Higher MA Fee Draws Con­cerns

The Bond Buyer - - Front Page - By lynn hume

WASHINGTON – Mu­nic­i­pal ad­vi­sors are sur­prised and con­cerned at the Mu­nic­i­pal Se­cu­ri­ties Rule­mak­ing Board’s al­most 67% in­crease in the an­nual fees that MA pro­fes­sion­als will have to pay start­ing in April of next year.

The MSRB an­nounced late Fri­day that it had filed pro­posed changes to its Rule G-11 with the Se­cu­ri­ties and Ex­change Com­mis­sion that would raise the an­nual fee that mu­nic­i­pal ad­vi­sor pro­fes­sion­als must pay to $500 from $300. G-11 cov­ers as­sess­ments for MA pro­fes­sion­als.

The fee in­crease takes ef­fect im­me­di­ately, but the first pay­ment at the new rate will not be due un­til April 30, 2018. The first in­voice at the new fee level will be sent to firms in April 2018 for pay­ment by April 30, 2018, MSRB ex­ec­u­tive di­rec­tor Lyn­nette Kelly said in a re­lease.

“We be­lieve the fee as­sess­ment of $500 per mu­nic­i­pal ad­vi­sor pro­fes­sional is an im­por­tant

step to­ward sup­port­ing the or­ga­ni­za­tion’s long-term fi­nan­cial sus­tain­abil­ity and abil­ity to ful­fill its con­gres­sion­ally-man­dated mis­sion to pro­tect the in­tegrity of the $3.8 tril­lion mu­nic­i­pal se­cu­ri­ties mar­ket,” she said.

In its fil­ing, the MSRB told the SEC, that the fee in­crease “is rea­son­able as well as nec­es­sary and ap­pro­pri­ate to help de­fray the costs of op­er­at­ing and ad­min­is­ter­ing the MSRB.” The board also said it is a “step to­wards achiev­ing the MSRB’s strate­gic goal of promoting long-term fi­nan­cial sta­bil­ity by as­sess­ing fair and eq­ui­table fees, and di­ver­si­fy­ing fund­ing sources.”

The board noted mu­nic­i­pal ad­vi­sors are pro­hib­ited from charg­ing, or pass­ing the fees onto, mu­nic­i­pal is­suers.

Mu­nic­i­pal ad­vi­sor pro­fes­sion­als and their rep­re­sen­ta­tives said the higher fee rep­re­sents a sig­nif­i­cant per­cent­age in­crease and that they would like to know more about what the new funds will be used for by the MSRB.

“While $200 may not seem like such a large amount it rep­re­sents al­most a 67% in­crease, which is quite no­tice­able,” said Su­san Gaffney, ex­ec­u­tive di­rec­tor of the Na­tional As­so­ci­a­tion of Mu­nic­i­pal Ad­vi­sors. “This sig­nif­i­cant per­cent­age in­crease lends it­self to raise broader dis­cus­sions about the MSRB’s bud­get and ef­forts.”

“We’ll pay it, of course, but it is quite a bump,” said Kath­leen Aho, a prin­ci­pal at Spring­sted, Inc. in St. Paul, Minn.

“I have reser­va­tions about rais­ing the fee be­cause I’d like to know what it’s go­ing to be used for,” said Hill Fein­berg, chair and CEO of Hill­top Se­cu­ri­ties, Inc., in Dal­las. “I’m all for en­cour­ag­ing ac­count­abil­ity and mon­i­tor­ing of the mu­nic­i­pal ad­vi­sory busi­ness if that’s what the fee is for.” But he added that the MSRB “has no power or abil­ity to take dis­ci­plinary ac­tions for any vi­o­la­tions of its rules.”

An­other source who did not want to be named, said, “I think there’s in­creas­ing con­cern that the MSRB is spend­ing money on things it doesn’t need to be spend­ing and then rais­ing costs for reg­u­lated en­ti­ties,”

The board said that un­der its pro­posed rule changes, a mu­nic­i­pal ad­vi­sor firm would have to pay a re­cur­ring an­nual fee of $500 for each per­son as­so­ci­ated with it who is qual­i­fied as a mu­nic­i­pal ad­vi­sor firm and has filed a Form MA-1 with the SEC as of Jan. 31 of that year. To be­come qual­i­fied, the MA pro­fes­sional must have passed the MSRB’s Se­ries 50 exam.

The pro­posed rule changes also re­quire that if an MA firm does not pay the to­tal fee that is due on time, it will have to pay a $25 monthly late fee.

PFM ap­pears to be the largest ad­vi­sory firm in the muni mar­ket, with 226

T:7.4375” in­di­vid­u­als reg­is­tered with the MSRB as mu­nic­i­pal ad­vi­sor pro­fes­sion­als. The fee in­crease would re­quire the firm to pay an ex­tra $45,200 or a to­tal of $113,000 to the MSRB per year.

Hill­top Se­cu­ri­ties has 143 reg­is­tered MAs, ac­cord­ing to the MSRB, and would have to pay an ex­tra $28,600 for a to­tal of $71,500 to the MSRB per year. ◽

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