Three years after its adoption, some not-for-profit hospitals are still unfamiliar with the SEC’s Municipal Advisor Rule that restricts the information broker-dealers can discuss with them. Today we review the rule and its exceptions, and discuss the steps needed to take advantage of the IRMA exemption.

When it became effective in July 2014, the SEC Municipal Advisor rule confused market participants including hospitals that started receiving cryptic emails from bond underwriters and didn’t know how to respond.

Three years later, some hospitals are still not clear on the rule and their options when communicating with broker-dealers.

Before the Municipal Advisor rule, broker-dealers were free to pitch bond underwriting, swaps, and related financial products to municipal entities as they pleased. Some firms took advantage of unsophisticated borrowers and recommended unnecessary or questionable products, so regulators decided firms providing advice should be looking out for their client’s best interests instead of coming back to serve as underwriter or swap counterparty on the deals they proposed.

Under the rule, any communication (written or verbal) from broker-dealers about municipal financial products particularized to the client’s situation with a recommendation or call to action is viewed as advice and makes them municipal advisors with a fiduciary duty, and they cannot serve as underwriter.

The only way out is for broker-dealers to qualify under one of four exceptions to the rule (attorneys, engineers and traditional commercial banking products such as loans and deposits are exempt):


The first three exceptions to the rule are rather limited.

The general information exception does not allow discussions customized to the hospital’s specific situation.

The RFP exception requires that the RFP be for a specific transaction or financing program, so the hospital must be aware of opportunities in the first place. Serial RFPs are permitted for evolving needs, but once the window for responses is closed, so is the the exception. Open-ended RFPs are not permitted and there is a time limit of six months for responses (three for mini-RFP).

The underwriter exception requires that the underwriter be hired. Some more adventurous broker-dealers will ask the hospital to sign a non-binding letter of intent before a meeting starts, then terminate the agreement when the meeting ends. Most hospitals will not agree to go along with this practice.

A majority of hospitals choose to go with the IRMA exemption as it is the most flexible option, particularly if the hospital already has a financial advisor on retainer, which many hospitals do.

But having an IRMA on retainer is not enough. To assist broker-dealers in availing themselves of the IRMA exemption, hospitals must provide additional information.

To start with, the hospital should have a couple of documents already prepared:

  • Signed agreement with IRMA that covers the products and services the hospital anticipates will be discussed with broker-dealers; no need to share with broker-dealers.
  • IRMA letter stating the hospital has retained an IRMA (see below); to be sent to broker-dealers. Some hospitals post the letter on their website, which doesn’t do much.


When a broker-dealer initiates discussions with the hospital, some basic steps will take place to document the respective roles and the exception that is applicable.


By following these simple steps, hospitals can avoid a situation where the Municipal Advisor rule is broken, which would prohibit a broker-dealer from serving as underwriter later and invite scrutiny from the SEC.

Hospitals should work with their legal counsel to ensure the specific procedures they develop will comply with the SEC Municipal Advisor rule.

For more information on the SEC Municipal Advisor rule, read:
Hospitals and the New SEC Municipal Advisor Rule