Placement agents who want to help private funds obtain
government sponsored investments are required to register with the Municipal
Securities Rulemaking Board. Under a proposed rule, they would now be subject
to a "fiduciary
duty, which shall include a duty of loyalty and a duty of care."
That's good, but seems to be a violation of basic
contract law. The placement agent/municipal advisor is hired by the fund
manager and should therefore owe its obligations in that direction. At least
the MSRB is putting out an interpretative release to help agents/advisors
figure out some of the things that will get them in trouble.
Under Rule G-36, a municipal advisor must disclose all material conflicts of
interest of which it is aware after reasonable inquiry, such as those that
might impair its ability to satisfy the duty of loyalty to its municipal entity
Pursuant to its duty of loyalty under Rule G-36, a municipal advisor must not
engage in municipal advisory activities with respect to a municipal entity client
if it cannot manage its conflicts in a manner that will permit it to act in the
municipal entity's best interests.
[I]n certain cases and depending upon the specific facts and circumstances of
the engagement, a municipal advisor's compensation may be so disproportionate
to the nature of the municipal advisory services performed as to indicate that
the municipal advisor is not acting in the municipal entity's best interests as
required by Rule G-36.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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