SROs at Work: MSRB Prioritizes Fiduciary Duty When Setting Up New Muni Advisor Regime & FINRA Puts Out Closed-End Funds Alert to Investors

MSRB Makes Defining Fiduciary Duty Central to Developing Municipal Advisor Regulatory System
Municipal Securities Rulemaking Board says that in coming up with a regulatory system for municipal advisors it’s number one priority is to get clear about the statutory fiduciary duty that these entities would owe to their local and state government clients. The MSRB’s board of directors has asked staff to create a rule proposal that would give guidance on the fiduciary obligation that municipalities have to municipal entities.

Following the release of the fiduciary duty proposal for comments, there also will be proposals about rules addressing possible pay-to-play activities in the industry, municipal advisory firms’ supervisory requirements, limits on gratuities and gifts to those who work for municipal securities issuers and other participants in the market, and solicitor duties. Along with the proposals, the MSRB plans to create a professional qualifications program geared for municipal advisors and perform outreach and education initiatives.

Per the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 975, municipal advisors must dually register with MSRB and the SEC. That section says that municipal advisers owe clients a federal fiduciary duty. Municipal advisors are comprised of a variety of professionals, including those who give advice to local and state governments about municipal bonds and those that solicit municipal bond business from issuers for others.

Market participants were critical of the Securities and Exchange Comission’s December 2010 proposal to put the provision into effect. The SEC’s final rules have since narrowed quite a bit as a result.

FINRA Alerts Investors About Closed-End Funds
In other SRO news, the Financial Industry Regulator Authority has put out an investor alert called Closed-End Fund Distributions: Where Is the Money Coming From? The notification is to help investors understand what this type of fund is before they get involved and how they are different from mutual funds. Closed-end funds are growing in popularity because of the high distribution rates they offer. That said, FINRA said it was important to know that the fund’s distribution rate is not the same as its return.

The SRO said there are six questions you should ask before investing in these funds, including: Does it fit your investment goals? What is the fund’s investment strategy? How much of what you pay per share during an IPO will be invested? What are tax consequences? How is the distribution rate established? Are the shares trading at a premium/discount to NAV?

Our securities lawyers are here to help investor recoup their investment fraud losses. If you suspect that you were the victim of closed-end fund fraud, contact Shepherd, Smith, Edwards, and Kantas, LTD LLP today.

Fiduciary Duty Comes First for MSRB In Creating New Muni Advisor Regime, AlacraStore
Closed-End Fund Distributions: Where is the Money Coming From?, FINRA

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Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny, Stockbroker Fraud Blog, November 11, 2013

SEC Members Discuss Agency’s Core Mission, New Penalty Policy, and Private Offerings in the Wake of General Solicitation, Institutional Investor Securities Blog, November 12, 2013

Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle, Institutional Investor Securities Blog, October 28, 2013