The Municipal Advisor Law and Its Implications

The SEC has said that the term "advice" is not susceptible to a bright-line definition. Instead, the SEC has stated that advice can and should be construed broadly. Therefore, a person providing advice to a municipal entity or person regarding municipal financial products or the issuance of municipal securities should err on the side of caution, because such analysis depends on all the facts and circumstances.

The final rules adopted by the SEC provide that a recommendation with respect to the structure, timing, terms or similar matters concerning a municipal financial product or an issuance of municipal securities will constitute "advice." Therefore, a person or firm providing forecasting, modeling or other similar services should be very cautious continuing these activities without registration.

Exemptions for RIAs, Accountants

The law specifically excludes from the definition of municipal advisor "any investment advisor registered under the Investment Advisers Act of 1940, or persons associated with such investment advisors who are providing investment advice." This exemption only applies to advisors registered with the SEC! State-registered advisors may not rely on this exemption. Also important to note, RIAs would not be exempt if they "engage in municipal advisory activities other than providing investment advice." RIAs should ensure that they are only providing investment advice to municipal entities, otherwise they may need to register as municipal advisors.

The law does not explicitly exclude accountants from the definition of municipal advisor. However, the final rules state that the term "municipal advisor" shall not include accountants who provide audit or other attest services, prepare financial statements or issue letters for underwriters for, or on behalf of, a municipal entity or obligated person.

Before advising a municipal entity about financial products or the "structure, timing, terms and other similar matters concerning such financial products or [municipal] issuances," ensure that you are registered as a municipal advisor or are exempt from registration. A full copy of the final 778-page release can be found at the following link: https://www.sec.gov/rules/final/2013/34-70462.pdf.