(Dow Jones) A provision in landmark financial industry legislation recently passed by the U.S. House of Representatives could lead to ongoing confusion among investors about whether their advisors are acting as fiduciaries. ?

The legislation, if enacted, would direct the Securities and Exchange Commission to develop rules that would create a fiduciary duty for brokers who provide investment advice. A sentence added to that directive, however, could allow limitations on that duty.

The legislation would provide that "nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities." ?

Critics of the language, also called the "hat-changing" provision, say it would allow broker-dealer advisors to act as fiduciaries while offering certain advice, while also making certain recommendations that can meet a lower suitability standard. ?

"You could potentially switch hats in your broker capacity, and turn around and sell a financial product where the fiduciary standard won't attach," says David Tittsworth, executive director of the Investment Adviser Association, a trade group based in Washington, D.C.

Potential conflicts of interest arise under a suitability standard if brokers recommend proprietary products from which the brokerage benefits, he says. ?

William Baldwin, president of the National Association of Personal Financial Advisors, an industry group in Arlington Heights, Ill., says the provision, if enacted, would confuse investors whose advisors offer fee-based advice but who also charge commissions for certain products.

"It's convenient for brokers and will lead to the same kind of confusion that got us here in the first place," he said. "The client doesn't understand when the roles have changed." ?

The provision is part of legislation, approved Friday by the House, that would make historic changes to the government's oversight of U.S. financial markets and revolutionize the way businesses and consumers deal with financial products. ?

If the legislation is enacted, the SEC would have significant discretion in determining new fiduciary standards and when they apply to investment advisors and broker dealers, as well as to specific situations, said Tittsworth. "It would shift the focus to the SEC to determine all the details," he said. ?

A spokesman for the Securities Industry and Financial Markets Association, an industry group, declined to immediately comment.

Copyright (c) 2009, Dow Jones. For more information about Dow Jones' services for advisors, please click here.