The fumbling attempts to overhaul bank regulation have captured headlines, but a less-publicized legislative effort could have a big impact on banks' brokerage operations.

The legislation revolves around what's known as a fiduciary standard, which, in a nutshell, means putting clients' interests first and foremost. Concerned that too many investors are being steered into pricey products when less expensive options are available, lawmakers have proposed that brokers be required to adhere to the same strict standards as investment advisers when selling insurance, annuities, mutual funds and other investments.

Acting in clients' best interests may seem an innocuous requirement, but it could cause headaches for bank-owned brokerages. Brokers for the first time would have to clearly disclose fees and commissions. Product rosters would have to offer more investment options, even if they have lower commissions. Compliance departments would have to build systems to document brokers' adherence to the new rules. Perhaps most daunting, bank brokerages would have to retrain their investment and insurance sales staffs. "The toughest thing would be to train a lifelong commission-focused broker to understand the fiduciary standard," says Karen Kruse, senior vice president of wealth management at First Tennessee Bank. "The busiest people on the face of the earth would be the people in compliance and training."

All that retraining could cost a bundle. Just educating one broker about the fiduciary standard would cost several thousand dollars, says Blaine Aikin, CEO of Fiduciary360, which provides training and other services.

Behind the legislative push is the two-tiered way in which investments and insurance are sold. Professionals who give advice-such as investment advisers-have long been held to a strict fiduciary standard, while brokers operate under a looser set of requirements known as the suitability standard.

Critics charge that brokers are able to get away with things like steering clients into products that pay the broker a higher commission. What's more, critics say, brokers routinely present themselves as advisers, misleading investors into believing that the brokers always put their interests above all else. "They are actively encouraging a relationship of trust and reliance-and they ought to meet the standard that goes with that," says Barbara Roper, director of investor protection for the Consumer Federation of America. Indeed, a 2008 Rand Corp. study found that most investors aren't aware of a difference between advisers and brokers.

The reform legislation has come under attack from brokerage and insurance lobbyists. An early Senate version of the bill, championed by banking committee chairman Chris Dodd, D-Conn., would have held brokers to the same standard as advisers. But Dodd scrapped that bill in the face of Republican opposition, and efforts are under way to create a new one. The House, meanwhile, passed a regulatory reform bill in December that includes what's seen as a weaker piece of fiduciary standard legislation.

A fiduciary standard would not be equally painful for all bank-owned brokerages. Some, like Wells Fargo Advisors, have already "seen the handwriting on the wall," and have started to adopt a fiduciary approach, says Aikin.

But by and large, bank-owned brokerages still do most of their business under the traditional model, and those that have not embraced a fiduciary role could have a tough time adjusting, he says. "If an organization has a heavy sales culture, it's much more difficult to turn the ship."

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