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.

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.

NAIFA likes the provision that would address the disparity between the auditing standards for investment advisors, registered reps and broker-dealers, but it believes that H.R. 3817 still threatens consumers’ access to competent professional services and affordable financial products, Currey says.

“We will continue to encourage Congress to reject language that allows the SEC to prohibit or restrict any ‘compensation schemes that are deemed contrary to the public interest,’” Currey says

“We will also ask Congress to reject language that directs the SEC to require broker-dealers and their registered representatives, and investment advisers to act in the best interest of a client ‘without regard to financial or other interest of the broker, dealer, or investment adviser providing the advice,’” Currey says.

The American Council of Life Insurers, Washington, appears to be hoping that there is still a chance to change H.R. 3817.

The ACLI “appreciates the work done by the House Financial Services Committee to enhance investor protection and shore up investor confidence in the financial markets, ACLI spokesman Steven Brostoff says in a statement. “The bill approved by the committee addresses some of the concerns with the original version raised by ACLI and our member companies. We look forward to continuing to work with committee members and their staff to assure that brokers-dealers and investment [advisors] can provide a full range of products and services to customers of all income levels, subject to the highest ethical standards.”

The Consumer Federation of America, Washington, is criticizing the fiduciary standard provision changes. The CFA has supported the idea of holding all broker-dealers who have given investment advice to a fiduciary duty.

“By the time the legislation was voted on, the fiduciary duty language had been so larded with conditions and specific, potentially limiting provisos that it is no longer clear whether it will achieve its intended goal of requiring brokers to comply with the same standards investment [advisors] and financial planners are held to under the Investment Advisers Act,” Barbara Roper, a CFA staffer, says in a statement.

The CFA also opposes the H.R. 3817 provision that would let the SEC delegate supervisory authority to FINRA.

Now that the Financial Services Committee has approved H.R. 3817, it has turned to marking up the Financial Stability Improvement Act bill draft.

The FSIA bill would create a new system of oversight for “systemically risky” financial services companies.

Frank said Tuesday that his committee will work on the bill today and Thursday, then continue working on it the week that starts Nov. 16.

House floor action on financial reform bills is unlikely to occur before Dec. 1, Frank said.

Over in the Senate, Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, says his committee may mark up its version of the IPA sometime around Nov. 17.