Why municipal advisory? Q&A with Jim Mann & Melissa Buck
UMB Financial Services, Inc. launched municipal advisory services in 2020 and recently expanded it with the hire of an experienced Colorado-based team of advisors: Jim Mann and Melissa Buck. In the following Q&A, Jim and Melissa offer their take on why municipalities should use a municipal advisor.
When did the phrase “municipal advisory” come into use?
Jim: Prior to 2009, we were “financial advisors” who worked with municipalities and other public entities. Then a financial regulatory reform bill codified the phrase “municipal advisory.” So, the term is relatively new, but the nature of our work isn’t.
In a nutshell, what is that work?
Melissa: We help our clients plan for the future, including how to best leverage existing resources. As part of that process, our goal is to work toward achieving the lowest cost of capital possible for our clients while also ensuring a smooth execution of a financial transaction. We can help quantify the benefits and costs of various bond structures, act as a liaison between all parties on the bond issue, recommend the best method of sale, and identify and keep track of any market opportunities.
Jim: We sit on the same side of the table as the issuer, as fiduciaries, which means we are legally required to put their best interests ahead of our own.
How does that fit into UMB Bank, n.a. Capital Market Division’s broader capital markets offerings?
Jim: Very smoothly. UMB has recognized the need to be full-service for municipalities in the public finance group—across underwriting, corporate trust and now advisory. Municipal advisory services as the third leg of the stool.
Melissa: I see municipal advisory as a natural complement to the other services. Whatever your financial needs, we can help you. For example, if you’re at the inception stage of a capital project, we can help quantify each option, including how choosing that option may impact funding for other projects.
Jim: Having access to a pricing desk provides a leg up on other municipal advisory firms that don’t have that access. We have real-time data to look at, not just a look-back on what has happened in the market. This helps ensure clients are receiving the most up-to-date information on pricing trends with the goal of staying ahead of the curve.
What about any potential conflicts with UMB Financial Service’s broker-dealer and UMB Bank, n.a. Capital Market Division’s services?
Jim: UMB Financial Services, Inc. and UMB Bank, n.a. Capital Market Division never engage as both municipal advisory and underwriter on any public offering. It’s prohibited under federal law. And where a client uses UMB for other services, e.g. trustee, we have taken steps to mitigate any potential conflict of interest. Most importantly, as a fiduciary, our first obligation is to our client—always.
How do you approach capital cost efficiency for clients?
Melissa: While governments and other quasi-municipal entities are not required to hire a municipal advisor, many do so to help manage risk, provide market insights, and be their advocate. In short, we ensure all aspects of the bond issue favor the issuer (our client), including recommending structures that benefit the issuer foremost while also balancing investor preferences. Without any independent advice on what that balance should be, how would you know if you’re getting a good deal or not?
The other big way we help clients lower their capital costs is by knowing what is financeable and what an underwriting firm’s capabilities and preferences are. By that I mean, will an underwriter be willing to hold some of a deal on its own books? Maybe, maybe not. Part of our job is to figure out who would be the best fit for the transaction or project. Our goal is the same as our clients’—we want to achieve optimal results with positive experiences so the proposed infrastructure project benefits the community as much as possible.
Jim: However, sometimes it’s not just about the lowest cost of capital. Sometimes you are faced with a variety of other inputs like timing, size, political considerations, etc. that impact your ability to achieve the lowest cost of capital. In these circumstances, it is important to fully review and understand your options to achieve the most advantageous terms—while perhaps not being the lowest cost of capital you can achieve. We help clients wade through options as to what will be in their best interests.
When do you typically get involved in a capital project?
Jim: As early as possible. Municipal advisors should be there at inception. In all forms of government, there is no such thing as an isolated financial event. You deal with a finite set of resources, so if you are committing your resources by borrowing for a particular project, it impacts many other areas. You want to take all that into account from the beginning to ensure that you are making informed decisions.
However, we recognize that there are times where parts of the financing team are already put together and the municipal advisory is brought in later in the process to fill a need. We are also fully prepared and available to come in at this stage to shepherd the financing and to ensure the terms and pricing is fair in the marketplace.
Melissa: Say a municipality wants to build a new police building. It needs to go to the voters to approve the funds. Far ahead of going to the voters, we’ve been involved, talking about what needs to happen, who are the players, what’s the general timeline, what are the pros and cons of going to voters, and when, and then finally what is the best way to approach them.
We can also help with ballot initiatives by quantifying the “ask,” drafting talking points, benchmarking tax rates and debt per capita against other local jurisdictions, and helping bond counsel draft an appropriate question or questions.
Jim: One of the key benefits of working with a municipal advisor is evaluating a variety of financing options. Whether your financing ends up being through the public markets to an underwriter/broker-dealer or bank, or a direct placement to an investor, or you use of one of the state or federal programs, it is important to know your options and how those options impact your community.
Sounds like you should bring on a municipal advisor early in the process.
Melissa: Yes, bringing on a municipal advisor early in the process helps a community make a well-informed decision on how to spend those finite resources you have been entrusted with. Through proper planning, education, community outreach and then execution, a municipal advisor will help you achieve the goals and/or needs in an effective and efficient manner.
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