WASHINGTON BUREAU — Senators and their staffers are reviewing a proposed draft amendment that could move the federal financial services reform package in a direction backed by the life insurance industry.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Committee on Banking, Housing and Urban Affairs, unveiled the original draft of the legislation, Section 913 of the Restoring American Financial Stability Act of 2009, in December 2009.
That version of Section 913 would harmonize the suitability standards that investment advisors and broker-dealers use when selling investment products.
Dodd now has scrapped the first version of the bill and is working with Sen. Robert Corker, R-Tenn., to develop a bipartisan proposal that can attract the 60 votes needed for passage in the Senate.
Sen. Timothy Johnson, D-S.D., who could succeed Dodd as chairman of the Senate Banking Committee if Democrats retain control over the Senate, is passing amendment draft that includes the SEC study proposal.
The study proposal version calls for the U.S. Securities and Exchange Committee to study the obligations of brokers, dealers, investment advisors and others who give retail customers personalized investment advice, according to a copy of the draft obtained by National Underwriter.
The SEC would have to report on its findings within 18 months, and the agency would have the authority to use its findings as the basis for new rules.
But the SEC could impose new rules only if they addressed "regulatory gaps and overlaps in existing rules," according to the proposed draft.
Lobbyists at the National Association of Insurance and Financial Advisors, Falls Church, Va., declined to comment today on the issue, but they helped bring industry groups together to propose the SEC study concept in a letter letter sent to Dodd and Sen. Richard Shelby, R-Ala., the highest ranking Republican on the Senate Banking Committee, in December 2009.
The language in the draft is the same as the language proposed in the coalition letter.
Consumer groups are railing against the proposal.
"This is an issue that has already studied to death," says Barbara Roper, investment protection director at the Consumer Federation of American, Washington.
Consumer groups note that the RAND Corp., Santa Monica, Calif., studied the issue at the request of the SEC in 2008.
RAND researchers found that investors had problems understanding the difference between broker-dealers and investment advisors.
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