As Senate Banking Committee Chairman Christopher Dodd, D-Conn., continues to hammer out a bipartisan deal on financial regulatory reform, one advisor group is up in arms after a provision on the fiduciary standard was stripped out.

The Committee for the Fiduciary Standard, an investment advisor group, said in a statement issued Thursday, that it wants the portion to be reinstated when Dodd introduces the bill. He is expected to do that as early as next week. Yesterday, Dodd met with Republican Sen. Bob Corker of Tennessee and Treasury Secretary Timothy Geithner to discuss the financial regulatory reform bill.

The key portion, Section 913, was taken out and Sen. Tim Johnson, D-S.D., has instead proposed that a study be conducted by the Securities and Exchange Commission “to determine appropriate obligations of brokers, dealers, investment [advisors] and their associated persons relating to the provision of personalized investment advice about securities to retail customers.”

But, the advisor group insists that the study isn’t necessary. “Right at this moment, we’re seeing the effects of an overwhelming lobbying effort by the insurance and brokerage folks to convince Congress that retail investors don’t need to have Wall Street prove transparency and accountability,” said Knut Rostad, chairman of the Committee for the Fiduciary Standard.

Under a fiduciary standard, an advisor is required to put the best interests of the clients first and provide disinterested advice. Under a suitability standard, an advisor must recommend products that are suitable for a particular client. Advocates of the fiduciary standard have long complained that the suitability standard does not require an advisor to recommend the best or most cost-effective product to a client and most only prove the product is "suitable" for their needs.

Rostad said the result of not having a uniform fiduciary standard for advisors across the board is the harm that investors will experience. Clients won’t have better transparency through disclosure or greater accountability that the fiduciary standard now provides. “Mountains of research tell us that many investors don’t look at the costs of their investments,” he said. “They don’t understand the particulars of the products and they frequently don’t even know what they’re paying for their investment.”

Investor groups, such as the AARP, and regulatory associations such as NASAA (the North American Securities Administrators Association), which represent state securities regulators, recently sent a letter to the Senate Banking Committee in support of the fiduciary standard. In the Feb. 2 letter, the groups wrote:

“Unfortunately, Section 913 appears to be under attack by members of the broker-dealer and insurance industries whose questionable sales practices would be more difficult to maintain under the fiduciary duty and disclosure obligations imposed under the Investment Advisers Act. We urge you to resist calls to eliminate the section entirely, as some in the insurance industry have suggested or water down its protections by replacing it with a new, lowest common denominator ‘fiduciary duty lite’ as advocated by many in the brokerage industry.”

The letter went on to say: “Weakening the legislation in this way would harm all investors, but the vulnerable senior population would be hit the hardest.”

NASAA President and Texas Securities Commissioner Denise Voigt Crawford, said in a statement Thursday: "Investors and more particularly senior investors don¹t need another study. They need help now."

She added: "Inserting a study proposal in a 1000-page bill rather than as a free-standing amendment effectively silences the important and necessary debate in the Senate over the proper legal obligation brokers should have to investors when offering investment advice."

Rostad and other fiduciary supporters are continuing to meet with key legislators. “We’re meeting with folks from the Senate Banking Committee tomorrow,” he said.