Although it’s widely considered a “best practice” to use an independent advisor (i.e., not an underwriter-broker/dealer) when issuing municipal bonds, some local governments still use an underwriter as their advisor!
Key reasons to NOT use an underwriter/broker-dealer as your advisor:
- Underwriters sometimes don’t take competitive bids, and dictate the interest rate in a “negotiated” bond sale!
- Underwriters have other clients (bond buyers) who want a high interest rate (the opposite of what you want!)
- Underwriters have an incentive to put higher interest rates on your bonds so they can more easily sell them
- If an underwriter takes competitive bids, federal law prohibits them from bidding, so your pool of bidders may be significantly smaller
For all these reasons (and others), it’s often considered a best practice to use an independent advisor (i.e., not an underwriter-broker/dealer) when issuing municipal bonds.
Here’s how to find out if your Financial Advisor is independent — or a broker-dealer.
- Click here to go to the MSRB website to check the qualifications of your Municipal Advisor.
- Type in the name of your advisor
- When the name pops up, look at it’s “Registrant Type”
If the Registrant Type is “Municipal Advisor“, that means the advisor is independent and putting your community’s interests first!
If the Registrant Type is “Municipal Advisor/Broker Dealer”, that means the advisor may have the above concerns and conflicts!
At Ranson, we are independent advisors, NOT underwriter-advisors. So we will always put your interests first!
For more information, contact Larry Kleeman or Beth Warren.