What you need to know about the new SEC© municipal advisor rule

Publisher: Accounting Today
Author: Douglass Dalton

The SEC© has recently announced the implementation of a new rule that oversees municipal advisors in order to crack down on potential conflicts of interests at the expense of both institutional and retail investors.

Municipal advisors are defined as a qualified finance professional who gives municipalities and non-profits advice on financial deals such as bond offerings. Under the municipal advisor rule that the SEC© approved in September 2013, an advisor must be registered through the SEC© as a municipal advisor and cannot have any other interest in the deal. The rule stipulates that municipal advisors now have a federal fiduciary duty to their clients and will be held to new professional qualification and conduct standards.

The implications of this new advisor rule involve the burdens of implementing change throughout the entire municipal advisor industry. Historically, it was common for those orchestrating the transaction to also dish out advice and counsel to the municipality or nonprofit entering into the deal. The problem with this model was that while most underwriters or brokers are fair and reasonable, entrusting a financial professional to give advice to a municipality or nonprofit when that professional could potentially benefit greatly if the municipality or nonprofit enters into the deal, creates an inherent conflict of interest. Unless an exemption is met, issuers will only be able to receive advice or recommendations from municipal advisors (those professionals with a fiduciary duty to the government or nonprofit), and no other parties, such as underwriters.

For more detailed analysis on the new SEC© municipal advisor rule, please access the full article here.

For assistance with meeting the SEC© municipal advisor registration requirements, please call 303-353-1945