The Dodd Frank Act seeks to define a “municipal advisor” so that those advisors not affiliated with already-regulated broker-dealers could be required to register with the SEC and ultimately, be subjected to training and licensing requirements. The SEC has now finalized the Municipal Advisor rule, available [here], in a manner that provides certain exemptions for underwriters and sets the stage for the MSRB to fully and appropriately regulate municipal advisors operating independently of broker-dealers.
The definition originally proposed under the Act, however, was overly broad. The definition needed to be refined so the MSRB could move forward with equitable regulation of municipal advisors operating outside of broker-dealers.
To address this, on September 20, 2012, the House of Representatives approved H.R. 2827 by Rep. Dold (R-Il), and cosponsored by Rep. Moore (D-WI) and others. The bill would narrow and clarify the definition of a municipal advisor under the Dodd Frank Act. BDA worked with legislators to urge its passage as a key priority. In the 113th Congress, Reps. Stivers (R-OH), Pearce (R-NM) and Moore (D-WI) have reintroduced the bill as H.R. 797, the Municipal Advisory Oversight Improvement Act of 2013.
BDA supports this bill because it paves the way for the SEC and the MSRB to regulate currently unregulated municipal advisors, while providing needed clarification that underwriters are not captured by the definition. Being defined as a municipal advisor entails a fiduciary duty that does not fit the role of the underwriter, who owes a fair dealing duty to both issuers and investors that is not compatible with a fiduciary duty to just an issuer.
In a letter to the MSRB in March 2013, the BDA again asked the MSRB to apply both formal and informal influence on the SEC to issue a final definition of municipal advisor. We continued to say, “We believe it is most important that this definition be finalized so that currently unregulated industry participants better serve the municipal market by becoming subject to the type of regulatory structure and oversight that already covers broker-dealers.” View the full letter here. An article in the Bond Buyer on the topic can also be found here.
On October 3, 2012, the Bond Buyer published a commentary entitled: Dold Bill a Positive Step Forward; NAIPFA Analysis Flawed. Authored by BDA CEO Mike Nicholas, the letter directly addresses misinformation regarding H.R. 2827 made in a previous commentary authored by Colette Irwin-Knott, president of The National Association of Independent Public Finance Advisors. For the full commentary as it appears in the Bond Buyer, click here. For NAIPFA’s commentary, click here.
BDA testified at a hearing on H.R. 2827 July 20, represented by Michael Marz of FirstSouthwest. In his testimony, Marz called for a level regulatory playing field to protect the public interest saying, “[a]lmost two years after Dodd-Frank, virtually anyone can act as a non-dealer municipal financial advisor to an issuer of municipal securities, regardless of qualifications, while more and more restrictions are focused on broker dealers, including regulated dealer advisors.” BDA also sent the Committee a letter of support for the bill which you can find here.
By way of background, in a March 30, 2012 opinion piece featured in the Bond Buyer, BDA CEO Mike Nicholas writes, “More than one year after the enactment of the Dodd-Frank Act, and despite the work by the MSRB on writing a definition, virtually anyone can claim to be a municipal advisor, regardless of qualifications, political contributions or conflicts of interest. This is exactly the opposite of what Dodd-Frank intended.” Click here for the full text of the piece.
In March 2012, BDA submitted comments for MSRB Priorities for FY 2013, a large focus of which was the need for a permanent definition of Municipal Advisor. Those comments are available here.
In January 2012, the BDA reiterated its comments to the SEC in a request for comment on MSRB Rule G-17, but also continued to encourage the SEC to finalize the definition of “municipal advisor” and regulate independent municipal advisors. See those comments here.
In December of 2011, a bipartisan group of House members also sent a letter to SEC Chairman Schapiro on the definition of Municipal Advisor. That letter can be found here.
In November of 2011, the BDA sent a letter today to SEC Commissioner Elisse Walter that highlights the role played in the municipal market by underwriters as well as urges the SEC to finalize a definition of municipal advisor. That letter can be found here.
In October of 2009, Commissioner Walter emphasized the need to regulate currently unregulated municipal financial advisors operating outside of broker-dealers. Her speech can be found here.