MIAMI - The president of the National Association of Independent Public Finance Advisors said yesterday that the Municipal Securities Rulemaking Board should not be given the powers to regulate financial advisers in the municipal market.

Financial advisers believe some form of regulation is necessary, but oversight by the MSRB would put them in a position of being regulated by their own competitors, said Steven F. Apfelbacher of Ehlers and Associates Inc. at The Bond Buyer and Regional Bond Dealers Association National Municipal Bond Summit. The MSRB had earlier this month sent a letter to Congress urging it to give it broader powers over currently unregulated participants, including independent financial advisers and investment brokers.

"It's the fundamental issue of having a level playing field," Apfelbacher said.

Apfelbacher said financial advisers perform a different role and have a different responsibilities than broker-dealers. They sell advice to clients, rather than a specific product.

Financial advisers worry that even if they were given some say at the MSRB, the broker-dealers' dominance on the board would still outweigh them. They could end up getting subjected to rules that would put them at a competitive disadvantage, Apfelbacher said.

The MSRB sent the letter to Congress after being frustrated for years that companies with so much power in the market remained unregulated, said MSRB executive director Lynnette Hotchkiss during the panel discussion. Recent pay-to-play allegations against a financial adviser linked to work with associates of New Mexico Gov. Bill Richardson - and the flurry of news articles in the national media that followed them - spurred the MSRB to take its recent actions, Hotchkiss said.

The NAIPFA is a professional organization, but it is not mandatory for financial advisers to join. It sets standards for its members, but it does not have an enforcement arm.

All broker-dealers working in the municipal market must register with the MSRB, which was created by Congress in 1975 to set the rules for the market that have the full force of federal law. The Financial Industry Regulatory Authority, also a self-regulatory organization, enforces the rules for all securities firms.

Hotchkiss said guidelines the MSRB already has in place could be tweaked to apply to the financial advisers as appropriate. By having a self-regulatory organization on top of any Securities and Exchange Commission regulations, the board can better watch over the business and help protect investors, she said.

"MSRB can go above and beyond and be more prescriptive than the SEC," Hotchkiss said.

Saber Partners LLC chief executive officer and co-founder Joseph Fichera, who is a financial adviser but not a NAIPFA member, said at a panel Wednesday that financial advisers should self-regulate, but it would be "inappropriate" for the MSRB to regulate them.

Fichera said an issuer's financial adviser has a different job and role than a broker-dealer, in which it should be “a strong advocate of the issuer's interest with the broker-dealers.”

They are not competitors of the broker-dealers as Apfelbacher said, but rather the people overseeing them, Fichera said.

Fichera said “the duty of trust means they should be held accountable to the issuer.”

“If the brokerage community regulated advisors it would be a conflict and promote what [former Securities and Exchange Commission chairman] Arthur Levitt described as the `go along, get along’ attitude rather than one of skepticism and due diligence,” Fichera wrote in an e-mail.

“However, financial advisors should not get a free pass. They need to put forward high standards of professional conduct governing not just `pay to play’ but principles of analysis, due diligence and work quality just like self-regulated lawyers, accountants and even engineers do. It must have an enforcement mechanism that punishes inappropriate conduct as well as negligent work."

Fichera also urged that issuers take a more proactive approach and be more skeptical of the products bankers and advisers try to sell them. The companies are in the business to make money, and issuers must be cautious not to plunge into products just because everyone else is, he said.

The current financial crisis has led the push for changes to regulation across all markets. Congress is taking a top-down look at regulation, and could take a number of actions, such as merging different agencies.

"The way I read it, everything is on the table," said Michael Decker, co-chief executive officer of the Regional Bond Dealers Association.

Andrew Ackerman contributed to this story.

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