Eliminating the broker-dealer exclusion from fiduciary requirements could result in a substantial increase in “frivolous litigation” that could result in “catastrophic costs” for its members, the National Association of Insurance and Financial Advisors (NAIFA) has told the Securities and Exchange Commission (SEC).

That could ultimately force many of them to shut down, NAIFA stated in its comment letter filed with the agency Monday. That was the last day of the comment period set for a study the agency must complete within six months on the fiduciary standard issue.

Under the provision, the SEC would then draft a new standard-of-care rule based on the findings of the report.

The NAIFA letter warns the SEC that holding registered representatives to a fiduciary standard under the Investment Advisers Act “could ultimately have a serious negative impact on investor choice and markedly limit access to affordable financial services because of the business model used in the broker-dealer world.”

Moreover, “it remains unclear to many in the investment adviser community what the standard requires of them,” the letter stated, despite years of court decisions and SEC enforcement actions on the issue.

NAIFA also argued that its members are subject to a “know-your-customer” process that gathers information needed to help decide which products would help the client achieve financial goals. Moreover, the overwhelming majority of registered representatives represent a single broker-dealer, which means they are limited to offering the products for which the broker-dealer has performed due diligence and has reached a selling agreement with the product manufacturer, the NAIFA letter said.

The letter also argued that registered representatives, currently governed by the suitability standard by the Financial Industry Regulatory Authority, now serve all investor classes–generally through a commission-based compensation model that lets investors avoid expensive fees to receive investment recommendations.

A uniform broker-dealer fiduciary duty also would likely lead to costs that substantially exceed those of litigation under Section 36(b) of the Investment Company Act, “particularly because the standard is not precisely defined,” NAIFA also argued.

Section 36(b) of the act imposes a fiduciary duty on mutual fund investment advisers.

In its letter, NAIFA insisted the broker-dealer exclusion is justified because registered investment advisors and broker-dealers provide different types of financial services and operate under different business models.

“Registered representatives of broker-dealers sell investment products and may provide some incidental advice in connection with such a sale,” NAIFA stated. “This is completely different from registered investment advisers, whose entire business is centered on selling advice in the form of managing client assets and drafting financial plans.”

In addition, every NAIFA member is an insurance producer, which means they are subject to regulation by state insurance departments, the letter noted.