This article originally appeared on Advisor Perspectives.

Last week industry trade associations and lobbyists, led by the Financial Services Institute (FSI) and American Securities Association, petitioned the SEC for a new rule to authorize the SEC to tell advisers and brokers how to disclose conflicted fees.

Specifically, they sought redress for what they viewed as a grave injustice brought on by the SEC.

The injustice?

They claimed that the SEC exceeded its rule-making authority by requiring that advisor-brokers (a.k.a. “dual registrants”) make a certain explicit disclosure. Specifically, they don’t want a disclosure to clients that says, “a identical lower-cost class share was available.”

The petitioners alleged their complaint was of the utmost gravitas. “This is about the rule of law. In this country there is law that governs the government.”

The petitioners alleged new rulemaking is required to make disclosures more informative.

Witness how the petitioners asserted the SEC’s conduct undermines the rule of law. The petitioners wrote, “It is insufficient, according to the SEC that, advisers disclose that they placed their clients in a 12 b-1 fee paying share class, and that the receipt of 12b-1 fees created a potential conflict of interest.”

Rather, “The (SEC) Initiative declared that the advisers had more to do. Advisers must state explicitly, in very particular language, that ’A lower-cost class share was available.’”

(Then) “The Commission doubled down on its claim that investment advisers are required to disclose, ’More than one mutual fund share class is available.’”

This is a head-scratcher. The petitioners are clearly animated by the righteousness of their allegations. Yet their implicit goals are avowedly anti-investor. By eliminating explicit and particular 12b-1 fee disclosures, the petitioners allow for a fiduciary breach and for advisor-brokers to hide important facts.

Advisor-brokers can hide the truth about conflicted recommendations. They can hide the truth that they recommended a more expensive mutual fund share class with a 12b-1 fee over a less expensive one. That they put their own financial interests first. They can hide the truth that they don’t meet a fiduciary standard.

It’s hard to imagine what those lobbyists were thinking by planting their flag on such a blatantly anti-investor public appeal.

The petitioners alleged that for years, until the SEC’s share class initiative started in 2018, the SEC did not demand additional language.

The SEC strongly disagrees and says the industry is ignoring precedent. The SEC argues that full and fair disclosure has been required for decades.

The stated objections of industry lobbyists has struck a chord with the SEC.

SEC Commissioner Allison Lee was quoted in December saying industry talking points against the SEC share class initiative are “bull****.”

In an October 2019 news article, Steven Peikin, co-director of the SEC enforcement division, was more nuanced. Peikin said, “I’m a little perplexed by some of the criticism,” of the share class initiative.” Then, he asked advisor-brokers, ”Why do you need the SEC to tell you, as a fiduciary, that’s something you shouldn’t be doing?”

Why indeed. Advisor-brokers should ask if advocating obfuscation or deception represents who they are and what they do. Answer: Of course not. Follow-up: Why are you or your firm represented by these lobbyists?

Petitioners’ views are cloaked in respectably. They’re not. No firm would dare advance them. They treat investors abysmally.

For example, modest and practical SEC efforts to improve disclosures is rejected. So is the SEC’s authority to even require explicit disclosure. So, it’s no surprise that Advisers Act precedents are ignored.

But, there is more. Petitioners disagree that an advisor-broker needs to recommend a less expensive product. Nor must they clearly and explicitly disclose, so there is no question the investor understands, that the more expensive product is recommended.

The petitioners have broken new ground with a new anti-investor strategy. It is a strategy that openly disdains the idea of even modest investor protection. It is a strategy that, strangely, seeks to draw industry attention to their disdain for investors. The assault on the SEC’s share-class initiative is a blaring siren. Advisors and advisor groups should hear it.

A PDF of the paper is available for download here.