SEC approves amendments to MSRB Rule G-40, G-8
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The Securities and Exchange Commission has approved the Municipal Securities Rulemaking Board’s proposed amendments to Rule G-40 on advertising by municipal advisors and Rule G-8 on books and records of municipal advisors.
The amendments to Rule G-40 allow municipal advisors to use testimonials in advertisements beginning July 3 and are being welcomed by MA representatives.
“With the SEC approving the MSRB’s amendments to Rule G-40, we are pleased that MAs will be able to – under certain conditions – use testimonials for advertising purposes,” said Susan Gaffney, executive director of the National Association of Municipal Advisors. “This is especially important related to social media postings. We look forward to working with the MSRB to educate MAs on the amendments and complying with the updated rule,”
Amendments to Rule G-40 also modify the definition of “municipal advisory client” to better align with Rule G-38 on solicitation of municipal securities business, and establishes a definition for the term “testimonial” when used in connection with Rule G-40.
“A municipal advisory client would no longer include a broker, dealer, and municipal securities dealer on behalf of whom a municipal advisor undertakes a solicitation of a municipal entity or obliged person,” the amendment said.
The term “testimonial” in Rule G-40 is now defined to mean “a statement of a person’s or entity’s experience concerning the MA or concerning the municipal advisory services rendered by the MA.
The amendments are consistent with Rule G-40’s fundamental standards which state that a municipal advisor may not make any false or exaggerated, unwarranted, promissory or misleading statement or claim in any advertisement. Amended Rule G-40 permits a municipal advisor to directly or indirectly, publish, circulate or distribute an advertisement if certain conditions are met.
Those conditions are, firstly, that if an MA intends to use a testimonial in an advertisement, the MA must have a reasonable belief that the person or entity making the testimonial has the knowledge and experience to make a statement concerning their experience with the MA or with the municipal advisory services rendered by the MA.
The second condition is met if “a municipal advisor intends to use a testimonial of any kind concerning the municipal advisor or concerning the municipal advisory services rendered by the municipal advisor, certain disclosures also must appear in the advertisement close to the associated testimonial statement and with the same prominence,” the amendments said.
Those disclosures also must include whether the testimonial was given by a current MA client or given by a person or entity other than the MA client, the fact that the testimonial may not be representative of the experience of other clients and the fact that the testimonial is no guarantee of future performances of success.
If the MA pays more than $100 in cash or non-cash compensation for the testimonial, they must also disclose the fact that it is a paid testimonial and provide a brief statement by the municipal advisor of any material conflicts of interest.
The rule also includes provisions regarding supervision as well as recordkeeping requirements that require MA to keep current and separately file records of all advertisements.
Amendments to the rule also include an update to the MSRB’s Social Media FAQs, updating Question 8 on “Third-Party Posts.” It clarifies that the use of a third-party post on a municipal advisor’s social media page is deemed an advertisement containing a testimonial if the municipal advisor paid for the third-party comment and posts it to its social media page, then the MA’s post is considered an advertisement containing a testimonial.
It is also considered an advertisement if the MA did not pay for the third-party comment but likes, shares or comments on a third-party post and the municipal advisor posts it to its social media page, the municipal advisor’s post is deemed an advertisement containing a testimonial.
