House Dems: Raise brokers' client-care standard

WASHINGTON (Reuters) - Brokers who offer financial advice would have to adhere to a higher client-care standard under a counter-offer made on Tuesday in negotiations on a landmark Wall Street reform bill.

U.S. House of Representatives Democrats said they want to include in the bill, being drafted by a Senate-House conference committee, a rule that would raise the standard to roughly the level now followed by investment advisers.

Democrats also made counter-offers dealing with small companies' obligations under the post-Enron Sarbanes-Oxley laws and with oversight and governance of the Federal Reserve.

At present, advisers have a "fiduciary duty" to act in their clients' best interest. Brokers must only ensure that a financial product is "suitable" for a client, which investor advocates say is a lower level of care.

The House voted in December to align the two standards near the level followed by financial advisers as part of sweeping legislation it approved to overhaul financial regulation.

The Senate passed a parallel bill last month, but it did not follow the same approach. Instead, it called for another study of the client-care issue.

The counter-offer by House Democrats was posted on the web site of the House Financial Services Committee, which is chaired by Democratic Representative Barney Frank. He also chairs the conference committee.

The House also wants to strike a Senate provision from the conference's main bill that would make the head of the New York Federal Reserve Bank a political appointee.

In its place, the House negotiators want a provision that would prevent regional Fed bank directors that represent banks from having a say on who will head their Fed bank.

The Democrats also want the bill to allow a one-time audit of Fed emergency lending during the 2007-2009 financial crisis so that it would cover lending from the U.S. central bank's discount window and open market transactions. The conference's base bill already calls for a similar audit.

Additionally, the House wants to exempt small companies with market capitalization under $75 million from complying with a rule under Sarbanes-Oxley laws dealing with companies' internal controls, which were enacted in 2002 after the collapse of energy giant Enron Corp.

The rule, known as Section 404, requires corporations to show publicly that they have adequate policies in place to ensure the quality and accuracy of their financial books.

The House's December bill included an exemption for small businesses that have complained about the costs of hiring outside experts to review control policies. The Senate bill last month did not include the exemption.

(Additional reporting by Tim Ahmann; Editing by Andrea Ricci)