WASHINGTON — A dealer group blasted recent criticism of underwriters Wednesday, saying it is unaware of broker-dealers urging municipal issuers not to engage financial advisors, or only to work with dealer-FAs.

In a letter to Securities and Exchange Commission member Elisse Walter, Michael Nicholas, the chief executive officer of the Bond Dealers of America, objected to “the unfounded view that underwriters take advantage of and mislead their clients.”

He also criticized the notion that issuers “are unaware of the arm’s length nature of the relationship, and that unregulated financial advisors are somehow intrinsically better, and disinterested, providers of information to issuers.”

The BDA’s letter comes amid continuing regulatory scrutiny of, and interest in, dealer-FAs. It also marks the latest chapter in an ongoing and sometimes contentious debate among underwriters and independent financial advisers about the scope of proposed rules for previously unregulated municipal advisors.

Unlike underwriters, muni advisors are subject to a fiduciary duty under the Dodd-Frank Act and must put their client’s interests ahead of their own.

Last month, John Bonow, a managing director at Public Financial Management Inc. in Seattle, told Walter in a letter that underwriters often push issuers not to hire financial advisors and, if an issuer insists on working with one, prod them to retain broker-dealer FAs.

Earlier this month, the Municipal Securities Rulemaking Board floated amendments to proposed interpretive guidance for underwriters on its G-17 fair-dealing rule that would for the first time prohibit underwriters from telling issuers not to hire financial advisors and require broker-dealers to disclose to state and local governments that they are not fiduciaries.

But the BDA is “completely unaware” of situations in which dealer-FAs discourage issuers from hiring FAs, Nicholas said in an interview.

Nicholas also criticized the view that underwriters do not fairly represent issuers.

“That’s just ridiculous,” he said. “It’s not founded at all.”

Separately, the dealer group urged the SEC to finalize a muni advisor registration rule and definition, a step the MSRB has said is needed before it proceeds with a series of rules governing advisors.

Permanent rules that would regulate muni advisors, as contemplated by the Dodd-Frank, are “long overdue,” especially since underwriters “have long been subject to” regulatory oversight, including rules governing registration, licensing, and restrictions on political contributions, Nicholas wrote.

The SEC is slated to release a final municipal advisor registration rule and definition by the end of 2011, according to the commission’s web site.

In mid-September, the MSRB pulled five proposed muni advisor rules that had been pending with the commission.

The board has said it will re-file the rules after the SEC finalizes its rule and definition.

Meanwhile, Nicholas said, the delay has resulted in confusion for small and mid-sized issuers. “It’s not in the best interests of the market,” he said.

The BDA’s members include Dallas-based First Southwest Co. Former MSRB chairman Michael Bartolotta, whose term ended on Sept. 30, is a vice chairman of the firm.

Earlier this year, in a comment letter filed with the SEC on proposed amendments to MSRB Rule G-23 on role-switching, an independent FA wrote about an underwriter that told a state school association, in a powerpoint presentation, that underwriters provide similar services to those offered by FAs.

An independent FA group, the National Association of Independent Public Finance Advisors, declined to comment on the BDA’s letter. Bonow also did not respond to a request for comment.

Nicholas urged regulators to “create a level playing field” for financial advises and broker-dealers, “recognizing that both provide important services that issuers desire.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.