Fiduciary Duty and Regulatory Compliance

Since 1955, Ehlers has been committed to a fiduciary relationship with our clients. This means that we serve only your community’s best interests in any financial transaction – not the interests of investors, underwriters, or banks. An idea as simple as that has now come into its own.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") on July 21, 2010 affect how financial advisory firms like Ehlers provide advisory services. All Financial Advisors are now regulated as Municipal Advisors. It makes clear that only a Municipal Advisor represents the interests of a municipality. A municipality’s interests are not represented by a Broker/Dealer.

The legislation requires a fiduciary responsibility to you by Ehlers – which is how we have always viewed our relationship. So far, the major requirement has been to complete a registration process with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB); we have complied with this requirement.

How does this impact you today? Probably not much at the current time, because you are already using an independent financial advisor that has always viewed its relationship as one of a fiduciary responsibility to you and your community.

There will be certain requirements Ehlers will need to follow as a regulated “Municipal Advisor” once the final rules are established.  The previously proposed MSRB rules would require the following of all Municipal Advisors:

• Provide service to the municipality in a manner that is consistent with fiduciary duty.
  • Duty of Loyalty
    • Disclose all material conflicts of interest that might impair the MA’s ability to satisfy the duty of loyalty to the municipality
    • Receive written “informed” consent to conflicts by officials of the municipality
    • Not work for municipality if there is an unmanageable conflict
    • Cannot charge excessive compensation
  • Duty of Care
    • MA has necessary knowledge and expertise to provide the municipality with informed advice
    • Must investigate and advise the municipality of alternatives that are reasonably feasible
    • Duty to make reasonable inquiries into the facts relevant to the municipality’s determination to proceed

• Require written evidence of a municipal advisory relationship.
  • Outlines the scope of services and basis for compensation including direct and indirect
  • Disclosure of “Conflicts of Interest” with various forms of compensation
  • Disclosure of manageable and unmanageable “ Conflicts of Interest”
  • Disclosure of affiliates of the MA directly or indirectly related to the MA engagement
  • Disclosure of other engagements or relationships that might impair the MA’s ability to act in the best interests of its municipal client
  • The firm being hired as a MA is registered with SEC and MSRB

We wanted to give you an understanding of what will likely to coming down the road. These requirements could change but this is what has been proposed at this time.  They are being developed to make certain your financial interests as an issuer are protected.

Ehlers’ fiduciary responsibility to you has always been our commitment to you, and as independent financial advisors. We have always recommended financial solutions that are in solely in your best interests. Therefore we support efforts to ensure that fiduciary duty is the standard that of all advisors in our industry follow.

We encourage you to speak to your Ehlers financial advisor should you have any further questions, and for specific information about the Act and up-coming activities, visit the MSRB and SEC websites provided below.

http://www.sec.gov/spotlight/dodd-frank.shtml

http://emma.msrb.org/educationcenter/BeforeInvesting.aspx