 Compliance Corner is a quarterly electronic newsletter published by the MSRB to support the compliance obligations of brokers, dealers and municipal securities dealers (collectively "dealers") and municipal advisors. Compliance Corner highlights recent regulatory updates and resources to facilitate understanding of MSRB rules.
Summer 2022 Issue
A New Guide for Future Savings: Read the MSRB’s Updated Investor's Guide to 529 Savings Plans
By Thalia Meehan, Board Member, and Bri Joiner, Director, Regulatory Compliance
After collaboration with the Municipal Fund Securities Advisory Group, the MSRB published a new edition of the Investor's Guide to 529 Savings Plans.
The Investor’s Guide supports informed decision-making by helping current and prospective 529 savings plan account owners and contributors understand how these types of plans work. Since the Guide’s last publication, there have been a number of tax reform bills passed by Congress that directly impact 529 savings plans. The Guide has been updated to reflect the expansive change in legislation over the last four years, such as the broadening of the definition of qualified education expenses. Additionally, the Guide includes updated information on investment options, and has an entirely new and detailed section on account-based fees and expenses, including the potential impact to account values based on share class selection and associated sales charges.
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The Guide sprinkles throughout helpful reminders to financial professionals. For example, the Guide reminds financial professionals that there should be a reasonable basis to believe a share class with higher associated fees is in an account owner’s best interest. Additionally it highlights that financial professionals should pay special attention to rollovers to determine whether a 529 savings plan offers a specified sales charge waiver, in which case account owner funds would be rolled over at net asset value.
Read the Guide and other 529 resources on msrb.org.
Thalia Meehan is a public member of the MSRB Board of Directors and serves on the Finance Committee and the Nominating Committee and is a liaison to the Municipal Fund Securities Advisory Group, which provides input and expertise to the Board on municipal market rules, industry practices, trends, legislation and the development of educational resources regarding 529 savings plans and programs. She is a retired portfolio manager and tax-exempt team leader from Putnam Investments.
Bri Joiner is the Director of Regulatory Compliance at the MSRB, in which she oversees a portfolio of programs under the MSRB’s Market Regulation Department. She is directly responsible for the MSRB’s professional qualifications program, examiner training program and regulatory compliance program initiatives.
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Compliance Frequently Asked Questions (FAQs)
This periodic feature provides answers to commonly asked questions about compliance with MSRB rules. The answers to these questions do not create new legal or regulatory requirements or new interpretations of existing requirements and should not be interpreted by regulated entities or examining authorities as establishing new standards of conduct. This resource should be read in conjunction with MSRB rules and interpretations. The complete text of all MSRB rules and interpretations is available here.
Q: Pursuant to MSRB Rule G-44, on supervisory and compliance obligations of municipal advisors, must the designated supervisory principal(s) be an employee of the municipal advisor?
A: Yes, the supervisory principal(s) must be an employee of the municipal advisor. MSRB Rule G-3(e)(i), defines a municipal advisor principal as an associated person of the municipal advisor firm who is directly engaged in management, direction or supervision of the municipal advisory activities of the firm and that of its associated persons. In addition, pursuant to MSRB Rule G-44, the designated supervisory principal must be vested with the authority to carry out the supervision for which they are responsible and have sufficient knowledge, experience and training to understand and effectively discharge their responsibilities. The Rule distinguishes the role of the supervisory principal from the chief compliance officer, who advises the municipal advisor on its overall compliance framework and permits the chief compliance officer to be a principal of the firm or a non-employee of the firm.
Compliance Tip: Be Mindful of Triggering Municipal Advisor Professional Qualification Requirements
Firms dually registered as a broker-dealer and a municipal advisor (BDMA) should be mindful of triggering professional qualification requirements under Rule G-3. For example, the municipal advisor side of the business that has been engaged by a municipal entity client should be careful in consulting with the firm’s underwriting desk regarding aspects of a particular deal because advice from a member(s) of the underwriting team may trigger the requirement for that individual to become duly qualified as a municipal advisor representative by passing the Municipal Advisor Representative (Series 50) Examination Qualification.
Compliance Calendar
Dealers and municipal advisors should note the following key compliance dates and deadlines relevant during the second quarter of calendar year 2022.
On June 2, 2022, the Securities and Exchange Commission (SEC) filed a complaint in the United States District Court for the Western District of Louisiana charging an unregistered municipal advisor, Twin Spires Financial LLC, and its owner and sole employee, Aaron B. Fletcher, with misleading the Louisiana State Bond Commission (SBC) and investors in the sale of $5.8 million across two municipal bonds offerings in 2017 and 2018. The SEC also charged the town of Sterlington, Louisiana, and its former mayor with misleading the SBC and investors in connection with the town’s issuance of the bonds to, allegedly, finance the development of and improvements to the town’s water and sewer systems.
The charges include allegations that Twin Spires and Fletcher executed a financial advisory agreement with the town in June 2015 to provide, among other municipal advisory services for the town, advice on various forms of debt financing. For the 2017 and 2018 bond offerings, the complaint alleges that Twin Spires, through Fletcher, and with the town and mayor’s full knowledge, created false financial projections misrepresenting the anticipated revenue of the town’s sewer system, which the town then utilized to obtain the SBC’s approval for the two offerings. In doing so, Twin Spires provided municipal advisory services to the town between 2015 and 2018 without being properly registered with the SEC.
“Investors in Sterlington’s bonds had a right to know that the town had obtained approval of the bond offerings based on false projections and had misused proceeds from prior offerings.” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit. “Further, it is long past time for financial advisors to municipal issuers to comply with the requirement that they must be registered with the Commission before they provide municipal advice, and we will vigorously pursue advisors who continue to flout those requirements.”
As a result of this conduct, Twin Spires and Fletcher are charged with violating Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 (Securities Act); Sections 10(b) and 15B(c)(1) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; Municipal Securities Rulemaking Board (MSRB) Rules G-17 and G-42, and aiding and abetting the town’s violations of Section 17(a)(2) of the Securities Act. Twin Spires is also charged with violating, and Fletcher charged with aiding and abetting its violations of, Section 15B(a)(1)(B) of the Exchange Act.
Full details available here.
Regulatory Roundup
Keep up with current requests for comment, updated regulatory requirements and upcoming rule filings, and learn about opportunities to provide input at various stages of the MSRB’s rulemaking process.
June 2, 2022 – MSRB Files Proposal with SEC to Implement Structural Changes to Its Fee Setting Process
April 29, 2022 – MSRB Votes to Seek Public Comment on Enhancing Post-Trade Transparency at Quarterly Board Meeting
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