1.4. MSRB Standards on Suitability of Advice Given by a Municipal Advisor
MSRB Rule G-42 states that when a municipal advisor recommends a course of action to a municipal client, it must reasonably believe that the action is suitable for the client.
If a third party recommends a course of action and the municipal advisor is asked to review that recommendation, the advisor must perform reasonable diligence to determine if the recommendation is suitable for the municipality.
Whether the municipal advisor is making the recommendation or reviewing the recommendation, it must also provide the following:
• An explanation of the risks, benefits, structure, and other information regarding the transaction or the product
• The reasons that the advisor considers the transaction to be suitable or unsuitable
• Whether the advisor has considered alternatives to the recommendation
Example: Smith & Smith, the underwriter for Goodville’s bond issuance, recommends issuing a revenue bond with a 4% yield that will mature in 2025. Goodville passes this recommendation on to its municipal advisor for its opinion. The municipal advisor determines that this is a suitable plan for Goodville. It explains to Goodville the potential risks and benefits inherent in the plan and offers some other bond structures the town could consider.
A description of additional requirements associated with MSRB Rule G-42 is included in Chapter 2 of this guide.
|
SUMMARY TABLE What Activities Require MA Registration? |
|
|
Type of Activity |
Registration? |
|
Providing advice about municipal financial products |
Yes |
|
Providing advice about issuing municipal securities |
Yes |
|
Providing indirect advice about issuing municipal securiti | |