MSRB's MA Test Advancing

WASHINGTON — A working group of independent financial advisors is close to finalizing a preliminary outline of topics for the first-ever municipal advisor exam, which will be administered by the Municipal Securities Rulemaking Board, sources said.

The exam itself will not be ready before the fall of 2012, but the working group — comprised of roughly a dozen independent advisors and MSRB staff — will convene for a two-day meeting in Alexandria, Va. later this week, the third in a planned series of four such sessions, sources said.

Progress on completing the preliminary outline comes a little more than a year after the Dodd-Frank Wall Street Reform and Consumer Protection Act, which expanded the MSRB’s jurisdiction to include muni advisor regulation. Dodd-Frank also requires the board to develop professional qualifications standards for the newly regulated group. Municipal advisors are now required to register with the Securities and Exchange Commission and the MSRB.

Still, the working group’s efforts are only an initial step in a lengthy test-development process.

“These folks really need to be applauded for their dedication to the industry,” Lynnette Hotchkiss, the MSRB’s executive director, said in an interview. “It’s really hard to get it right.”

Later this year, the MSRB will survey muni advisors about the exam, which will assess the competency of entry-level muni advisors, according to a June update posted on the board’s website. The MSRB will use the survey results to prepare a “draft examination content outline,” which will become the basis for preparing the exam.

That outline would then be submitted to the board, and, if approved, filed with the SEC. The MSRB will announce the exam’s effective date when it files the SEC proposal, the update said.

The SEC would likely float the proposal for public comments, Hotchkiss said, adding that industry input is a key part of the MSRB’s process as well.

“We are on track to deliver the exam in the fall of 2012,” she said. “It’s important to know that’s about how long it takes to go through a very thorough, robust process.”

Since last fall, the board has canvassed market participants about municipal advisors’ professional qualifications through focus groups and outreach events, held in cities such as Atlanta, Austin, Texas, Los Angeles, and New York.

Municipal advisors can also e-mail comments to the MSRB, the update said.

In addition, Hotchkiss confirmed the board has retained Ronald Hambleton, a test-writing specialist, known as a psychometrician, who is the executive director of the Center for Educational Assessment at the University of Massachusetts at Amherst, to develop the exam.

In an interview this spring, Hotchkiss said a psychometrician had been hired to assess the advisor test’s validity, including whether questions can be gamed in any way.

Hambleton did not respond to a request for comment. According to Hambleton’s resume, which is posted on the web, he holds a bachelor’s degree in math and psychology from the University of Waterloo and a master’s and a Ph. D. in psychometric methods from the University of Toronto.

He has served as an MSRB consultant on “professional exams,” his resume says.

Hambleton has also co-authored two MSRB reports: a 1997 job analysis study of municipal securities sales representatives, public finance professionals, traders, and underwriters; and a 2000 job analysis study for the Series 53 exam, which tests the qualifications of municipal securities principals.

Last year, the board proposed revisions to a study outline for the Series 52 exam, which tests the qualifications of municipal securities representatives. The SEC approved an immediate effective date and released the proposal for further public comments. 

Still, Hotchkiss said the process for creating the muni-advisor exam was “no different” than for any of the other tests the board administers, such as the Series 52 and 53.

“It’s a little bit more challenging, because there are a lot of different kinds of municipal advisors,” she said. “We’re really looking for the core kinds of issues.”

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