AGB Alert: Security and Exchange Commission Municipal Advisor Rule

Over the past year, we have kept you apprised of the status of the SEC’s proposed rule issued in January 2011 related to the definition of a “municipal advisor.” This rule was proposed as part of the many compliance standards being developed under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). It would, if adopted as proposed, potentially require each of your governing board members  (and, in the case of private institutions, staff that advise your board on board-related matters) to register with the SEC as a municipal advisor, unless a board member is elected to the board or is an elected official appointed to the board as an ex officio member. Registration could be required because in the eyes of the SEC board members may be considered to be providing advice and counsel on matters related to municipal debt instruments. We anticipate that final action on the ruling will come later this year, although the Commission hasn’t indicated the specific timing for issuing the final rule.

The SEC’s longstanding interpretation of the term “advisor” has traditionally been confined to an external professional who provides advice for compensation. AGB, along with the American Council on Education and other higher education associations and many colleges and universities, have aggressively urged the SEC to recognize the distinction between the role of an advisor and that of a board member acting in the capacity of a decision maker or of a staff member acting in the capacity of an employee. Linked here is AGB’s initial letter of comment filed with the SEC early in 2011. 

It is interesting that the proposed municipal advisor rule has generated over 800 responses to the SEC. Members of Congress as well as representatives of the Municipal Securities Rulemaking Board have also weighed in with comments that have encouraged the SEC to recognize that Dodd-Frank did not suggest such a radical change to this historic definition.

Since the submission of our comment letter, we have continued to work with SEC staff and leadership to demonstrate the clear and important distinctions between the traditional definition and the proposal being considered.  We have urged the SEC to reconsider its proposal because it is clear that neither college and university staff nor governing board members fit the intended scope of the municipal advisor rules under Dodd-Frank, and that requiring board members and staff to register with the SEC is neither a necessary or practical remedy for the concerns intended to be addressed by Dodd-Frank.  Moreover, we have argued that such a requirement could have a chilling impact on the ability of boards to conduct their fiduciary duties, and, in fact, would discourage people from serving on boards.

Our meetings at the SEC have demonstrated to us that the final outcome of the rulemaking process remains uncertain. The Chair of the Commission, Mary Schapiro, has indicated that there may be some adjustments to the original proposal, but the “community’s” urgings for a total exclusion of board members and senior administrators as the appropriate resolution is far from certain. 

AGB was invited to submit suggested language to the Commission that would specifically provide for the exclusion we’ve been urging.  Our suggested language was sent to the SEC staff and has been seen by the Commissioners. We have been assured that our proposed language is being considered as the rulemaking process continues. Linked here is our March 8, 2012, letter that offers AGB’s suggested remedy.

Time for Action

While the formal period for comments to the SEC has long passed, we have been told that the Commission remains quite interested in the views of those who will be most affected.

If you have not already done so, let me urge you to consider weighing in on this very important issue, which at the core would have a direct impact on volunteerism and board independence. There are several ways that you can have your voice heard on this matter. You can: (1) add a comment in support of AGB’s March 8 letter that offers specific language for exclusion of board members and staff, or (2) submit your own letter that highlights your concerns, recommends a resolution similar to that submitted by AGB, or puts forth new/additional views on the issue. To add a comment or submit your own letter to the SEC, please direct your submission to the person at the address below with the following subject line:

Elizabeth M. Murphy
Securities & Exchange Commission
100 F Street, N.E.
Washington, DC 20549-1090

RE: Registration of Municipal Advisors under Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Comments and letters can be submitted electronically to:

Also, while we continue to be in contact with SEC staff and Commissioners, we also will be urging key members of Congress to add their voices to this effort. A number of Senators and House members are themselves active trustees of higher education institutions and directors of hospitals.  If you feel that this is something that your Senator or House member might be willing speak out on, I encourage you to make that contact.

If you have already weighed in on the proposed rule, we greatly appreciate your support. If you haven’t yet been heard, please consider joining the conversation. We’ve been assured that the SEC respects ongoing public comment and input. And, we’d appreciate your sharing your comments or submissions with us so that we can monitor the community’s engagement as we continue to work with the SEC.

Although it has remained largely under the radar, this is an important issue. If the proposed language is not adequately modified by the SEC, it could have a substantial, negative impact on boards and senior administrators. We appreciate your partnering with us on this effort. The time for action is now.

June 5, 2012