The Municipal Securities Rulemaking Board (MSRB) plays a pivotal role in regulating financial professionals involved in the municipal securities market, which includes municipal advisors (MAs). The MSRB collects fees from these entities, which are vital to its operation. However, recent discussions among dealer groups and municipal advisors have raised questions about the fairness and structure of these fees. As various stakeholders respond to the MSRB’s rate card process, the complexities of establishing an appropriate fee system that balances equity among different market participants are becoming increasingly evident.
In an effort to address perceived inequities in the fee structure, dealer organizations such as the Securities Industry and Financial Markets Association (SIFMA), the Bond Dealers of America (BDA), and the American Securities Association (ASA) have pushed for a new approach to how municipal advisors are assessed. They argue that the current fee structure places an “unfair” burden on dealers, as their fees significantly outweigh those of municipal advisors. The dealers advocate for activity-based fees on MAs, suggesting that this would alleviate some financial pressure on dealer firms. Such a move, they argue, would make the fees more reflective of the actual work and resources consumed by the various players in the municipal securities market.
On the other hand, the National Association of Municipal Advisors (NAMA) has firmly rejected the notion of modifying the existing fee structure to impose higher fees on municipal advisors. NAMA’s Executive Director, Susan Gaffney, highlighted the challenges of implementing a one-size-fits-all fee assessment model, given the diverse business models among advisory firms. Gaffney’s argument hinges on the view that the only uniform metric available among municipal advisors is the number of covered persons, thus suggesting that a fee based on headcount is more equitable. She warns that deviating from this practice could disproportionately burden smaller advisory firms, potentially driving them out of the industry, which could harm the protective role of municipal advisors in safeguarding issuers.
The MSRB’s recent attempts at revising its rate card process have met with scrutiny, especially after it suspended its 2024 rate card filing. The MSRB had initiated a new fee-setting process designed to reflect stakeholder feedback, yet it ultimately withdrew the proposed rates after significant pushback. By promising to take into account the diverse responses from the Request for Information (RFI) issued in October, the MSRB aims to establish a more transparent and predictable fee structure for 2026.
The BDA welcomed the board’s reconsideration of the fee-setting process, but echoed the calls for increased transparency. They raised valid concerns regarding the substantial variations in proposed fee changes from year to year, such as the planned 25% increase for underwriting fees which starkly contrasts with a notable 48% drop in trade counts. Stakeholders are advocating for tighter limitations on these fluctuations, suggesting that a cap of 10% on fee increases might be a more pragmatic approach.
The BDA’s scrutiny extends beyond mere percentage increases—there’s a growing consensus that the disparity in fee contributions from advisors compared to dealers warrants a deeper examination. While MAs make a fraction of the total MSRB revenue—around 6%—they are substantial users of MSRB services. This raises questions about the fairness of the current fee structures and whether MAs should pay more considering the resources they consume.
Supporting the BDA’s concerns, the ASA has also called attention to the budgetary dependence on dealer-related fees, asserting that this reliance creates an imbalanced regulatory cost-sharing dynamic. The ASA warns that if the fee distribution remains skewed, it could lead to long-term instability in the regulatory landscape.
The ongoing dialogue surrounding municipal advisor fees reflects broader issues of equity and transparency within the municipal securities market. As various factions voice their opinions, it is crucial for the MSRB to navigate these complexities carefully. A restructured fee model that strikes a fair balance among stakeholders could enhance the stability of the municipal market while ensuring that all entities contribute their fair share to the regulatory framework. In pursuit of this goal, the MSRB must heed the feedback from diverse sets of stakeholders, maintaining a collaborative approach as they work towards a more equitable solution in the municipal securities space.