June 5, 2015
Ronald P. Bernardi remarks   MSRB Headquarters- Alexandria, VA
Municipal Securities Rulemaking Board(MSRB)  Industry Roundtable Discussion 

Good morning. I am Ronald P. Bernardi, President/CEO of BSI. Our firm is a Chicago based, municipal bond specialty firm celebrating our 30th year. With approximately 35 employees, 3 offices, we serve municipal bond issuers and investors across the country. 

I appreciate the MSRB’s invitation to be here and the opportunity to share my perspective. I look forward to today’s MSRB Industry Roundtable discussion. 

I want to share some prepared remarks with you in order to help frame today’s discussions.

The municipal bond market has changed significantly over the last 3-4 years.

It is not broken or static.  Improvements to the market are never finished and we need to continue to improve it.

The scope of rules governing our market have greatly heightened the industry standards of transparency and disclosure and reduced costs.  

These days, much of my day is spent answering client inquiries about new or proposed rules, re-writing policies to comply, meeting in-house with our Best Standards Committee in order to improve our practices  to comply with changing regulatory landscape and client expectations.

MA Rule, MCDC, SEC 15c2-12, G-30, G-19, G-18, G-15, DOL fiduciary rule, proposed general fiduciary standard, pre-trade price transparency, HQLA, CARDS,,,,,,,,,

Strengthened rules, new rules, proposed rules, regulatory initiatives….. I have never seen anything like this in my entire career.   

We at Bernardi have adjusted, as we have always done,…. by adjusting to the markets we serve, who we serve , how we serve.

Our footprint has changed and in certain areas issuers and investors are no longer served by us OR we serve them differently because that is what they are asking for in reaction to the new world confronting them.

I have a few examples I will share throughout our discussions today, but here is a prime example:

DOL’s  IRA universal fiduciary standard will result in our firm either eliminating or severely limiting servicing these types of accounts.  A universal fiduciary standard applied to all brokerage accounts will greatly affect our operating procedures. 

The notion and rhetoric put forth by some that a non-fiduciary standard relationship with an investor is bad or nefarious is wrong and very damaging to our industry and ultimately the investing public.  

Black and white comparisons are simple minded: “ fees are good, commissions are evil”, “ commissions are good, fees are bad”, “ fiduciary standard always appropriate, suitability standard is inadequate”…. …..

Different clients WANT different services.  Not all clients want to pay an ongoing fee to manage a laddered muni bond portfolio, not all clients want or need the fiduciary standard available through our SEC registered RIA affiliate.

A one size fits all approach is often inappropriate.

Instead allow industry to offer choices that are  transparent about costs and clearly make all disclosures; look no further than the MA rule implementation for underwriters as a template…. Present an ADV like document to investor clients and let them decide how they want to interact with us.

The result of the current rules filled environment all too often devolves into a “Just say no” reaction by us.   Sometimes, it is simply easier  and better for us to walk away from potential business  because the UNKNOWN regulatory costs and risks are deemed to be too high.

And sometimes this hurts market liquidity, disclosure, transparency. 

And we are not alone. That is why we see the broker-dealer municipal footprint contracting and that is not a good thing for investors or issuers. 

The municipal market has always been very resilient and a stable source for low cost funding for our nation’s  infrastructure. The state of a nation’s infrastructure greatly determines its future, so a healthy and effective municipal bond market is critical to our country’s future prosperity. 

We, in the industry, suffer a bit from the “Cool Hand Luke “ syndrome, as I call it, “ a  failure to communicate”.

We need to position ourselves at the vanguard of appropriate and sensible change, and Bernardi is trying to do its part. 

But we need some help from FINRA and the MSRB, as well.  The idea is not inconsistent with the respective missions.

The scope of our governing rules have led market to a heightened  level of transparency, disclosure and efficiency.  These are good developments, no doubt. 

It is important creative solutions continue to emerge to address the issues facing the marketplace.  

BUT issuers and investors need a stable, deep bench of competent, honest and efficient broker-dealers to serve them.  I fear sometimes this is lost on elements of the investing public, issuer public and the regulatory authorities.

Thank you for listening.