Brokers frequently lie to retail investors about municipal bond purchases, advisor Ric Edelman told an Securities and Exchange Commission forum on fixed-income securities Tuesday.

Edelman, who has been named by Barron’s as the top independent advisor in the nation in three of the last four years, said too often brokers make the following errors of omission and commission in dealing with would-be retail muni bond purchasers:

• Brokers frequently don’t tell retail investors they can negotiate for yield and spreads on muni bonds.
• Brokers also often don’t let a consumer know that a better price may be available from a competitor.
• Sometimes brokers tell a retail investor that the value of the bond is guaranteed, leading the consumer to think he or she can sell the bond at any time for the original purchase price.

“At end of day retail investors are being lied to," Edelman said.

Municipal Securities Rulemaking Board Executive Director Lynnette Kelly told the roundtable at the SEC’s Washington headquarters that the MSRB is studying whether to impose a best-execution rule for the municipal securities market.

She added the regulator may enhance its Electronic Market Access System (EMMA) municipal bond disclosure Web site by improving post-trade transparency and eventually pre-trade transparency.

The first step toward creating what she referred to as “EMMA 2.0” is having conversations about adding yield curves to the database.

SEC Chairman Mary Jo White said she is concerned retail investors are getting worse prices than they should be.

Echoing her worry that institutional investors have an unfair advantage in muni pricing, Commissioner Elisse Walter said, “The more I look at it, the more concern I have about fairness.”

Vanguard Group Fixed Income Group Head Robert Auwaerter cautioned that providing more information may not lead to gains for retail investors. “Pricing muni bonds art, not a science,” he said.

He added that one proposal, giving retail investors more up-to-date information from alternative trading systems, could be misleading because sometimes brokers will post low-ball bids and offers to try help to determine what the true market appetite is for a thinly traded municipal bond.

Retail investors directly hold about 50 percent of the U.S. $3.7 trillion municipal bonds outstanding and another 25 percent indirectly. The corporate debt market, which is much more heavily reliant on large investors, has a value close to $15 trillion.