More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Advertising Advisor Services and Credentials Section 206 of the Investment Advisers Act contains the anti-fraud provision of the statute and ensures that RIAs advertising and marketing practices are consistent with the fiduciary duty owed to clients and prospective clients.
The Municipal Securities Rulemaking Board (MSRB) on Tuesday proposed a rule that would mandate and govern a fiduciary duty owed by municipal advisors to over 50,000 state and local government clients, including municipal entities such as counties, school boards or port authorities.
Arising out of Dodd-Frank’s direction to protect “municipal entities,” proposed rule G-36 would require municipal advisors “to put the interests of state and local governments first,” in the words of MSRB Executive Director Lynnette Kelly Hotchkiss in a statement.
“This goes a long way,” she said, “in ensuring the interests of state and local governments are protected and lays a solid foundation for disclosing conflicts of interest and establishing an appropriate duty of care for financial transactions.”
According to the Securities and Exchange Commission, Section 975 of Title IX of Dodd-Frank Act made it “unlawful for municipal advisors to provide certain advice to, or solicit, municipal entities or certain other persons without registering with the Commission,” and thus it required registration with the SEC.
RIAs registered under the Advisers Act of 1940 and broker-dealers as underwriters were specifically excluded from the SEC registration rule and the commission's proposed definition of municipal advisors.
That proposed definition specifically includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders and swap providers who provide investment advice to government entities on “the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or a solicitation of a municipal entity or obligated person.”
Under the proposed MSRB rule, municipal advisors would be required to make written disclosures of certain conflicts of interest and to receive written consent for any such conflicts by authorized government officials.
The MSRB is proposing that the fiduciary duty rule for municipal advisors and related guidance be effective on the effective date of the SEC’s proposed definition of the term “municipal advisor” or at a “later date as approved by the SEC.”
The SEC proposed an interim final rule on registration of municipal advisors in December 2010, but has yet to make a final ruling on the definition of a municipal advisor. Since that time, it has continued to receive comments on the proposed rule, and SEC officials have met with many stakeholders in the discussion, including SIFMA and the National Association of Independent Public Finance Advisors (NAIPFA).