The House Financial Services Committee on September 12 approved legislation, H.R. 2827, introduced by Committee member Robert Dold (R-IL) that would set an official definition of “municipal advisor” under federal securities law. The bill, which the Committee passed unanimously, would define a municipal advisor as one who is formally “engaged for compensation” by an issuer to provide advice on municipal securities or related products. It explicitly excludes brokers, dealers, state-registered investment advisors, swap advisors, financial institutions, and elected or appointed members of issuers' governing bodies. Also, municipal securities dealers who provide advice regarding underwriting activities would not be considered municipal advisors unless they receive separate compensation for such advice.
Dold’s bill responds to a proposed rule published by the Securities and Exchange Commission (SEC) that would establish a broad definition of the term municipal advisor, including many of the employment categories the Dold bill exempts. NCSHA previously submitted comments to the SEC requesting that it exempt issuer board members.
During the markup, the Committee approved a substitute amendment introduced by Rep. Dold that included a provision maintaining the fiduciary duty imposed on municipal advisors by the Dodd-Frank law. The bill originally removed this duty, but Dold agreed to reinstate it in order to get support from committee Democrats. The Committee also adopted a technical amendment by Committee Ranking Member Barney Frank (D-MA) that would ensure that those parties who advise issuers about municipal securities would be considered municipal advisors regardless of whether they have entered into a written contract to do so. The original bill limited the definition to those advisors who had entered such agreements.
The House of Representatives is likely to consider H.R. 2827 sometime next week.