WASHINGTON - The Municipal Securities Rulemaking Board needs to improve the quality of the mock advertisements in its municipal advisor advertising rule guidance if it wants to provide a helpful compliance resource, muni advisors and broker-dealers told the board.
The comments came from both the National Association of Municipal Advisors and the Bond Dealers of America in letters responding to the MSRB’s request for feedback on a draft “compliance resource” released last month. The resource covers the application of the new Rule G-40, which becomes effective Feb. 7 2019 and establishes content standards for muni advisor advertising. The rule places formal restrictions on non-dealer MA advertising for the first time, a step long called for by dealer-affiliated MAs subject to existing dealer advertising restrictions.
The published resource provided various mock advertisements to illustrate certain requirements of G-40, such as the necessity that MA advertisements not be misleading and not contain testimonials from customers endorsing the advisor’s services.
But the examples are insufficient or problematic, NAMA and the BDA told the board, and need to be expanded and clarified. NAMA also said it was concerned that the examples imply “judgment-based standards” derived from Financial Industry Regulatory Authority standards that don't apply to non-dealer MAs.
NAMA took issue with some of the MSRB’s examples which highlighted the potential pitfalls of stating that a firm is “ranked as a top municipal advisory firm” without providing a “sound basis” for that claim. One of the examples stated that the ranking statement was based on issuance data compiled by a specific data service, but that example was nonetheless flagged as a failure to provide a basis or source for the statement.
“The MSRB needs to be more clear on what it means to have a sound basis for making a sourced comment and how MA firms can accurately use sourced information in their advertisements,” wrote Susan Gaffney, NAMA’s executive director.
Gaffney also said NAMA is concerned that the MSRB is introducing “into the rule compliance process judgment-based standards derived from FINRA advertising standards,” an often-unpublished framework developed in interactions between FINRA and its members. Non-dealer MAs are not FINRA members.
“We believe that municipal advisors should be subject to the rule language that the MSRB has adopted rather than the informal views that have been developed through the non-municipal broker-dealer advertising process established by FINRA,” wrote Gaffney.
Mike Nicholas, the chief executive officer at BDA, told the MSRB that the compliance resource needs more “nuanced” examples because some of the current ones are too simplistic to provide useful guidance. The MSRB should also provide examples of what complies rather than only what does not, Nicholas wrote.
“The lack of corrections to the mock advertisements creates more confusion and ambiguity as to what is permissible under the content standards,” wrote Nicholas.
The MSRB may choose to incorporate the comments into a final compliance resource published at a later date. Such resources are intended as helpful information for the consideration of regulated firms, and aren’t new interpretations if the rules, the MSRB has said.
