Actually, unless we're talking class B airspace here, that's *exactly* what you're supposed to do. In anything class C and below, VFR/VFR separation is your responsibility, not that of ATC. If that separation requires an orbit deadside, so be it.
I'm not sure that it's quite as simple as that - and I am in no way attempting to an armchair investigation of this sad event. ATC should also pass traffic information to assist the pilots to avoid each other - and perhaps even issue instructions so as to reduce the potential for aircraft to get close to each other. This applies even to class C airspace and 'below'.
And to be pedantic, what VFR pilots are doing is collision avoidance, not separation.