Many companies featured on Money advertise with us. Opinions are our own, but compensation and
in-depth research may determine where and how companies appear. Learn more about how we make money.

Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.

Last month, Sen. Susan Collins (R-Maine) told Wall Street titans they needed to put their clients' welfare above their own. But legislation introduced by Collins on Thursday looks as if it would gut the very safeguards Collins and other senators say they're trying to enact.

At issue is what's known as a fiduciary standard of care — the concept that a financial adviser (or any other professional, for that matter) should put clients' interests ahead of his or her own. If, for example, a broker had the choice of offering you two different financial products, a fiduciary standard would compel the broker to sell you the one that is a better deal for you. The current standard for brokerages, however, is a less-stringent standard known as suitability: As long as the financial product is appropriate for you, it doesn't necessarily have to be the best deal you can get. So if the broker has a choice of two similar mutual funds to put into your account, he's free to sell you the one that's twice as expensive as the other (and means more income for him).

The problem is, as a major Securities and Exchange Commission study has shown, everyday investors are completely confused by the issue. They don't understand that some financial professionals (brokers) are covered by the suitability standard. They don't understand that other professionals (registered investment advisers, as they're known) are covered by the fiduciary standard. In fact, they don't even understand the difference between the two standards.

Attempting to clean this all up, three senators — Daniel Akaka (D-Hawaii), Robert Menendez (D-N.J.) and Richard Durbin (D-Ill.) have introduced an amendment to the financial-reform bill in the Senate that would require a broker to meet the fiduciary standard "when providing personalized investment advice about securities to a retail customer."

The fiduciary issue, which may or may not end up being addressed in the financial reform that's been kicking around Congress since last year, is "the single most important issue in the bill for average, retail investors," says Barbara Roper, director of investor protection for the nonprofit Consumer Federation of America.

Which is why she was heartened when Collins showed her support for the fiduciary standard by lacing into Goldman Sachs over the issue at a Senate hearing last month.

And which was also why Roper was disheartened Thursday when Collins introduced her own version of a fiduciary amendment. The Collins amendment also imposes a fiduciary standard. But it's weaker than the one in the Akaka-Menendez-Durbin amendment. And worse, says Roper, it carves out a glaring exception for brokers who sell only mutual funds, variable annuities and certain closed-end funds.

"This amendment," she writes, "removes the fiduciary duty precisely where it is needed most — where the conflicts of interest are greatest, the investors are least sophisticated, and the sales practices are most abusive. It paints a target on the backs of senior Americans who are most likely to be targeted with abusive variable annuity sales practices."

Insurance brokers have fought hard against the fiduciary standard, with insurance-industry experts suggesting that it would make it difficult for insurance agents to make a living the way they traditionally have: by collecting commissions on product sales. Roper disagrees, pointing out the language in the Akaka-Menendez-Durbin legislation stating, "The receipt of compensation based on commission or other standard compensation for the sale of securities shall not, in and of itself, be considered a violation" of the fiduciary standard.

Amid the blizzard of amendments being proposed for the financial-reform bill, why is Roper so exercised about this one? Because Collins has taken so much interest in the fiduciary standard, says Roper, other legislators will be likely to defer to her judgment on this issue. "Given how vocal a champion Senator Collins has been about strengthening fiduciary duties on Wall Street," says Roper, "this is a real disappointment."

Follow Money on Twitter at