WASHINGTON – Municipal advisors are asking the Municipal Securities Rulemaking Board to take more time and more carefully evaluate and explain its proposal to set minimum standards for MAs' continuing education requirements.
The National Association of Municipal Advisors and several municipal advisor firms and individuals made their comments in letters sent to the MSRB in response to the self-regulator's proposed changes to its Rule G-3 on professional qualification requirements.
NAMA said it supports the effort to begin including continuing education (CE) within the MA regulatory framework, but suggested the MSRB first step back and complete an analysis of the impact that the implementation of all the new rules and qualification standards in the framework will have on MAs. Then, the group said, the MSRB can determine the scope of continuing education standards and what is best to include in Rule G-3 and supplemental guidance.
Robert Lamb, president of Lamont Financial Services Corp., suggested something similar, saying he would like to see a phase-in implementation period for the CE requirements to give MA firms time to prepare for the requirements.
The MSRB's proposed CE requirements for MAs would create a "single-pronged approach" similar to one of the two prongs that dealers are currently required to satisfy for their continuing education requirements. All associated persons of MAs who engage in municipal advisory activities as well as those who manage, direct, or supervise the firm's municipal advisor activities and its associated persons would be required to participate.
MAs would have to: annually complete a needs analysis that evaluates and prioritizes their applicable training needs; develop a written training plan; and document that the firm provided the training to the covered individuals. The plan should be developed in a way that is appropriate for the MA's business and, at a minimum, would have to cover training on applicable regulatory requirements as well as MA fiduciary duty obligations, according to the MSRB.
Susan Gaffney, NAMA's executive director and the author of the group's letter, wrote that the MSRB should use the evaluation called for by NAMA to give guidance for the needs analyses the proposal would require.
"While the proposal does not impose prescriptive criteria for MAs to meet, and allows for flexibility so that it can readily apply to firms of various sizes and practice, the proposal would benefit from additional details and expectations when firms develop the 'needs analysis,'" Gaffney said. She added that the details and expectations could take the form of sample needs analysis, particularly for small MA firms.
"Rather than having several hundred firms spend significant time and resources guessing as to what a 'needs analysis' should look like – the MSRB could expend relatively minimal effort to provide representative samples or additional guidance based on experience with 'needs analyses' for broker-dealer firms," she said.
Lamb said the board "may be out over its skis" in considering this rule at this point because the development of commercial training resources for municipal advisors has not been significant to date. He added that the lack of materials currently available to help MAs assess their needs or to be used for training purposes could leave small municipal advisors unable to comply with the rule if a phase-in period isn't put in place.
"The concept behind the rule is fine, but implementation of the CE rule without the available resources will seem unfair at best when firms that are trying to comply with being regulated get criticized by their examiners for failing to have an effective training program in place," Lamb said. He also recommended the continuing education efforts be focused on working with, and improving on, the mentorship system that many MA firms and individuals use to train and educate people in the business.
Both Gaffney and Lamb emphasized the need for the MSRB to keep small MAs in mind as it pursues its requirements so that they do not create an overwhelming economic or administrative burden.
Jeff White, a principal with Kansas-based Columbia Capital Management, also pointed to small MA firms in saying that most firms will be left to develop their own CE programs because third parties are unlikely to see creating general programs for MA use as a profitable use of resources. He said that outcome "could be onerous for small firms."
NAMA also listed several of the areas of the MSRB's proposal where it felt further explanation would be helpful, including: what content should be included in a written plan; acceptable delivery mechanisms for meeting CE requirements; and how firms should identify and evaluate applicable training needs.
