WASHINGTON–Insurance industry trade groups are voicing support for the version of financial services reform legislation introduced Monday by Senate Banking Committee Chairman Chris Dodd, D-Conn.

Industry representatives voiced strong support for a provision in the Dodd bill that called for a study by the Securities and Exchange Commission of whether investment advisers and broker-dealers should be held to a fiduciary standard when selling investment products.

Consumer groups, however, railed against Dodd’s decision to remove language contained in an earlier version of his reform legislation imposing a blanket fiduciary standard for investment product sales.

But officials of the Consumer Federation of America did say they supported provisions in the bill strengthening government regulation of ratings agencies.

On another issue, the American Council of Life Insurers was critical of Dodd’s decision to include life insurers amongst the financial services groups that will be forced to contribute in advance to a fund that will be used to resolve troubled large financial firms.

The bill would require all financial services companies with assets of $50 billion or more to help prefund a resolution authority that will be run by the Federal Deposit Insurance Corporation. The authority will be used to liquidate large financial firms deemed to pose a systemic risk to the U.S. financial system.

ACLI President Frank Keating called the provision a “significant concern.”

He said life insurers already are subject to a state-based, post-event assessment and “represent a poor fit for a new resolution fund.”

In addition, Keating cited a recent report conducted for the ACLI by Promontory Financial Group LLC, Washington, which concluded “that a pre-funded resolution plan would drain tens of billions of dollars out of the financial system, as our nation is still experiencing a liquidity crunch.”

Among other things, Keating said, the plan “also could create incentives for lenders to extend credit to financially-shaky enterprises under the belief that if an enterprise fails, the authority would bail it out.”

But, other provisions of the bill represent “sound public policy proposals,” Keating said.

These include inclusion provisions modernizing and streamlining regulation of the surplus lines and reinsurance industries; a provision creating an Office of National Insurance; and the reworked provision calling for the SEC study on the effectiveness of legal and regulatory requirements governing the standard of care application to brokers, dealers and investment advisers.

Tom Currey, president of the National Association of Insurance and Financial Advisers, Falls Church, Va., also voiced support for the SEC study of the fiduciary-vs.-suitability issue.

“We fully support the objective approach taken by Chairman Dodd,” along with Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, “to address this important consumer issue, which has never been the subject of a Banking Committee hearing,” he said.

“The approach is fact-based and balanced and we think it extremely difficult to take issue with that,” Currey added.

Barbara Roper, CFA director of investor protection, disagreed. In a statement, she said that, “Unfortunately, the original bill’s most important provision to protect average investors has been stripped from the bill.”

She said the new language requiring the study gives the SEC no new authority to address regulatory gaps identified by the study.

“Without new authority, the provision is a waste of agency time and taxpayer money,” she said.

As for rating agencies, Ms. Roper said that by “slapping AAA ratings on mortgage-backed securities whose risks they did not understand and could not calculate, credit rating agencies were central enablers of the unsound mortgage lending at the root of the financial crisis.”

She said the CFA supports reforms to simultaneously strengthen SEC regulatory oversight of rating agencies, increase accountability for ratings by making them liable for conducting adequate investigations to support a reliable rating, enhance transparency of ratings, and, perhaps most important of all, reduce regulatory reliance on ratings.

“While we have yet to delve into the details, we are pleased to see that is the general approach taken in the revised bill introduced today by Chairman Dodd,” she said.

Indeed, “with regard to reducing regulatory reliance on ratings, the bill has been significantly strengthened during the bipartisan negotiations,” Ms. Roper added.