Life insurance agent trade groups are asking members of the Senate Banking Committee to reconsider a bill that would impose a fiduciary standard on sale of investment products by agents.

The proposed legislation would have an “enormously costly and counterproductive impact” and would be “a radical departure from current law,” according to a letter to committee members by officials of the Association for Advanced Life Underwriting, the National Association of Insurance and Financial Advisors and the National Association of Independent Life Brokerage Agencies.

The potential consequences of enacting the Investor Protection Act as it currently stands would be to reduce consumer access to insurance and investment products and to downgrade advisors’ services to consumers, the groups charged.

The bill would lead to less “financial protection of Americans and loss of capital formation and jobs,” argues the letter, which was sent Friday.

The letter suggests that the committee undertake a study “of the appropriate regulation of brokers, dealers, and investment advisers.”

It also argues that similar provisions imposed on agents in the United Kingdom “have contributed to a decline in the agent population from 180,000 to 5,000 over the last two decades, decreasing access to critical financial products and services for middle-market consumers.”

The provisions are part of comprehensive legislation introduced earlier this month by Sen. Chris Dodd, D-Conn., designed to tighten regulation of the financial services regulatory system.

The bill would create an Office of National Insurance, enact the Nonadmitted and Reinsurance Reform Act of 2009 and require a study on ways to modernize insurance regulation and provide Congress with recommendations, among other provisions.

The bill is titled, Restoring American Financial Stability.

The committee began marking up the bill last Thursday, but, as the result of scathing criticism by Sen. Richard Shelby, R-Ala., ranking minority member of the committee, Dodd suspended work on the bill and reopened talks for a bipartisan bill.

Based on Shelby’s comments, Dodd said he will take members of the committee “at their word” in seeking to work together on a bipartisan legislation. He said he was “wedded to nothing” in his discussion draft and would lift his deadline to have work on the bill completed by the end of this year.

The provisions the 3 trade groups protested about grew out of a proposal by the Obama administration to give the Securities and Exchange Commission discretionary rulemaking authority to harmonize the obligations of investment advisors and brokers and dealers to their customers.

The House Financial Services Committee Nov. 4 voted, 48-17, to submit its version of the legislation to the House floor. A House vote is expected in early December.

The agents’ trade groups, while winning some concessions in the language of the bill, especially the limitations on a proposed safe harbor for insurance agents, still have concerns about the House bill.

The bill is H.R. 3817, the Investor Protection Act.

In their letter to members of the Senate Banking Committee, the trade groups said Sec. 913 of the Dodd bill would force life insurance agents who already are qualified as registered representatives and supervised by the SEC and the Financial Industry Regulatory Authority to register as investment advisers–and “thereby take on more responsibilities, more expenses and more liability.”

The provision “would force thousands of our members to limit the product choices available to their customers, the majority of whom are middle-market consumers who look to us for insurance and retirement products,” the letter said.

The letter argues that Sec. 913 “would force virtually all broker-dealers, including life insurance agents who qualify as registered representatives of broker-dealers for purposes of offering variable and other investment products, to register as investment advisers.”

The letter argues that the language is a “radical departure from current law and has never been the subject of committee hearings or significant analysis of its cost or impact on a host of financial services industries, product choices for consumers or the broader economy.”