The MSRB proposes that municipal advisors be held to a fiduciary level of duty to state and local government clients, and to other municipal entity clients.  Under proposed MSRB Rule G-36 and related guidance, municipal advisors would owe a duty of loyalty and a duty of care that would require them to act in the municipal entity’s best interest.  Municipal advisors, which provide advice to municipal entities about municipal securities and financial products, would be required to make clear written disclosure of certain conflicts of interests and to receive written consent to any such conflicts by authorized government officials.

“We are proposing that municipal advisors be required to put the interests of state and local governments first.  This goes a long way 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.”   -- Lynnette Kelly Hotchkiss, MSRB Executive Director.

As proposed, the rule also would: 

• prohibit an engagement with a state or local government where an “unmanageable” conflict exists, such as kickback payments to the municipal advisor from 3rd parties; 

• establish the concept that compensation received by a municipal advisor may be so disproportionate to the nature of the services performed that it represents a violation of the municipal advisor’s duty to act in the best interests of its municipal entity client; 

• require a municipal advisor to act competently in providing advisory services to its municipal entity clients and, in general, to consider alternative financings or products; 

• required a municipal advisor to make a reasonable inquiry into the facts relevant to determining whether their municipal entity clients should proceed with a financial course of action, such as issuing municipal securities.

The MSRB asks that these provisions become effective on the date the SEC formally defines the term, “municipal advisor.”  

[MSRB News Release, 8/23/11]   For further details, go to:   [MSRB Notice 11-48, 8/23/11]   and   [MSRB Rule Filing 8/23/11]