. Or especially no, the deal is not fair for shareholders. The sanguine, who believe the tendency to say yes may suddenly disappear after megatransactions such as the buyout of RJR Nabisco, should check current M&A figures. Deals announced so far in 1989 and completed or still pending total $172 billion, according to I.D.D. Information Services. In such superdeals, a Wall Street house may be charging only 0.5% of the transaction as an agency fee for advice, but it levies 5% plus on the capital being raised and demands an ownership interest. With such a payoff, there is no real push to get the cheapest price in a deal with the fewest strings attached. WHERE DO WE GO from here? There should be a division in the industry between firms that are primarily agents and those that wish to be principals. The pressure is on the Wall Street community to articulate -- before others do -- the very real distinction between principal and agency once again, and then to play those roles honestly and independently -- even if that means saying no to high-fee deals in which the banker's interest conflicts with his client's. We'll do it, or it may be done to us. Corporate directors already are seeing their roles in a new light. Despite old ties to top management, the outside directors at RJR Nabisco lurched into revolt when they realized the CEO was, in effect, trying to act as both principal and agency in a buyout, as was his Wall Street adviser. Officers and directors of thousands of smaller U.S. corporations show signs they don't believe they are getting proper counsel from the new merchant banks. Some are even hiring accountants to give advice on investment banking matters. The first new restrictions on bankers' conduct may involve the fairness opinions offered by investment bankers -- formal advice to a client as to whether a proposed deal is proper. Congressional critics charge that these opinions are especially suspect when the adviser has a stake in the deal's going through. How can the opinion be fair if the banker will receive a contingency fee only if his client is bought or sold? This is what Congressman Ed Markey of Massachusetts says ''we have to flat out prohibit'' and calls a ''unique practice that other professions would just not tolerate.'' Our professionalism as investment bankers will survive only if we keep the independence of our advisory role alive.

BOX: THE NEW MERCHANT BANKERS

DONALDSON LUFKIN & JENRETTE:equity in Alliance Imaging, Dr Pepper/ Seven-Up, Loehmann's, Musicland, Thermadyne, and others; $1 billion fund for short-term deal financing FIRST BOSTON:deals involving American Standard, Arkansas Best, Interstate Bakeries, Macmillan, and Pueblo International, among others; LBO fund of undisclosed amount KIDDER PEABODY:equity in Edgell Communications, Lear Siegler Seating, Sun Carriers, and others MERRILL LYNCH:deals involving Borg-Warner and White Swan, among others; $2 billion LBO fund MORGAN STANLEY:equity in Burlington Industries, Colt Industries, and Fort ! Howard Paper, among others; $2 billion LBO fund PAINE WEBBER:equity in Braniff, Greyhound Lines, Peebles, Work Wear, Wyndham Foods, and others PRUDENTIAL-BACHE:deals involving Van Camp Seafood and Columbia Pictures Entertainment, among others SALOMON BROTHERS:equity in Central Hardware, Dairy Mart, Envirodyne, and Grand Union, among others SHEARSON LEHMAN HUTTON:equity in Chief Auto Parts and National Tobacco, among others; $1.4 billion LBO fund WASSERSTEIN PERELLA:equity in KDI Corp., Louisiana Intrastate Gas, Wickes, and others; LBO fund of over $1 billion

TABLE PREPARED BY REPORTER ASSOCIATES DAWN E. HOLT AND MARY JO DUNNINGTON.