WASHINGTON —Broker-dealer groups blasted a Municipal Securities Rulemaking Board proposal to collect an annual $300-per-person fee from municipal advisors, saying the assessment would penalize dealers and dealer FAs who already bear the brunt of funding the board’s operations.
The remarks came in comment letters filed with the Securities and Exchange Commission Monday. The MSRB is seeking SEC approval for a plan to begin collecting the $300 fee this fall. Last month, the board proposed a rule change seeking approval of the $300 fee, dubbed an “interim municipal advisor assessment,” as well as a new Rule A-11 and a new Form A-11, which would be used in connection with the fee.
But the Bond Dealers of America and the Securities Industry and Financial Markets Association told the SEC the board’s proposal did not go far enough to create an equitable fee structure. Broker-dealers have long been subject to MSRB oversight and fees. Municipal advisors became subject to MSRB registration and oversight last year under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“The advisory activities of broker-dealers have been regulated by the MSRB for years and the costs have been borne by those broker-dealers,” wrote Michael Nicholas, chief executive officer of BDA, in a two-page comment letter. “The broker-dealers currently and for the foreseeable future also bear virtually the entire cost of regulating these formerly unregulated municipal advisors. Those entities should bear a greater part of the cost and the MSRB should take greater action in this interim assessment to fairly share the burden among the regulated entities.”
Broker-dealers and muni advisors currently pay a one-time $100 registration fee and a $500 annual fee. 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.
In a July 26 notice outlining the fee plan, the board said the proposed $300 assessment reflects an effort to achieve “an overall fee structure that equitably assesses all entities regulated by the MSRB.” The assessment would also defray “a portion of the increased costs and expenses” associated with oversight of municipal advisors, the board said.
The proposed assessment, together with registration and annual fees already paid by muni advisors, would generate less than 10% of the board’s total annual revenue for the fiscal year that begins on Oct. 1, the notice said. For the current fiscal year, the board expected fees paid by muni advisors to generate less than 3% of its fee-based revenue.
In its two-page comment letter, BDA urged the SEC to require the board to estimate, within 90 days, the portion of its coming fiscal year budget that would be attributable to muni advisor regulation and supervision, and adjust the assessment to cover those expenses.
The group also said the SEC should limit the proposed $300 fee to municipal advisors who are not employed at broker-dealers.
In a seven-page comment letter signed by Michael Decker, SIFMA’s managing director and co-head of municipal securities, the industry group urged the SEC to exempt dealer FAs from the proposed fee, saying “it would not be appropriate or fair for dealer advisors to pay the MSRB twice for the same activities.”
Decker also said non-dealer advisors do not pay “their fare share of expenses” associated with the board’s EMMA system “and other big-ticket projects.” In addition, Decker wrote the board should revamp its fee structure and assess dealers and advisors based on their gross revenue from municipal-related business.
Finally, SIFMA said uncertainty about compliance with Dodd-Frank regulations could drive some dealer FAs from municipal advisory business, “resulting in less competition and higher costs for state and local issuers.”
Meanwhile, independent FAs warned that costs and fees associated with muni advisor regulations as a whole would burden small firms.
In a two-page comment letter dated Aug. 29, Colette Irwin-Knott, a partner at H.J. Umbaugh & Associates LLP in Indianapolis and president of the National Association of Independent Public Finance Advisors, said the group did not object to the proposed $300 fee. But NAIPFA said state and local governments pay the costs associated with bond issuances, and “the public cost must be a consideration in establishment of all fees related to bond issues.”
In addition, Irwin-Knott wrote, municipal advisors have “significantly different and less lucrative business models” than broker-dealers and “can only bear so much burden.”
In a one-page comment letter, Joy Howard, a principal at WM Financial Strategies in St. Louis, estimated that muni advisor regulations already in place or proposed by the SEC and the MSRB would cost her two-person firm between $24,200 and $61,540 per year in fees and record-keeping costs.
The MSRB reported $22.9 million in revenue for the fiscal year that ended on Sept. 30, 2010, according to its 2009 IRS Form 990.