Broker dealers must be held to a higher standard if they provide financial advice to clients, regulators told lawmakers on Tuesday as Congress weighs changes to the U.S. financial regulatory system.

Over the years, the roles of broker dealers have evolved to where many provide customers with financial advice.

However stock brokers, who carry out investment decisions, are not held to the same standards as investment advisers, who have fiduciary duties to put their clients' best interests first.

Brokers are required to follow so-called suitability standards, which require them to ensure that the product is suitable for the investor.

North American securities regulators said this higher fiduciary standard must be established for broker dealers who also provide investment advice.

Investor protection will be strengthened if all who provide investment advice are held to the fiduciary duty that currently applies only to investment advisers, Texas securities commissioner Denise Crawford, told a congressional panel.

Crawford is the president of the North American Securities Administrators Association, which represents 67 state, provincial and territorial securities administrators in the United States, Canada and Mexico.

The migration of stockbrokers into the advisory arena... has fueled confusion among investors as to the services provided by stockbrokers and investment advisers as well as the level of protection, she said.

The U.S. House Financial Services Committee held a hearing on Tuesday to examine a draft bill to increase investor protection, including a measure to scrap mandatory arbitration for defrauded investors.

Currently, some broker-dealers give investment advice, but do not fall under the 1940 law that governs investment advisers because it is only a small part of their business.

Many investors do not understand the difference between broker-dealers and financial advisers, a federal government commissioned study has found.

The Financial Industry Regulatory Authority (FINRA), the broker-dealer watchdog, told the congressional hearing that a consistent fiduciary standard needed to be established for investment advisers and brokers who provide investment advice.

This measure is in line with the Obama administration's proposal to overhaul the country's financial regulation.

(Reporting by Rachelle Younglai; Editing by Tim Dobbyn)