Why Hire a Financial Advisor?

An underwriter is not a financial advisor.

Underwriters have no responsibility to serve in the best interest of municipal entities and must now make this perfectly clear under the Dodd-Frank Act and in the rules and regulations of the Securities and Exchange Commission and the Municipal Securities Rulemaking Board. On written communications with municipal issuers, underwriters must make the following disclosure, in writing:

Financial advisors assist the issuer on matters such as selecting the method of sale (competitive, negotiated, private placement, direct bank loan, etc.), structuring the financings, sale timing, marketing, fairness of pricing, obtaining credit ratings, evaluating cost effectiveness of credit enhancement and other matters. Unlike the underwriter of the bonds, the financial advisor has a fiduciary obligation to represent the interests of the issuer and therefore, should be one of the first financing team members retained by the issuer. The financial advisor should typically be retained prior to selection of the remainder of the financing team and should assist the issuer in determining the appropriate method of sale, the selection of other members of the financing team and the negotiation of fees of the financing team members.

Source: Best Practices of the Government Finance Officers Association; approved by the GFOA's Executive Board, February 2013

"An underwriter must not recommend that the issuer not retain a municipal advisor."

Municipal Securities Rulemaking Board: Interpretive Notice Concerning the Application of MSRB Rule G-17 to Underwriters of Municipal Securities — August 2, 2012

"An underwriter would violate Rule G-17 if it discouraged a state or local government from using a municipal advisor or otherwise implied that hiring an advisor would be redundant because the underwriter can provide the same advisory services."

Municipal Securities Rulemaking Board: What to Expect from Your Underwriter (2012)
Link to MSRB Rule G-17