More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
The Municipal Securities Rulemaking Board (MSRB) sent a notice on July 5 stating it had become aware of firms engaging in municipal advisory activities without being registered with the Securities and Exchange Commission (SEC) or MSRB—which is a violation of the Exchange Act and rules of both agencies.
The notice warns municipal advisors that if MSRB receives information indicating violations of these registration requirements, it “intends to refer the matter to the appropriate regulatory authority for investigation and possible enforcement action.”
“It has come to our attention that some municipal advisors are providing municipal advisory services without first registering with the SEC and MSRB, as required by law,” said MSRB Executive Director Lynnette Kelly Hotchkiss, in a statement. “The MSRB is concerned that these firms may not be aware of their legal obligations, including the federally established fiduciary duty owed their municipal entity clients” under the Dodd-Frank Act.
The MSRB notice says that “unregistered municipal advisory firms may be unaware that they--and individuals associated with them--owe a federal fiduciary duty to municipal entity clients for whom they provide municipal advisory services.” The notice goes on to state that municipal entities and obligated persons that retain municipal advisor firms to verify their registration status with the MSRB and the SEC.
Firms engaged in municipal advisory activities were required to be registered with the MSRB as of Dec. 31, 2010, as a result of the MSRB’s expanded regulatory authority over municipal advisors established by Dodd-Frank. Prior to registering with the MSRB, municipal advisors must register with the SEC. In addition, the notice states that brokers, dealers and municipal securities dealers that also act as municipal advisors are required to register with both regulators as municipal advisors even if they previously registered with the MSRB as dealers.
Municipal advisors are awaiting clarity from the SEC on who is a municipal advisor. While the Dodd-Frank Act required municipal advisors to register with the SEC by October 2010, the agency created a temporary registry. The SEC is now proposing rules that would establish a permanent registry for municipal advisors and impose certain record-keeping requirements on them, including the agency’s pay-to-play rule. The comment period on that permanent rule expired Feb. 22.
The SEC received nearly 800 comment letters stating that the rule was “too broad” in defining who is a municipal advisor, Lynette Kelly Hotchkiss told AdvisorOne. “The SEC has until the end of the year to give clarity on who is a municipal advisor,” Hotchkiss says. “There are people who are clearly municipal advisors—about 700 advisors have been registered with MSRB already since Dodd-Frank. There’s a lot of gray area—some are clearly municipal advisors and some are clearly not.”