Enactment of financial services reform legislation by Memorial Day appears to be the new goal of Congress.

In the latest development, Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, says he is working through the two-week Easter recess period with Republicans in hopes of crafting bipartisan legislation that will move through the Senate sometime this month.

Moreover, in comments on the heels of the passage of health care reform legislation after 15 months of effort, House Speaker Nancy Pelosi, D-Cal., said Democrats are determined to complete an overhaul of the financial sector’s regulatory framework with or without the support of Republicans.

The comments were made as the insurance industry won two key changes in the version of financial services reform legislation that was reported out by the Senate Banking Committee on March 22 and sent to the Senate floor.

The bill passed the committee by a party-line, 13-10 vote.

At the same time, a Securities and Exchange Commissioner said in remarks at an investment conference on March 26 that Congress should take another look at harmonizing the standards agents and brokers must use in selling investment products.

The House bill contains such a provision, albeit with a safe harbor for sale of some products sold by agents and brokers, but similar language in the Dodd bill has been replaced by a provision calling for a study of the issue by the SEC.

Regarding the other key change, creating a financial planning oversight board, the revised Senate bill mandates that the Government Accountability Office study the effectiveness of state and federal regulations to protect consumers from misleading financial advisor designations; current state and federal oversight structure and regulations for financial planners; and legal or regulatory gaps in the regulation of financial planners and other individuals who provide or offer to provide financial planning services to consumers.

Under the bill, the GAO would have to report back to Congress within six months of the date of enactment of the bill.

These studies represent a compromise from an amendment proposed by Sen. Herb Kohl, D-Wis., chairman of the Senate Aging Committee, to establish a “standard of care” for sale of investment products and create a financial planning oversight board.

The life insurance industry, both companies and agents, strongly opposed such a provision, fearing that it was a back-door way to impose a uniform fiduciary standard in sale of investment products.

But the compromise drew fire from a SEC member. “This potential retreat from requiring a fiduciary standard for all who provide investment advice concerns me for several reasons,” said Luis A. Aguilar, a SEC commissioner.

First, he said he sees “no need” to study the appropriate obligation for investment advisors. “We already have a strong, workable standard that has done its job successfully for decades, and I would not support any attempt to weaken it.”

“I don’t believe that we need a study to conclude that investor protection requires that broker-dealers providing investment advice be subject to fiduciary duties,” Aguilar said. “I think that question has long ago been asked and answered.”

He also said the SEC is adding inspectors in order to strengthen compliance with the fiduciary standard.

Second, as with the House bill, Aguilar said he “questions” why the protection of the fiduciary standard should be limited to “retail” customers. “It is readily apparent from recent SEC enforcement cases involving auction rate securities that all investors, including institutional investors, need the protection of the fiduciary standard.”

He also said he was concerned about why the Senate bill, which calls for a study, as well as the reach of the House bill, should be limited to “personalized services.”

“This qualification would narrow the range of clients that would be protected by the fiduciary standard, and I fear that it may become a loophole that would make it easy to avoid putting clients first,” he said.

But, Jill Edwards, a vice president of government relations for the National Association of Insurance and Investment Advisors, defended the new language in the Senate bill.

“Fiduciary standards advocates talk about the standard as if it written in stone,” she said. “It is not.”

She said the fiduciary standard “is and has always been an interpreted standard and is subject to change in interpretation.”

“That uncertainty,” she said, “creates a chilling effect for our members about how it will be applied in the future.”

As to the enforcement issue, Edwards said, “We agree that enforcement is a key component to making sure investors are protected.”

Citing Aguilar’s comments, Edwards said “the SEC continues to be challenged in having the resources to enforce the fiduciary standard for IAs. Broker-dealers, on the other hand, are subject to regular enforcement of the suitability standard under Financial Industry Regulatory Authority.”

As for the legislation, another key change eliminates the need for all but one life and property and casualty insurer to help pre-fund a Resolution Authority that would be used under both the Senate and House bills to resolve troubled financial services companies that pose a systemic risk to the economy.

If talks with Republicans are successful and the bill clears the Senate later this month, that would set the stage for talks with the House and the Obama administration on a final bill.

For insurers, the Senate bill creates an Office of National Insurance, makes systemically risky insurers subject to federal oversight and contains provisions similar to the House financial services reform modernizing and streamlining the surplus lines and reinsurance industry by facilitating regulation of the industry by the domiciliary state.

The industry regards inclusion of these provisions as a key step forward, and believes it non-controversial and therefore likely to survive melding of the House and Senate bills into a bill that can be enacted into law.

Regarding the pre-funding issue, use of the fund would be determined by a new Financial Stability Oversight Council, consisting of 11 federal regulators led by the Treasury secretary and one insurance representative appointed by the president.

According to Dodd, this body will focus on identifying, monitoring and addressing systemic risks posed by large, complex financial firms as well as products and activities that spread risk across firms.

It will make recommendations to regulators for increasingly stringent rules on companies that grow large and complex enough to pose a threat to the financial stability of the United States, Dodd explained.

Under the original bill, any financial services company with assets of more than $50 billion would have been forced to contribute to create a $50 billion fund in 5 years.

But, in a manager’s amendment Dodd changed the provision to read, “and any nonbank financial company supervised by the Board of Governors [of the Federal Reserve System].”

According to a lawyer for one of the insurance companies involved, that means that only MetLife would have to contribute to the pre-funding of the Resolution Authority.

However, if the failure of a large company depletes the fund, a larger universe of companies, likely to include all non-health insurers with assets of more than $50 billion, would be forced to contribute, the industry lawyer said.

Among the life companies that will benefit from the change are Prudential, New York Life, Northwestern Mutual, Mass Mutual, TIAA-CREF, Manulife, Lincoln Financial Group, Principal, Pacific Life, Aflac, Riversource, Jackson National, Genworth, Sun Life and Thrivent Financial, the source said, citing the American Council of Life Insurers annual Fact Book.