MSRB Rule G-42, Duties of Non-Solicitor Municipal Advisors, will be effective June 23, 2016, and was recently added to the outline for the Series 50 exam.
The rule requires that municipal advisors meet certain standards of conduct in their dealings with municipal entities, which includes fulfilling two duties: a duty of care and a duty of loyalty. Though G-42 goes into great detail about municipal advisor responsibilities, the duties of care and loyalty are the basis for everything included in the rule.
In order to fulfill its duty of care, the municipal advisor must:
• Have enough knowledge and expertise to give informed advice to the municipal entity
• Reasonably inquire into all relevant facts before allowing a municipality to proceed on a particular course of action or before giving advice
• Undertake a reasonable investigation to determine that its advice is not based on materially inaccurate or incomplete information
In order to fulfill its duty of loyalty, a municipal advisor must:
• Be honest and act in good faith
• Put the municipal client’s interests before its own financial or other interests
• Not perform municipal advisory activities for the client if its conflicts of interests will prevent it from acting in the client’s best interests
The rule requires municipal advisors to put their municipal advisory relationships in writing “prior to, upon or promptly after” the relationship begins, and requires them to disclose all conflicts of interest in writing to the municipal client.
Finally, Rule G-42 provides a list of specifically prohibited activities and explains how a firm must respond if it inadvertently provides advice to a municipal entity.
The rule was written to conform to the fiduciary duty placed on municipal advisors by the Dodd-Frank Act.
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