AGB Alert: Proposed SEC Muncipal Advisor Rule and Its Potential Impact on Board Members

As we let many of you know last week, AGB has closely reviewed the proposed SEC rule regarding municipal advisors. If not modified or clarified, the rule would sweep in college and university board members when their institution invests in municipal tax-exempt bond financing and related financial products. This rule, proposed on January 6 by the Securities and Exchange Commission, seeks to regulate municipal advisors—in part by broadening the definition of an advisor—under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Board members of public and private institutions would be required, through a registration process, to provide the SEC with extensive personal information, employment, family, and residential history, and details of business activities, and would be subject to SEC jurisdiction, federally imposed fiduciary duties, and the threat of civil and criminal sanctions for violations. The proposed rule would exempt from the definition of "municipal advisor" elected board members of public institutions, but neither appointed board members of public institutions nor board members trustees of private institutions would be exempt from the definition.

On February 8, AGB's outside legal counsel and I met with SEC staff to discuss AGB's concerns about the proposed rule. On February 15, we submitted formal comments to the SEC outlining our concerns. We emphasized the following points: (read the complete letter here):

• Congress did not intend to regulate trustees of colleges, universities, and institutionally related foundations;
• As fiduciaries, college and university trustees are decision-makers, not advisors under the standard definition of a municipal advisor;
• Classification of board members as municipal advisors would be contrary to the Commission’s longstanding interpretation of “advisor”;
• SEC regulation of college and university trustees’ conduct is not appropriate-- board conduct is already regulated at the state level and through board self-regulation; and
• SEC regulation would interfere with trustees’ ability to fulfill their fiduciary obligations and would hinder institutional efforts to attract and retain highly qualified trustees.

Our objective is to persuade the Commission to clarify that persons acting in their capacity as board members of colleges, universities, and institutionally-related foundations are not municipal advisors. The proposed rule can be viewed at http://edocket.access.gpo.gov/2011/pdf/2010-32445.pdf.

AGB will continue to monitor the situation. If you have any questions, please contact me.

Richard Legon
President
Association of Governing Boards of Universities and Colleges