More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
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).