WASHINGTON BUREAU — Members of the House Financial Services Committee have voted 41-28 to approve H.R. 3817, the Investor Protection Act, and insurance producer groups are still worried that the bill will hurt their members.
The IPA bill, introduced by Rep. Paul Kanjorski, D-Pa., seeks to address some of the concerns raised by the Bernard Madoff scandal and other recent financial services scandals.
The bill would double the U.S. Securities Exchange Commission funding authorization and give the SEC dozens of new enforcement powers and regulatory authorities, according to Financial Services Committee Chairman Barney Frank, D-Mass. If the bill is passed, “the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police today’s markets,” Frank said.
The bill would let the SEC ban compensation practices that it believes to be contrary to the public interest, and it would try to “harmonize” the sales rules that apply to investment advisors and broker-dealers, by requiring both advisors and broker-dealers to meet a “fiduciary standard of care” and put customers’ interests first.
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In the past, advisors were assumed to have a deeper relationship with clients, and they were expected to meet a fiduciary standard.
The law treated broker-dealers as sales representatives, rather than as advisors, and required only that they verify that a product sold to an investor was suitable for that investor.
If H.R. 3817 is implemented as written, broker-dealers and their registered representatives will have to act in the best interests of the customer, “without regard to the financial or other interest of the broker, dealer, etc.”
An amendment included in the version of H.R. 3817 approved today would provide a safe harbor for broker-dealers and captive agents who sell only a limited number of investment products.
Officials at the National Association of Insurance and Financial Advisors, Falls Church, Va., and the Association for Advanced Life Underwriting, Falls Church, say they still have concerns about the bill and would like to see lawmakers continue to revise it.
“We are encouraged that, during the committee’s deliberations, the bill was significantly modified to address some of NAIFA’s key objectives,” NAIFA President Tom Currey says.
The bill now includes a requirement for simple and clear investor disclosures, and the bill now makes it clear that registered reps who have contractual relationships limiting them to selling specified products will not violate the fiduciary standard simply because they stick to selling the products they have contracted to sell.
The bill also allows for harmonized enforcement of the rules that govern broker-dealers and investment advisors.
Today, broker-dealers and their registered representatives are subject to regulatory audits every year or two.
Investment advisors usually are audited only once every 10 years.