Investment professionals, take note. Congress is seriouslydebating legislation that would significantly expand the coverage of the Investment Advisers Act, empower the SEC to make rules on advisor compensation and increase the likelihood of lawsuits against advisors.

In early October, the House Banking Committee released a draft of the Investor Protection Act of 2009. Although just a draft bill for discussion, it shows where Congress is headed. The bill would dramatically increase the number of investment professionals subject to the standards of the Investment Advisers Act. Specifically, the bill states that if a broker or dealer is "providing investment advice to a retail customer," the standard of conduct "with respect to such customer shall be the same as the standard of conduct applicable to an investment advisor under the Investment Advisers Act of 1940."

For many years, SEC rule exempted broker-dealers from the Advisers Act if they provided investment advice as an "incidental" service to their clients in return for asset-based fees. However, the SEC exemptive rule was successfully challenged in court by financial planners, who will welcome the bill's extension of the Advisers Act to brokerage reps providing investment advice.

On the other hand, this extension will be opposed by many brokerage reps who currently must make "suitable" recommendations to any customer. They will want to know exactly what the Committee means by saying they will now be subject to a "fiduciary-type" duty in giving investment advice.

Second, the bill would broaden the SEC's ability to set standards of conduct for broker-dealers and investment advisors. It would vest the SEC with new powers to "promulgate rules prohibiting sales practices, conflicts of interest and compensation schemes for financial intermediaries (including brokers, dealers and investment advisors) that it deems contrary to the public interest and the interest of investors."

Could the SEC set maximum commission rates or sales loads on the distribution of certain financial products? The new powers would allow the SEC to regulate compensation of lower-level employees in private and public financial firms-in contrast to its traditional role of requiring full disclosure of all fees and commissions, as well as the compensation of top executives of public companies.

Third, the bill would increase the likelihood of both SEC enforcement actions and private suits against advisors and brokers. The bill would authorize the SEC to make cash awards to whistleblowers who supply tips leading to successful SEC enforcement actions. The awards could go as high as 30% of the monetary sanctions imposed on defendants in the action or related actions. But the Madoff scandal did not show a need for large bounties; it showed that the SEC should have more disciplined procedures for following up tips from whistleblowers.

The bill also increases the likelihood of court cases against brokers and advisors by authorizing the SEC to bar any mandatory arbitration clause in their client contracts. The securities industry has viewed arbitration as a less costly and quicker way to resolve customer disputes. In response to criticisms from customer advocates, regulatory officials have instituted significant reforms of the arbitration process over the past few years. If arbitration of customer complaints were no longer required, many would be aggregated in class action suits against securities brokers and investment advisors.

All of these draft proposals are being driven by public outrage over the Madoff fraud, which was perpetrated by an investment advisor. While this was a terrible fraud, it is unclear whether it represents a structural problem with the financial services industry. If you believe that some of these proposals represent an overreaction to the Madoff fraud, now is the time to comment on them-before they are enacted into law.

Robert Pozen is chairman of MFS Investment Management, senior lecturer at Harvard Business School and author of Too Big To Save? How to Fix the U.S. Financial System.