GFOA Primer: Municipal Advisor Rulemaking and Issuers

The Securities and Exchange Commission’s municipal advisor rule took effect on July 1, 2014. The Rule defines the term “municipal advisor” (MA), and creates the broad framework for the regulations that the MSRB is charged with developing regarding the duties and responsibilities of MAs. The MA Rule itself stems from the new regulatory framework over municipal advisors created by the Dodd-Frank Act to protect issuers from unfair and deceptive practices by outside professionals and clearly states that municipal advisors have a federal fiduciary duty to their issuer clients, must meet professional qualification standards and may serve no other role than to advise their clients in a transaction. While the MA Rule and subsequent MSRB rulemaking do not regulate issuers directly, there are numerous indirect implications, especially related to MSRB Rule G-42, Duties of municipal advisors, that goes into effect June 23, 2016. These include: formal standards that must be met by the MA, and between MAs and their clients, including written documentation of municipal advisory engagements; disclosures to client of MA conflicts of interest; and the recommendations that MAs provide issuers must meet a suitability standard, which may in turn result in additional discussions between MAs and their clients.