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Muni Advisors Pan MSRB Fee

SEP 21, 2011 6:52pm ET
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WASHINGTON — Small, independent municipal advisors asked the Municipal Securities Rulemaking Board for an exemption from its proposed $300 per head annual assessment, while dealers criticized as burdensome and costly the board’s survey designed to obtain compensation and income data for the assessments.

Market participants presented their views in comment letters filed with the MSRB last week about a proposed muni-advisor survey that seeks information from advisors on the nature of their business and compensation.

The comment letters on the draft survey were due on Sept. 12, the same day that the MSRB pulled five of its municipal advisor rule proposals that were pending with the Securities and Exchange Commission, including its proposed new Rule A-11 on muni advisor assessments. The board wants to wait for the SEC to adopt a final definition of muni advisor later this year, after which it plans to amend the rule proposals as necessary and resubmit them to the commission.

But executive director Lynnette Hotchkiss said Thursday that the MSRB will review the draft survey comment letters at its meeting next month and consider whether to delay moving forward with the survey, pending the SEC’s final definition for muni advisors.

“The proposed due date for the survey remains subject to change and will be determined upon filing with the SEC,” Hotchkiss said.

The draft survey, floated for comment by the MSRB in July, seeks information from municipal advisors on the nature of their business and the manner and level of payment they receive for their advisory activities.

It was designed to help the board set “fair and equitable” assessments on regulated entities to support its regulatory work, the board’s July notice said.

But Colette Irwin-Knott, president of the National Association of Independent Public Finance Advisors, said: “NAIPFA opposes the scope of the survey and believes that the MSRB’s stated purpose of establishing fair and equitable fees can be achieved through less intrusive means.”

The survey asks firms to disclose their total gross income from muni advisory activities between Jan. 1, 2011, and Dec. 31, 2011, as well as gross income realized from advisory business by FAs, swap advisors, guaranteed investment contract brokers, placement agents, solicitors and third-party marketers.

It also asks for gross income from non-advisory business, as well as data about advisor compensation, including the total amounts received from fixed fees, hourly fees, retainers, and transaction-size-based fees. Firms would have to disclose the amount of any fee that was contingent on completing a transaction.

The survey also seeks data about average fee and transaction size for new-issue offerings, remarketings, private placements, swaps, derivatives, GIC brokerage, and third-party solicitations.

In its July notice outlining the fee plan and survey, the board said the proposed $300 fee reflected an effort to achieve an overall fee structure that equitably assessed all entities regulated by the MSRB. The board also said muni advisors would not be assessed fees based on their answers to the survey.

Broker-dealer and muni advisor firms currently pay the MSRB a one-time $100 registration fee and a $500 annual fee. The $300 per head annual fee would apply to each “assessable professional” associated with an advisor and would be on top of the one-time registration and annual firm fees.

Broker-dealers also 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.

One advisor, a sole practitioner, told the MSRB in an email that he found the prospect of paying $800 in annual MSRB fees “disheartening.”

Dan Kaplan, president of Kaplan Financial Consulting Inc. in Wilmette, Ill., asked the board to consider exempting from such fees firms with annual revenues less than $100,000. “Larger firms can bear the cost of MSRB fees, smaller firms cannot,” he wrote.

Another independent advisor urged the board to waive the $300 fee for sole practitioners and asked it to keep the survey information confidential.

Gary Kitahata, principal at Kitahata & Co. in San Francisco, wrote that his firm’s gross compensation was the same as his personal gross compensation, and he would prefer “that this information not be available for anyone to access.”

Irwin-Knott, a partner at H.J.Umbaugh & Associates LLP in Indianapolis, warned the survey would require firms to provide “very private information” that, if disclosed, “could lead to anticompetitive practices.”

NAIPFA also asked the board not to require firms to include their names and MSRB registration numbers on the form.

The Securities Industry and Financial Markets Association urged the board to suspend “any further action” on the draft survey, saying compliance would prove “time-consuming and burdensome.”

In a three-page letter signed by Michael Decker, managing director and co-head of the municipal securities division, SIFMA also asked if the board had done cost-benefit analysis of the survey to determine whether compliance costs would be justified by benefits from the rule.

“In the rulemaking process, the MSRB always carefully evaluates the potential benefits and burdens of each proposal, analyzing alternatives to achieve the desired result,” Hotchkiss said.

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