|
Ehlers Advisor • March 20U9
<br />GFOA RECOMMENDED PRACTICES ON SELECTING FINANCIAL ADVISORS
<br />Only Independent Advisors Should Represent You
<br />By Bruce .Kimmel, Financial Advisor
<br />When the Government Finance officers Association ~GFDA)
<br />published its f S recommended practices on effective financial
<br />management last yeat•, two st~•ongly-wo~•ded recommendations
<br />stressed the importance of an independent financial advisor.
<br />The two GFOA recommended practices, "Selecting Financial
<br />Advisors" and "Selecting Unde~•writers for Negotiated Bond
<br />Sales," stressed the need to beep the fnaancial advisory and
<br />bond unde~•writing fi~nctions completely separate in any
<br />competitive or negotiated debt issuance process.
<br />At its outset, Selecting Financial Advisors states t11at;
<br />"A financial advisor represents the issuer, and only the
<br />issuer, in the sale of bonds, Issuers should assure
<br />themselves that the selected financial advisor has the
<br />necessary expertise to assist the issuer in selecting other
<br />finance professionals, planning t1~e bond sale, and
<br />successfi~lly selling and closing tlae bonds."
<br />The guidelines go on to explain that the GFDA intends to set a
<br />highe~• standard than is required by current ~•egulations on
<br />undetwiiti~lg practices because "disclosure and consent are.
<br />not st~ficient to cure the inherent conflict of interest,"
<br />Selecting Underwriters for ~1Tegotiated .Bond Sales expands on
<br />this theme as follows;
<br />"Issuers must keep in mind that tlae roles of the
<br />unclei•writer and the financial advisor are separate,
<br />adversarial roles and cannot be provided by the same
<br />party. Underwi~ters do not I~ave a fiduciary responsibility
<br />to tlae issuer, A fi~~ancial advisor represents only the issuer
<br />and has a Bclucia~y ~•esponsib' 'ty to tlae issue~•."
<br />This recommended practice advises that if an issuer is
<br />considetyng a negotiated sale, it should retain an independent
<br />financial adviso~• fit•st. The advisor can then help the issuer ita
<br />deciding the best bond sale method, and if a negotiated sale is
<br />most appropriate, the advisor can conduct the unde~•writei•
<br />selection process,
<br />This GFGA recommended practice on selecting undef•writers is
<br />consistent with Minnesota's statlito~y requirement that any
<br />negotiated sale ove~• ~ 1 million be. evaluated by an independent
<br />financial advisor.
<br />Ce~•tain underw~7ters claim compliance with the statute and
<br />GFaA guidelines by having an advisor who has no relationship
<br />with the issuer review tlae negotiated sale results after pricing,
<br />In those cases, it is the underwriter who hires the financial
<br />adviso~•, and the direct lii~l~ to the issuer and the objectivity of a
<br />financial advisor are Lost. This practice is tl~e exact opposite of
<br />GFDA's recommended approach.
<br />Further, "GFGA recommends that a f~.•m hired as a financial
<br />advisor should not be allowed to resign iti order to unde~•w~ti.te
<br />the proposed negotiated sale of bonds."
<br />As a charter member of the National Association of
<br />Independent Public Finance Advisors (NAIPFA), Ehlers Iaas
<br />sought to raise governmental awareness of the critical
<br />distinctions between financial advisors and unde~•writers. We
<br />believe it is noteworthy that GFaA loos addressed the inherent
<br />difference in roles and responsibilities so directly in its debt
<br />management guidelines.
<br />To download copies of these and other GFOA recommended
<br />practices, visit www.gfoa,org and choose "Recommended
<br />P~•actices" from the menu on tlae Ieft side of the home page.
<br />Ehlers 2009 School Finance Seminar
<br />It's aRecession -Now Vllhat?
<br />Managing School Finances in a Recession
<br />Friday, March 27, 2009
<br />At fhe Radisson Ho#e[ in Roseville
<br />Over the past six months, newspaper headlines often have resembled
<br />stories from the 1930s, but with a more modern twist. At Ehlers, we are
<br />well aware of haw fhe recession and related problems in the financial
<br />markets are creating serious difficulties for school districts, Mast
<br />districts are spending lots of time an forecasting and budget reductions,
<br />while at the same time trying fo figure out the impact of f=ederal and
<br />State initiatives, fUlany districts are also struggling to decide, in this era
<br />of uncertainty, whether to put a referendum proposal on the ballot.
<br />Because of these pressures, we have decided to focus the Ehlers annual
<br />school finance seminar on presentations that may help districts manage
<br />their finances in these challenging times.
<br />opening the seminar will be a presentation by Angie Eiers, research
<br />director of Growth & Justice, on their important new initiative Smart
<br />Investments5"" in Minnesota's Students,
<br />Other presentations will ~~~ ~ ~ ~~
<br />address the fol owing topics;
<br />;~
<br />• Investing of public funds;
<br />• Geffing stafceholder input through a
<br />community survey;
<br />Creative tools for financing critical capital needs;
<br />Using a cornrnunitytas~ farce for ~eyfinancial decisions;
<br />l/inancial reporting options under GASB 4~; and,
<br />• Hottopics in school finance cash flow borrowing, oPEBfunding,
<br />federal stimulus package, and other topics,
<br />We will end with a panel of finance experts discussing the changing
<br />financial markets and their impact on school districts,
<br />Detailed inforrnatian, a seminar brochure, and online registration are
<br />available now on the Ehlers vl~eb site -- wwwcf~iers-i~c.cor~,
<br />.~.
<br />
|