Fiduciary vs. Underwriter

As an independent advisor, HMA has no relationship with any underwriting firm. In the bond sale process, we work for only one side of the transaction – for you, the issuer, arranging the successful sale of your bonds.

Fiduciary Relationship: “Fiduciary” means “trustee” or “agent,” one who acts for another, as distinguished from being the “principal” (or bond buyer) who acts primarily for his or her firm’s benefit. Of primary importance in selecting any consultant is that it represents only the clinet’s concerns. An ower of a project hires an architect or engineer to represent its interests in dealing with builders. A defendant in a lawsuit would not think of hiring the plaintiff’s lawyer. Why whould an issuer hire the buyer to advise it in the sale of bonds?

An issuer does not “hire” an investment banker. It grants an underwriter the right to buy its bonds. The investment banker, an adversary, negotiates a purchase price for itself and retails the bonds to investors. The competition is with other underwriters offering investors other bonds, at higher rates. The issuer has hired the other side’s “attorney” to represent it. A close fiduciary relationship should be the first, important qualification of a municipal financial advisor.

Unlike independent advisors, many underwriters work on both sides of the transaction and attempt to serve both the issuers and purchasers of bonds. The underwriter’s conflicting goals are to obtain the lowest rates for issuers and reap the highest rates for the purchasers of those bonds.