Money Matters - July 11, 2016

Get to Know Your Municipal Advisor

 

Financing a public project through municipal bonds is a team effort, as dozens of professionals work together to achieve the goals of the state or local government.

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File a Complaint
Any issuer or municipal market participant who suspects a municipal advisor of violating MSRB rules or acting unfairly should report it to the regulatory authorities. The MSRB accepts complaints by phone at 202.838.1330 or by email to complaints@msrb.org. 

On-Demand Webinar

For more information on what to expect from your municipal advisor, view an on-demand webinar detailing the requirements, rules and regulatory protections in place for clients of municipal advisors. Continuing professional education credit is available for webinar participants.

Continuing professional education credit is available for webinar participants.

Keep Up to Date

For more information, contact MSRBEvents@msrb.org.

Keep up with MSRB activities and new resources by subscribing to MSRB email updates and following the MSRB on Twitter @MSRB_News.

Each member of the deal team offers different skills and expertise, and has distinct responsibilities.

Many state and local governments choose to add a municipal advisor to this team to provide financial advice about the structure, pricing, timing and distribution of their bonds to investors. If your team includes one, make it a priority to get to know your municipal advisor.

Unlike underwriters, municipal advisors owe a federal fiduciary duty to their municipal entity clients under the Dodd-Frank Wall Street Reform and Consumer Protection Act, meaning municipal advisors must act in their municipal entity clients’ best interests without regard to their own financial or other interests.

The Dodd-Frank Act extended the jurisdiction of the Municipal Securities Rulemaking Board (MSRB) to include the regulation of municipal advisors and charged the MSRB with developing professional standards and rules of the road for municipal advisors.

As the MSRB’s new rules for municipal advisors begin to go into effect this year, state and local governments may see changes in their relationships with the professionals they hire for their deal team. Ultimately, the rules aim to ensure that only appropriately qualified and accountable professionals provide advice that states and municipalities rely on when issuing bonds. If you are working with a regulated municipal advisor, there are three main ways you can be a more informed client:

• verify the municipal advisor’s registration and professional qualifications
• understand the conduct you should and should not expect from municipal advisors, and
• know how to report potential professional misconduct to the appropriate authorities.

Verify Municipal Advisor Registration and Qualifications

Before working with a municipal advisor, issuers should verify that the firm is properly registered with both the Securities and Exchange Commission and the MSRB. See a list of all registered municipal advisor firms on the MSRB’s website by clicking the “Working with Regulated Financial Professionals” link on the MSRB.org homepage.

Municipal advisor professionals are required to take a professional qualifying examination. By fall 2017, every municipal advisor professional is expected to have taken and passed the MSRB’s Series 50 qualifying exam in order to continue providing municipal advisory services. The MSRB will publish the names of individuals who pass the exam on its website at MSRB.org.

What to Expect from Your Municipal Advisor

At the beginning of the municipal advisory relationship, municipal advisors must provide written documentation of the relationship to the client. They must disclose, in writing, any conflicts of interests that could potentially affect the advice they provide to the client. Under the federal fiduciary duty, they must put the interests of their clients ahead of their own. Municipal advisors also are required to “know their clients” and only make recommendations that are suitable based on the client’s financial situation, objectives, risk tolerance and experience with the product or transaction, among other factors.

MSRB rules also identify certain prohibited conduct that municipal advisors must not engage in. Municipal advisors may not charge excessive compensation or fees for their services. To address the potential for conflicts of interest in the selection process, the MSRB has capped the value of gifts that municipal advisors are permitted to give to an employee of an issuer client.

The MSRB is also implementing rules that prohibit so-called “pay-to-play” activities connected with political contributions to officials of municipal entities with decision-making authority over hiring municipal advisors.

Additionally, municipal advisors are prohibited from engaging in principal transactions, such as sales or purchases of any security or entrance into any derivative, guaranteed investment contract or other similar financial product, with its municipal entity client for which the municipal advisor provided advice, except for in limited cases. This ensures that advisors do not steer clients into a related transaction that financially benefits the municipal advisor’s firm.

More information on the MSRB rules containing these obligations and prohibitions is available on the MSRB’s website at MSRB.org.