For mutual fund investors, taxes are inevitable. Even if you’re a long-term buy...
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The process of issuing these securities involves working with municipal advisors to negotiate the structure, pricing, timing and distribution of bonds with the underwriters. Like a fee-only personal financial advisor, municipal advisors work to ensure deals are made in the best interest of their client.
Let’s take a look at the role that municipal advisors play in the process and how to select the right advisor.
Be sure to check out our Education Section to learn more about municipal bonds.
Municipal advisors offer a wide range of different services and have various compensation structures. When selecting an advisor, it’s important to consider skill gaps in the municipal staff, the expertise of the municipal advisor, and how that expertise applies to the specific project.
Many state and local governments use municipal advisors to ensure that deals with underwriters are fairly structured, as well as to ensure that their documents are up to par. After all, any accidental or intentional omissions in regulatory disclosures can lead to costly lawsuits and fines.
Use our Screener to find the right municipal bonds for your portfolio.
Municipal advisors can help with each of these steps by:
It’s worth noting that underwriters have different financial interests than issuers – their goal is to profit from the bond offering by buying low and selling high. Municipal advisors can help negotiate the structure, pricing, timing and distribution of the bond offering with underwriters to ensure a fair deal.
The first step is finding the right match for your requirements. For example, issuers that don’t plan on rating their bonds do not require a municipal advisor that specializes in presenting to rating agencies. The best advisors close any skill gaps with specific expertise.
The second step is determining the right compensation structure, which might include:
A fixed fee structure is a great option since it caps the total expenditure to a known amount, whereas hourly fees could quickly add up and go over budget without oversight. Contingent or transaction fees may be preferable to some issuers that want to ensure a transaction closure before spending money.
The final step is documenting the agreed upon services and fees. In order to avoid any confusion, both parties should agree on a detailed scope of services and their fees, including services that are NOT provided and any maximum compensation amounts or other conditions that may exist.
For more information, see the MSRB’s Financial Considerations for Hiring Municipal Advisors here.
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