The Municipal Securities Rulemaking Board floated proposals Wednesday to ban false and misleading advertising by municipal advisors and require them to create written records of their advisory engagements.
In a six-page notice posted on the MSRB’s website, the board asked for public comments on draft amendments to Rule G-21 on advertising and a draft interpretive notice for Rule G-17 on fair dealing, setting a Sept. 14 deadline. Together, the proposed amendments and notice would bar municipal advisors from disseminating false or misleading ads about municipal securities, municipal financial products and third-party services.
In a two-page notice posted on the site, the MSRB also asked for comments on a new draft Rule G-46, which would require municipal advisors to maintain certain written records of muni advisory engagements.
“These rules would help ensure that municipal advisors are not misleading in their public communications and that a municipal advisor’s clients receive the disclosures they are entitled to receive from the outset of the relationship,” MSRB executive director Lynnette Hotchkiss said in a release.
As proposed, draft G-46 would require municipal advisors to create “written evidence” of an advisory relationship with a municipal entity. A relationship exists when a muni advisor “renders advice to a client” or “enters into an agreement” to render such advice.
Once the relationship exists — or “promptly” thereafter, the draft rule would require the muni advisor to create a written record, such as a letter or an agreement, outlining the basis of the compensation; the amount of direct and indirect compensation; the scope of the services; any conflicts of interest; any affiliates providing advice, services, or products to the client on the engagement; and whether the muni advisor has registered with the Securities and Exchange Commission and the MSRB.
Separately, the board’s draft amendments to G-21 would prohibit muni advisors from knowingly making false or misleading statements in written and electronic promotional materials, such as circulars, reports, and press releases. The interpretive notice on G-17 would ban false and misleading statements in written and oral sales or marketing communications, such as pitch books and responses to requests for proposals.
Among independent financial advisors, reaction to the board’s proposals was muted.
Colette-Irwin Knott, a partner at H.J. Umbaugh & Associates in Indianapolis and president of the National Association of Independent Public Finance Advisors, declined to comment, saying she had not reviewed the notices.
Another FA said the proposals did not come as a surprise.
“There is nothing unexpected here,” Robert Doty, president of American Governmental Financial Services Co. in Sacramento, wrote in an e-mail.
The MSRB would need to file the proposals with the SEC for final approval.
