Municipal Advisor Rule to Change the Municipal
Market
By Steve Apfelbacher, Senior Financial Advisor
The Dodd Frank Consumer Protection Act (the Act) passed by Congress in
July, 2010 required the Securities and Exchange Commission (SEC) to
develop the final rules for the registration of Municipal Advisors (MA) who
advise the public sector on municipal securities. Financial Advisors like
Ehlers are considered a Municipal Advisor. The Act requires that all MAs
have a fiduciary duty to their municipal clients.
Compliance with the MA rules will not be required until July 1, 2014. The rules not
only define who is a municipal advisor, but also define the type of work undertaken
by other professionals (engineers, accountants, lawyers, planners, or TIF consultants), underwriters and
bankers that could make them a MA. Any party that provides advice on the issuance of municipal
securities and investment of bond proceeds, by this definition, is considered a MA. Any of these parties,
due to the type of advice they provide, could fall under the MA definition. If they do provide financial
advice, they would need to follow all rules established by the SEC as well as the Municipal Securities
Rulemaking Board (MSRB) rules.
What We Do Know Today?
At the end of September, 2013, the SEC issued the final rule that establishes a definition for MAs
(Release No. 34-70462; File No. S7-45-10). A summary of the 777 page release is:
1. Municipal Advisor Advice - The SEC has determined that advice on the issuance of
municipal securities, swaps, the investment of bond proceeds or municipal escrows
established to pay for bonds are covered by the rule. Advice, with or without
compensation, includes a recommendation that is particularized to the specific needs,
objectives or circumstances of a municipal entity or obligated person. Advice on the
issuance of municipal securities includes the pre-planning activities through the
redemption or maturity of the issue. At this point, it appears that MA advice does include
presentation of options in the early stages of a potential issue, even if an issuer does not
act on those recommendations. Municipal consultants that fall under this rule must
register with the SEC and MSRB.
2. Exemptions to Definition of a “Municipal Advisor”
 State and Local Government Officials Exemption- A member of the Board, advisory
board or employees serving in that capacity are exempt.
 Other Professionals Exemption
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o Attorneys- Any attorney providing legal advice or services that are of a traditional legal
nature, provided they do not represent themselves as a financial expert, are exempt.
o Engineers-Engineers that provide engineering advice such as feasibility studies, cash
flow analysis, and similar activities are exempt provided their advice does not include
advice to a municipal entity or obligated person on the municipal financial products or
the issuance of municipal securities.
o Accountants- Accountants that provide audit services, preparing financial statements or
issuing letters to underwriters for municipal entities are exempt.
o Banks- Bankers that provide advice on investments held in deposit accounts, savings
accounts, certificate of deposits or sweep accounts are exempt. They are also exempt if
acting as an indentured trustee or extending credit (Letter of Credit or direct loan) for
their own account.
o Registered Investment Advisors- Federally registered investment advisors are exempt if
they only provide investment advice. State registered investment advisors are not exempt.
Underwriter Exemption- This exemption applies once an underwriter has been
engaged by a municipal entity to underwrite or placed a particular issue. Once
engaged they can provide advice in specific areas in a non-fiduciary capacity which
includes issuance of municipal securities. They cannot provide advice in certain
areas such as method of sale, a bond campaign, preparation of feasibility analysis for
new projects, budget planning, overall rating strategy or terms of an RFP for hiring
other professionals.
Independent Registered Municipal Advisor (IRMA) Exemption - Once a municipal
entity has hired an independent financial advisor for a specific transaction, the
underwriter or other professional may provide advice under this exemption.
The MA Rule defines a Municipal Advisor based on the type of advice they provide to issuers.
Anyone that provides advice on the issuance of municipal securities and the investment of bonds
proceeds will need to register as a MA unless they fall within one of the exemptions. This rule
will:
 Change the type of advice other parties will be able to provide to issuers unless there is
an IRMA exemption for a specific project.
 Require issuers to designate a point person to provide and receive IRMA letters as well as
disclosures required of Municipal Advisor and Underwriters.
Please call your Ehlers Municipal Advisor if you have questions.