Members of Congress didn’t actually vote to end the confusion over mutual fund share classes last week, but they took a step that ultimately could go a long way to simplifying the way investors buy and sell fund shares.

The House Financial Services Committee passed the Investor Protection Act of 2009, which has some major provisions concerning the way some financial planners – notably those affiliated with brokers – deal with customers. The offshoot of this bill, if it passes and is taken to its logical conclusion, could end share-class confusion by killing off C-class shares.

Overall, it’s a major change in the way funds are bought and sold through advisers.

To see how this could happen in a bill that has nothing directly to do with mutual funds, join me on a round-about journey that starts with financial planners and brokers, and that ends with unintended improvement for fund investors.

The whole thing starts with one of the dirty little secrets in the financial advice world, namely that some people you trust for advice might not have your best interests at heart. Brokers – in fact any type of intermediary whose primary job is selling products – live by the standard of “suitability,” meaning that the investments they select and sell to clients must be suitable for the buyer. No speculative penny stocks for elderly widows, for example; whatever they sell, they must believe that the investment is appropriate for the investment and the situation.

By comparison, an investment adviser – anyone who makes their money giving advice, rather than selling products – must live by a “fiduciary standard,” meaning they have a responsibility to put your best interests ahead of their own. If it’s not in your best interests, selling it – even if it’s suitable and appropriate – they shouldn’t do it.

Where things have gotten confusing over the years is that there are plenty of people who, technically, are brokers, working for one of the name-brand brokerage houses, but who function as financial planners or advisers. They might act like they are selling advice, but the legal standard that applies to them is suitability.

The result has been years of confusion and arguments in the financial advice business; brokerage firms felt like it was in their best interests to create a class of counselor who could compete with the emerging horde of financial planners, they just didn’t think it was in their best interests to put the customer’s interests first.

The Investor Protection Act would change that by requiring that brokers who act like planners – who sell advice, and not just products – live up to the fiduciary standard. It’s a major step forward for consumers. While there will be a lot of debate on this portion of the act as it goes upstream from committee, most observers believe the fiduciary standard ultimately will be applied to everyone who sells advice.

That being the case, let’s look at how advisers currently sell funds. A growing number of them simply use no-load funds, meaning issues that have no sales charges; instead of getting a commission, they charge a percentage of the assets they manage, typically in the neighborhood of 1 percent.

But broker-sold funds have, for years, mostly come in three varieties. Class A shares charge a front-end sales load; typically anywhere from 3 percent to 5.75 percent comes off the top and goes to pay the adviser. Class B shares have a back-end load, and they charge higher on-going expenses over the first few years of ownership; after four to six years, the out-the-door fee is removed and the higher costs – which pay for the adviser – shrink or the shares convert into A-class shares. Several big fund firms, most notably Franklin Templeton, have backed away from B shares in recent years, because they’re typically not cost effective, raising questions about their “suitability.”

Class C shares have no front- or back-end load, but charge a higher expense ratio for life. As a general rule, that means they are the most costly shares for long-term investors. Still, they are popular with advisers and consumers because they feel like no-load funds by avoiding all sales charges.

But popular doesn’t mean “in the customer’s best interests.” Higher costs reduce long-term returns, plain and simple. If the fiduciary standard is applied across all types of advisers, the only way most experts believe an adviser could sell a C share is if they believe the client has a short holding period, or if the customer is a trader.

Brokerage firms, which backed away from B shares because they feared bad results in arbitration, are likely to now start backing away from C shares too.

“This should give rise to the end of the C share, and the whole concept of loads is going away too; any loaded funds will become more the exception than the norm,” said Geoff Bobroff of Bobroff Consulting in East Greenwich, R.I. “The industry has quietly been moving toward paying all advisers – planners, brokers, whatever you call them – a percentage of assets under management. This will just speed that up.”

Chuck Jaffe is senior columnist for MarketWatch. He can be reached at cjaffe@marketwatch.com or at Box 70, Cohasset, MA 02025-0070.