Broker-dealers, whose trade groups are petitioning the Securities and Exchange Commission to halt the crackdown on 12b-1 fees, show sufficient disregard for their duty to investors that they should be subject to “special scrutiny” from regulators when Regulation Best Interest is implemented June 30, a prominent member of the SEC’s own Investor Advisory Committee said in a letter to the agency.

That’s according to Barbara Roper, director of investor protection at the Consumer Federation of America, who sent a letter to SEC Chairman Jay Clayton criticizing a recent petition filed by the Financial Services Institute (FSI) and other groups to stop what they term the agency’s “backdoor regulation” of 12b-1 fees.

Roper called the petition an “attack on the Commission’s laudable efforts to enforce well-established obligations for investment advisers to act in their clients’ best interests and provide full and fair disclosure of material facts.”

The petition “shows a disturbing disregard for what it means to be a fiduciary acting in a relationship of trust and confidence. And its recommended approach to addressing compensation-related conflicts would be a farce if it weren’t so potentially harmful,” she added.

FSI was joined by the American Securities Association (ASA), the Competitive Enterprise Institute and the New Civil Liberties Alliance in filing the petition for a rulemaking. “It is time for the SEC to stop its troubling, ongoing trend of backdoor regulation, or regulation by enforcement,” FSI President and CEO Dale Brown, said in a statement regarding the petition.

The petitioners are specifically targeting the SEC’s share class self-reporting initiative, which required 87 broker-dealers to return $139 million to retail investors for failure to adequately disclose advisors’ conflict-of-interest in recommending funds that paid them more.

“This incredibly successful initiative led to the return of almost $140 million to harmed investors, stopped wrongful conduct, and highlighted the importance of an advisor’s obligations to provide full and fair disclosures to clients,” C. Dabney O’Riordan, co-chief of the SEC’s Asset Management Unit, said in a statement after a recent settlement with Merrill Lynch.

“We continue to actively pursue disclosure failures that financially benefit the advisor to the detriment of the client,” O’Riordan added.

However, the broker-dealer industry petitioners maintain this is part of the SEC’s “thirty-year effort to effectively outlaw Rule 12b-1 fees.”

Specifically, the petitioners said they want the SEC to undergo a separate rulemaking before pursuing firms for individual violations of the Investment Advisers Act.

Roper said the timing of the petition, which is so close to implementation of the SEC’s new Regulation Best Interest, calls into question firms’ ability to comply with the new rules which require broker-dealer and registered reps to put retail customers’ best interests before their own when selecting investments and accounts.

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