UPDATE 2-Obama administration seeks more SEC investor protection

* Congress gets draft bill to increase SEC powers

* SEC could ban compensation tied to inappropriate sales

* SEC would create fund to pay whistleblowers (Adds comments from Treasury official, SEC and trade group)

By David Lawder

WASHINGTON, July 10 (Reuters) - The Obama administration wants to give the U.S. Securities and Exchange Commission broad powers to identify and ban compensation practices at investment brokers and advisers that interfere with their fiduciary duties to clients.

The plan was contained in a legislative proposal to boost the SEC's investor protection authority to put them on a par with those of a proposed new consumer financial protection agency.

Under the plan, the SEC could decide to ban bonuses or special "side payments" to brokers and advisers for steering clients into products that may be profitable for the sellers, but inappropriate for the investor.

"It provides the SEC with a tool that it needs to ensure that such side payments or sales practices or conflicts of interest do not, in fact, interfere with investor interests," said Michael Barr, the U.S. Treasury's assistant secretary for financial institutions.

Among the practices that could be looked at for compensation restrictions is cold calling potential clients by brokers and advisers, Barr said.

SHOW WHISTLEBLOWERS THE MONEY

The bill, one of several financial regulatory reform bills sent by the U.S. Treasury to Congress this summer, also aims to improve disclosures to investors, close gaps in standards and pay whistleblowers for information that can be used in enforcement actions. Broker-dealers and investment advisers, for example, would be held to the same standards.

It would also give the SEC authority to establish a fund to pay whistleblowers for information leading to enforcement actions that result in significant financial awards. The money would come from penalties paid that are not distributed to investors.

"These measures will help reduce the likelihood of investor fraud and facilitate SEC action against bad actors involved in securities laws violations," SEC Chairman Mary Schapiro said in a statement.

The bill comes just days after the administration proposed a new agency that would get sweeping powers to protect consumers on many financial products that fall outside of the SEC's jurisdiction.

Many of the bill's basic principles were part of a broad regualtory reform blueprint unveiled by President Barack Obama in June, and reaction to the legislative language was muted.

"While we are still reviewing the legislation, it looks as though these plans were broadly described in Treasury's white paper and we look forward to adding our pro-reform voice to this important debate," said Andrew Desouza, a spokesman for Wall Street's major trade group, the Securities Industry and Financial Markets Association.

The bill would give the SEC authority to require delivery of disclosures and prospectuses before investors buy into mutual funds -- not after -- as is typically the case now. The SEC could require a concise summary prospectus and a simple disclosure form showing fund costs.

A new SEC investor advisory committee, which examines new products, trading strategies, fee structures and disclosures, would be made permanent under the legislation. (Editing by Jan Paschal)