Seven years after the SEC Municipal Advisor rule became effective, some not-for-profit hospitals are still unclear on what bond underwriters are permitted to discuss with them. This article provides an overview of the rule and some practical steps for hospitals to keep communications open with bond underwriters.

Before 2014, bond underwriters were free to pitch not-for-profit hospitals and other municipal obligors without restrictions.

Some bankers made questionable recommendations to clients.

It took the 2007-2009 financial crisis and the collapse of the auction rate securities market to attract media and regulatory attention.

The Dodd-Frank Act was the first step to regulate the municipal advisory sector.

Under the Dodd-Frank Act, the Municipal Securities Rulemaking Board was tasked with writing new rules designed to ensure that borrowers would receive qualified and independent advice.

The Securities and Exchange Commission (“SEC”) was tasked with enforcing these rules.

When the SEC Municipal Advisor Rule went into effect in July 2014, some market participants started receiving strange emails from bond underwriters asking for various representations to comply with the Rule.

Seven years later, much of the smoke has cleared, but some confusion remains about the Rule and what is needed to keep communications open with underwriters and other broker-dealers.

Under the Rule, communications (written or verbal) from an underwriter about municipal financial products specific to the client’s situation along with a recommendation, are construed as advice and require the underwriter to register as an independent registered municipal advisor (“IRMA”).

The Rule does not regulate hospitals and other municipal obligors directly.

However, there are indirect implications, including formal standards that must be met by the IRMA, and between IRMAs and their clients, including written documentation of municipal advisory engagements; disclosures to client of IRMA conflicts of interest.

In addition, recommendations must meet a suitability standard, which may in turn result in additional discussions between IRMAs and their clients.

The Rule prohibits underwriters from discussing bond issues, swaps, and related topics such as rating agency presentations, unless they can qualify under one of four narrow exemptions:

The General Information exemption does not allow discussions customized to the hospital’s specific situation, so it’s not particularly useful.

The RFP exemption requires that the RFP be for a specific transaction, so the hospital must be aware of opportunities in the first place.

The Underwriter exemption requires that the underwriter be hired, which is somewhat of a chicken-and-egg proposition since most hospitals first want to hear what the underwriter is proposing.

The IRMA exemption is generally considered the most flexible option, but it requires that hospitals develop a couple of basic documents:

  • Signed agreement with IRMA that covers the products and services the hospital anticipates will be discussed with broker-dealers;
  • “IRMA letter” stating the hospital has retained an IRMA (see below); can be sent to broker-dealers or posted on the hospital’s website:



Some basic steps are needed to document the exemption before an underwriter can communicate with a hospital.

By having an IRMA on retainer and following these basic steps, hospitals can avoid a situation where the Rule is broken and a firm is prohibited from serving as underwriter.

Hospitals can work with their legal counsel to ensure the specific procedures they develop will comply with the Rule.

For more information on the SEC Municipal Advisor rule, see

Note: This information is not intended to be a comprehensive analysis of the Municipal Advisor Rule, nor is it to be construed as legal advice.