Insurance agents won a safe harbor on the sale of their limited array of investment products last Wednesday in legislation being marked up by the House Financial Services Committee that is designed to reduce the number of standards used in sales of securities.

The provision modifies language proposed in a manager’s amendment to the Investor Protection Act, H.R. 3817.

Rep. Barney Frank, D-Mass., chairman of the committee, said the amendment was one of 30 to the legislation that the panel would consider. He said it was likely that work on the bill would not be completed until Nov. 3.

The legislation is one of a number of bills being processed by the committee as part of an effort by Congress and the Obama administration to reform regulation of the U.S. financial services industry.

The ‘safe harbor’ amendment, proposed by Rep. Dan Maffei, D-NY., was passed by voice vote.

Specifically, the provision says, “The sale of only proprietary or other limited range of products by a broker or dealer shall not, in and of itself, be considered a violation” of the fiduciary standard that will govern sales of securities products by the Securities and Exchange Commission going forward.

According to an industry official, the amendment clarifies that broker-dealers and their reps offering a limited basket of products, will not violate the fiduciary standard for that reason. The official asked that his name not be used pending approval of his comments by superiors.

According to the official, the amendment “improves upon the language” in the revised manager’s amendment that would require that B-Ds and their reps disclose and receive a customer acknowledgement or consent that they understand that they are only being offered the limited basket of investment products.

The new language is likely to ease the concern of the National Association of Insurance and Financial Advisors.

NAIFA officials had voiced concern earlier about the revisions to the legislation that had been proposed by its chief sponsor, Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee of the House Financial Services Committee.

NAIFA’s concern with the prior language was that it would not provide adequate protection for those agents who offer a limited basket of products to clients.

The concerns with the bill stem from the fact that NAIFA and Association for Advanced Life Underwriting members and other life insurance agents are registered representatives, affiliated with broker-dealers, and focus almost exclusively on recommending suitable life insurance products–both securities and non-securities products to address customers’ financial needs related to death or retirement.

The thrust of the proposal is to eliminate “consumer confusion” about the standard that sellers of securities products must use when they sell products to consumers. It would amend various federal securities laws to, among other things, establish consistent standards for those who provide financial products to investors.

According to an analysis of the legislation by the Morrison & Foerster law firm, it would harmonize conduct requirements; impose limitations on certain sales practices, compensation schemes and other arrangements, and give the Securities and Exchange Commission authority to prohibit or restrict use of mandatory pre-dispute arbitration in sales contracts.

In another development, insurance companies and their products will be totally exempt from federal oversight by the new Consumer Financial Protection Agency under an amendment to the legislation added before the bill was passed by the House Financial Services Committee on Oct 23.

The amendment to the bill, H.R. 3126, was introduced by Rep. Gwen Moore, D-Wis., and Rep. Erik Paulsen, R-Minn., at the request of Credit Union National Association Mutual Insurance Company.

CUNA Mutual is based in Madison, Wis., in Moore’s district.

The next step for the bill is House floor action.

At the same time, it is unclear whether the bill will ultimately pass Congress.

Members of the Senate Banking Committee are drafting bipartisan legislation unlikely to contain such a provision because creating such an agency is opposed by Sen. Richard Shelby, R-Ala., a key member of the Senate panel.

While its ultimate fate is unclear, the decision was lauded by officials of the American Council of Life Insurers.

“We have always maintained that for the life insurance industry effective consumer protections require that solvency regulation and product design reside with the same regulator,” said Whit Cornman, an ACLI spokesman. “This amendment recognizes this need and the protections that are already in place for life insurance consumers.”