2.2.2.6. Suitability of Recommendations Requirement
When a non-solicitor municipal advisor recommends a course of action to a municipal client, it must reasonably believe that the action is suitable for the client. Furthermore, whenever any recommendation is made for a municipal entity, it must be done with the client’s best interests in mind. This best interest standard does not hold if the client is an obligated person rather than a municipal entity.
The following are examples modeled on MSRB guidance.
Example: XYZ Municipal Advisor advises Popperville to review and consider three alternative offerings as a model for Popperville’s next issuance. XYZ MA has provided Popperville with advice under SEC rules. The advice is not a call to action to proceed with a specific municipal financial product or a specific issuance of municipal securities and, therefore, it would not constitute a G-42 Recommendation even though the communication may constitute advice for purposes of the SEC rules and Rule G-42.
Example: The structure, timing, and terms of a bond issuance for Goodville are established, and about to go to market when ABC Municipal Advisor advises Goodville to obtain bond insurance for the issuance. The advice to purchase bond insurance would be advice with respect to the terms of the issuance of municipal securities, but the advice to purchase bond insurance would not be a G-42 Recommendation because it is not a call to action to proceed with a specific issuance of municipal securities or a municipal financial product.
Example: Treetown is looking to fund projects to make the city more beautiful. It consults Arbor Municipal Advisors seeking advice on how best to go about funding these projects. Treetown specifies that it would like to undertake a wholesale renovation of the city’s landscaping, but it does not want to increase property taxes by any more than $75 per household on average. Arbor MA presents a 10-year plan to the city that co