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H.R. 4173: Senate Votes 60-39 to Pass Dodd-Frank Bill

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The Senate today passed and sent to President Obama historic legislation that would make the most sweeping changes to financial services regulation since the Great Depression.

Members of the Senate voted 60-39 for H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act bill, after first clearing the bill for floor action by a 60-38 vote.

The House already has approved H.R. 4173, and Obama is expected to sign the bill soon.

H.R. 4173 provisions would affect the standard of care that applies when insurance agents and brokers sell investment products, create a Federal Insurance Office (FIO) at the U.S. Treasury Department, give states of domicile more authority over regulation of reinsurers, impose new standards on the rating agencies, classify indexed annuities governed by National Association of Insurance Commissioners standards as state-regulated insurance products, and impose new suitability standards on sellers of annuities.

The act also will subject large insurers to more federal scrutiny and give federal regulators a say over the fate of large, troubled insurers with problems that appear to be severe enough to threaten the stability of the financial system.

Senate Majority Leader Harry Reid, D-Nev., and Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, had been struggling to round up the 60 votes needed to get a bill to the floor in the Senate.

The death of Sen. Robert Byrd, D-W.Va., and the decision of Sen. Russell Feingold, D-Wis., to vote against both the bill itself and the “cloture motion” — the measure needed to limit debate and send the bill to the floor — caused delays. But bill backers ended up getting the votes they needed for the cloture motion by winning over Democrats such as Sens. Ben Nelson, D-Neb., and Maria Cantwell, D-Wash., and Republicans such as Sens. Scott Brown, R-Mass., Susan Collins, R-Maine, and Olympia Snowe, R-Maine.


The American Council of Life Insurers (ACLI), Washington, has put out a statement praising the work Dodd did to get the bill through the Senate.

Final Senate passage of the bill “represents the culmination of Senate Banking Committee Chairman Chris Dodd’s … career-long interest in financial services,” the ACLI says in the statement. “ACLI applauds Sen. Dodd for his many years of public service and his willingness to listen to the concerns of the life insurance industry.”

The Dodd-Frank bill will change financial services regulation in many important ways, the ACLI says.

The ACLI likes the FIO provision, but it is waiting to see how federal agencies will interpret other provisions, such as provisions affecting derivatives trading and problems at large, troubled financial institutions, before assessing their impact, the council says.

“ACLI will be very active in this process to assure the insurance marketplace remains vibrant and continues to provide consumers with innovative products,” the ACLI says.

Peter Ludgin, executive director of Agents for Change, Washington says, the group will continue its efforts to work to give insurance industry participants the option of adopting a federal charter and coming under the jurisdiction of a federal insurance regulator, rather than the current state-based regulatory system.

That “effort will not slow down due to the recent enactment of the bill,” Ludgin says. “The new law will aide our efforts to shine a light on the shortcomings of the current system and the hoops producers have to jump through to serve their customers.”

An insurance industry lawyer is calling the H.R. 4173 standard-of-care provision “oddly crafted,” in that it requires the U.S. Securities and Exchange Commission to prepare a study on the standard-of-care issue within 6 months, then gives the agency the clear power to draft a rule based on the findings of the report.

Traditionally, the investment advisors have used a fiduciary standard of care, which requires them to put clients’ interests ahead of their own. Life insurance producers and securities brokers have used a suitability standard, which requires them to verify that the products sold to consumers suit the needs of those consumers. Life producers and securities brokers want to stick with the suitability standard.

The industry lawyer says the H.R. 4173 standard-of-care provision includes a separate, independent grant of rulemaking authority to the SEC related to the fiduciary duty issue. He says one of the provisions the SEC has been given the authority to put into a regulation is that all broker-dealers “will have to provide disclosure of material conflicts of interest.”

“To the extent that a fee represents a potential conflict of interest, it may have to be disclosed,” the lawyer says.

“The NAIC has just developed a new model law on suitability,” the lawyer says. “This puts state regulators again in the position of playing catchup to changing federal requirements. Do you think this means they will start to revisit the issue shortly?” he asked.

Tom Currey, president of the National Association of Insurance and Financial Advisors, Falls Church, Va., says NAIFA looks forward to seeing the results of the SEC’s standard-of-care study.

“NAIFA is hopeful that the standard would be informed by the study,” Currey says.

The Financial Planning Coalition is praising the final standard-of-care language.

“We are pleased that Congress has laid the foundation for true reform by authorizing the Securities and Exchange Commission to impose the highest standard of care on the delivery of investment advice by brokers,” says Bob Glovsky, a coalition representative and chairman of the Certified Financial Planner Board of Standards Inc., Washington. “We are hopeful that the SEC will use this authority to insure that all investment advice delivered to consumers – regardless of the source – will be in the clients’ best interests.”

An executive at a large insurer, who asked not to be named, says insurers can live with the H.R. 4173 standard-of-care provision.

The current standard-of-care provision at least “points the road towards an end to a conflict with the SEC that has gone on for 10 years,” the executive says.

The executive says most insurers are not opposed to disclosure of commissions paid to agents, “if the disclosure is done appropriately.” Moreover, he says, “if consumers want to know fees paid to captive agents, they are entitled to know.”

The executive says the provision “will at least allow us to continue to serve the financial needs of clients with more modest financial means.”


CORRECTION: Due to an editing error, we got the vote wrong in an earlier version of this article. The Senate voted 60-39 to pass H.R. 4173.


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