In a commentary published September 25, 2012 in the Bond Buyer, the National Association of Independent Public Finance Advisors (NAIPFA) made a number of misstatements that overlook the intent and value of a bill approved on a bipartisan, unanimous basis by the Financial Services Committee and the U.S. House of Representatives.

On behalf of the Bond Dealers of America, representing middle-market fixed-income dealers nationwide, I would like to clarify how a bill we strongly support — H.R. 2827, sponsored by Rep. Bob Dold (R-IL) and cosponsored by Rep. Gwen Moore (D-WI) and others — will help to protect the public interest.

In their commentary, the NAIPFA charges that H.R. 2827 will curtail the Municipal Securities Rulemaking Board's and SEC's "ability to prevent 'switching,' where the underwriter is engaged as a 'financial advisor' on a voluntary basis." Yet the MSRB, under Rule G-23, already prohibits underwriting and serving as a financial advisor under the same transaction, and broker-dealers across the country comply. Moreover, neither Dodd-Frank nor the Dold bill affect the MSRB's ability to regulate "switching" under G-23, given that the MSRB's originating statute gives them authority over broker-dealers as a whole, and underwriters directly. The gap in regulation is over unregulated municipal financial advisors — not the other way around. Underwriters have always been understood to be at arm's length to issuers in transactions and have a duty to deal fairly; the Dold bill appropriately honors this role. Moreover, the fiduciary duty that municipal advisors who are within broker dealers have to issuers is reinforced under the Dold bill.

Beyond that, the Dold bill clarifies the definition of municipal advisor so that non-bank municipal finance advisors will, for the first time ever, become regulated, as is the intent of Dodd-Frank. When the SEC finalizes its municipal advisor definition, members of NAIPFA will become regulated in a manner similar to requirements already governing municipal FAs affiliated with broker dealers. These regulations include, regular and random audit compliance reviews; licensing; continuing education testing; written supervisory procedures; restrictions on political contributions; restrictions on gifts and entertainment; record retention requirements; disclosures on compensation; third party fees and conflicts of interest and other federally enforced requirements.

Given this tremendous regulatory gap, it is not a surprise that NAIPFA's members are not anxious to support a bipartisan group in Congress that is pressing the SEC to act on Dodd-Frank requirements for all non-bank municipal advisors to become regulated.

A hypothetical scenario should NOT be the focus or concern of regulators OR legislators. The appropriate focus is pushing the SEC to follow through appropriately on the intent of Dodd-Frank to register and regulate non-bank municipal financial advisors, which the Dold bill accomplishes.

Mike Nicholas is CEO of the Bond Dealers of America,
the only DC based trade association representing securities
dealers and banks focused on the U.S. fixed income markets.