WASHINGTON BUREAU — The Senate Banking, Housing and Urban Affairs Committee apparently will use a standard of care amendment backed by the life insurance industry in the new financial services reform draft it is developing.

The proposed amendment calls for the U.S. Securities and Exchange Commission to study the standards that apply, and should apply, when personalized investment advice is given to retail customers, rather than automatically applying the same “fiduciary standard” both to broker-dealers and to investment advisors.

The SEC would have to report on its findings within 18 months, and it could develop rules based on the findings, if it concluded that there were regulatory gaps and overlaps in existing rules.

The staff of Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, released a draft financial services reform bill in December 2009 with a provision, Section 913, that would apply the fiduciary standard to broker-dealers as well as to investment advisors.

Investment advisors already use the fiduciary standard of care, which requires them to act solely in the interest of the customer.

Broker-dealers and their representatives must ensure only that the products they sell to customers are suitable for those customers. Insurance agents who represent broker-dealers often have contracts limiting them to selling products from one company, or a few companies, and they have argued that there is no practical way for them to comply with a fiduciary standard.

Representatives for the Consumer Federation of America, Washington, and the Committee for the Fiduciary Standard, Rumson, N.J., which represents financial planners, say the revised bill coming out next week will leave out the universal fiduciary care standard included in the December draft.

Sens. Timothy Johnson, D-S.D., and Michael Crapo, R-Idaho, are sponsoring the proposed standard of care amendment.

Johnson and Crapo have written to Dodd to say that they have lined up enough votes on the Senate Banking Committee to win support for their proposed amendment.

Barbara Roper, investor protection director at the CFA, is calling the Johnson-Crapo substitute a “time waster.”

The “clear intention of the amendment is to stymie the Securities and Exchange Committee and delay action on establishing a single standard for at least two years,” Roper says. “The SEC has studied this issue for at least two decades and has determined that there are significant gaps in having two standards.

Jill Edwards, a vice president at the National Association of Insurance and Advisors, Falls Church, Va., could not confirm or deny that the amendment would be substituted for the original Dodd language.

But “the notion of a study and directed rulemaking has unfortunately resulted in negative attacks from proponents of Section 913,” Edwards says.

Some have claimed that the RAND Corp., Santa Monica, Calif., found in 2008 that consumer confusion about the differences between investment advisors and broker-dealers is causing problems.

“That claim is false as the RAND study was limited and, according to RAND, it did not evaluate the regulatory environment governing broker-dealers and investment advisers or did it make any policy recommendations,” Edwards said.

Edwards said she does not know how anyone could be opposed to the idea of SEC seeking more information about the topic, “unless they are concerned that the findings of the study will not support their claims the fiduciary duty of the Investment Advisers Act has a better track record for protecting consumers.”