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Witnesses slam SEC’s municipal advisor plan in hearing

Robert Dold

Witnesses at the Securities and Exchange Commission’s recent hearing on a rule proposal that defines “municipal advisor” and requires the registration of municipal advisors slammed the regulatory plan.

Section 975 of the Dodd-Frank Act requires that all municipal advisors register with the SEC, allowing for oversight and regulation by the Municipal Securities Rulemaking Board. The SEC released its first draft of the proposed rule-making in December 2010.

Kenneth Gibbs, the chairman of the Securities Industry and Financial Markets Association’s Municipal Securities Division, said that the rule contains “numerous provisions that would go against congressional intent and statutory authority,” AdvisorOne reports.

Additionally, Gibbs said that H.R. 2827, a provision proposed by Rep. Robert Dold (R-Ill.), would “help address these issues by clarifying key provisions of the statute,” according to AdvisorOne.

Rep. Steve Garrett (R-N.J.), the chairman of the House Financial Services Capital Markets Subcommittee, said that the definition of a municipal advisor is important as, once the label is assigned, municipal advisors “are subject to a statutory fiduciary duty and additional anti-fraud provisions as well as registration and the new MSRB rules.”

A provision of H.R. 2827 would eliminate the federal fiduciary duty required of municipal advisors.

Alan Polsky, the chairman of the MSRB, said that while “Congress [may] determine whether a federal fiduciary duty for advisors is appropriate” in a trust relationship with local, state and federal governments, “a fiduciary duty applies by virtue of common law,” AdvisorOne reports.

Polsky added that while the existing fiduciary duty may not be mandated by a federal statute, “it exists nonetheless,” and if the federal fiduciary standard were to be eliminated by such a provision, there would still be applicable fiduciary duty standards in each of the 50 states.

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