WASHINGTON — The Municipal Securities Rulemaking Board would begin collecting a $300 annual assessment from municipal advisers beginning this fall if the Securities and Exchange Commission approves the proposal the board filed with it on Tuesday.
The MSRB proposed both a rule change seeking approval of the $300-per-head charge, dubbed an “interim municipal adviser assessment,” as well as new Rule A-11 and a new Form A-11, which would be used in connection with the fee. The MA proposal cannot take effect until the SEC seeks public comments on it and then gives its approval.
Meanwhile, the MSRB asked for comments on a draft survey seeking information from municipal advisers on the nature of their advisory business and the manner and level of compensation they receive for muni adviser activities. It set an Sept. 12 deadline for the comments.
In a notice outlining the fee plan and draft survey, the MSRB said the proposed assessment reflects its “next steps” toward achieving a goal of “an overall fee structure that equitably assesses all entities regulated by the MSRB.”
The fee would take effect on Oct. 1, with payment due by Nov. 30, if the SEC approves the plan.
The charge would cover any “assessable professional” associated with a municipal adviser who received annual compensation or other payments of $10,000 or more from the adviser for services related to the advisory business.
Such services would include: engaging in municipal advisory business with a municipal entity or borrower, soliciting such business, providing research or analytical services to the muni adviser or its clients. supervising muni advisers, and serving on a muni adviser’s executive or management committee.
The interim assessment would remain in place until the board, using data culled from the draft survey, decides whether to impose a permanent muni adviser assessment.
Any permanent charge would “provide for reasonable assessments that are fairly and equitably apportioned among all market participants subject to MSRB regulation and that do not impose an undue burden on small municipal advisers,” the board said in its notice.
The draft survey would collect information from advisers such as their firm’s name, income, and compensation, including whether they charge hourly, fixed or transaction-size based fees.
Survey responses would only be used to help the board establish “fair and equitable assessments on regulated entities to support the MSRB’s regulatory work,” the board’s notice said. Muni advisers would not be assessed fees based on their answers to the survey.
In addition, the board said, the proposed assessment, together with the registration and annual fees already paid by muni advisers, would generate less than 10% of its total annual revenue for the fiscal year that begins on Oct. 1. The MSRB expects fees collected from muni advisers to generate less than 3% of its fee-based revenues this fiscal year.
The board’s proposed assessment reflects budgetary pressures at the MSRB, stemming in part from its expanded role under the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the regulation of municipal advisers. The proposed assessment “is designed to defray a portion of the increased costs and expenses” associated with its muni adviser oversight, the board said.
Broker-dealers and municipal advisers, who first registered with the MSRB late last year, currently pay a one-time $100 registration fee and a $500 annual fee.
In addition, broker-dealers pay the board an underwriting fee of three cents per $1,000 par value of municipal securities purchased in a primary offering, a transaction fee of one cent per $1,000 par value of muni sales transactions, and a technology fee of $1 for each muni sale reported to the board.
Last December, over objections from industry groups and broker-dealers, the SEC approved a two-fold increase in the MSRB’s transaction fee — from one-half cent to one cent per $1,000 par value — and the imposition of the technology fee.
Reaction to the MSRB’s muni-adviser assessment proposal varied, with several market participants saying they were still reviewing the board’s plan.
“Of course, fees and assessments are expected,” Robert Doty, president of American Governmental Financial Services Co. in Sacramento, wrote in an e-mail.
An industry group, meanwhile, applauded the MSRB for proposing the assessment while raising questions about whether the board would require non-dealer financial advisers to shoulder more of the board’s expenses, including technology fees related to the board’s online Electronic Municipal Market Access system.
“We feel the expenses of those kinds of initiatives should be shared among dealers and financial advisers appropriately,” said Michael Decker, managing director and co-head of the municipal securities division at the Securities Industry and Financial Markets Association.
Decker, who said SIFMA will likely file a comment letter with the SEC on the assessment proposal, also questioned whether the MSRB should rethink its overall fee structure and consider a model based on gross revenue from muni adviser activities, rather than trading volume.