“It is both notable and disturbing that it doesn’t seems to occur to petitioners that the conduct of firms caught up in the Commission’s enforcement actions constituted a violation of their fundamental fiduciary duty as investment advisers to act in the best interests of their clients,” Roper said in her letter to the SEC.
She posited that these firms recommended higher-cost share classes of mutual funds to clients who qualified for a lower-cost share class inside advisory accounts for which they already were charged a separate fee to compensate them for their services.
“Firms that embrace the regulatory approach advocated [by these groups] demonstrate such a fundamental misunderstanding of what it means to be a fiduciary and to act in customers’ best interests that they will require special scrutiny from the Office of Compliance Inspections and Examinations when it comes time to examine their implementation of Reg BI,” Roper said.
She further noted that the firms participating in the SEC fund share class initiative, such as members of FSI and ASA, “are largely dual-registrant firms. Evidence suggests that a root cause of their compliance problems may be a tendency to bring a broker-dealer mindset to their compliance with Advisers Act fiduciary obligations,” Roper said.