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Think Advisor

Muni Bond Markups: Soon No Longer a Secret for Some Trades

The revelation could accelerate a shift toward mutual funds and other fee-based accounts by individual investors who own about $1.6 trillion, or 40 percent, of the outstanding municipal securities, more than any other group. That’s because the fees they charge will look cheap compared with what it costs for individuals to trade on their own.

“Why pay a point to buy bonds when you can pay a few basis points a year to a mutual-fund provider and you get diversification and you don’t have to worry about a singular credit risk that comes with munis,” said Matt Fabian, a managing director at Municipal Market Analytics.

The new regulation from the Municipal Securities Rulemaking Board is the result of a push to inject more transparency into the state and local market, a haven for individuals seeking a safe source of tax-exempt income.

Tim Holler