As a result of the many intricate financial structures and complex regulations that have evolved during the past two decades in public finance, demand has grown dramatically in the industry for professionals with strong technical skills.
Today, the structuring of tax-exempt financings often requires specialists with sound mathematical and computer skills as well as solid investment banking expertise. At many municipal investment banking and financial advisory firms, the technical work is done exclusively by in-house personnel who have been hired primarily for that purpose.
At other banking and advisory firms, some or all of the technical work is subcontracted to outside technical consultants. Depending on the size of the public finance department and its client base, one approach may be preferable to the other.
The purpose of this article is to elaborate on the rationale for hiring technical consultants, to review what qualities to look for in such individuals, and to provide guidelines for best utilizing their talents and capabilities.
Reduced Operating Costs
The cost of maintaining a full-service public finance department can be substantial -- a fact that is particularly important in today's cost-sensitive business environment. Moreover, the use of in-house personnel for complex computer modeling, research or other intricate technical work often represents a significant opportunity cost to many public finance departments.
This is due to the numerous hours which must be devoted to accomplishing these tasks, thus requiring substantial professional time be taken away from other areas of the business. By retaining a technical consultant to prepare the intricate analytical reports as the need arises, the department manager does not need to hire full-time technicians, and can more effectively utilize his or her staff on other professional assignments.
Additionally, in those instances where the underwriter or adviser can pass along the technical consultant's fee as a cost of issuing the securities, the services of the technical consultant are obtained at no cost to them.
In an attempt to contain costs while providing their bankers with technical support, some public finance managers have purchased commercial software and have hired relatively inexperienced individuals to "run the numbers" for their financings.
While this approach may be adequate to complete many of the less intricate tasks, it is often inadequate for accomplishing many of the more complex public finance transactions.
This is because the computer software used to structure complex financings relies heavily on input from individuals with good banking experience. Unfortunately, at many firms, the banker assigned to run the numbers is often inexperienced and seldom has colleagues he can turn to for detailed training and advice. Moreover, by the time a promising young professional manages to acquire the expertise needed to produce a first-rate analysis, he is often assigned away from many of his responsibilities in the quantitative area to work instead on other aspects of the business.
Consequently, the detailed analytical work at many public finance departments is frequently prepared by individuals with little or no seasoning, thereby impeding the efforts of the other professionals in those departments. The technical consultant, who earns his livelihood by preparing complex technical reports, can often prepare such reports with greater accuracy and in far less time than it takes his client.
Also, because of his broad experience in analyzing and structuring complex transactions for bankers and advisers, the technical consultant can often contribute valuable knowledge, state-of-the-art technology, and insight to the structuring of most complex financings -- or responses to requests for proposals.
Thus, in many instances, the technical consultant can enhance the accuracy and completeness of an intricate analysis while relieving his client of having to devote many hours to reinventing the wheel to solve a particularly complex problem -- or having to share the transaction with another firm that has the requiste in-house technical capability.
Backup and Support
In addition to providing his expertise, the technical consultant also provides the underwriter or financial adviser with backup and emergency support in the event of a sudden, unexpected increase in workload, or the unavailability of in-house people due to staff reduction, illness, vacations, and leaves.
Thus, the underwriter or financial adviser can enjoy a more secure relationship with his or her municipal clients knowing that they can draw upon the resources of an experienced technical consultant to augment the capabilities of the existing staff.
Mr. Stone is president of Stanley P. Stone & Associates Inc., a firm that provides technical consulting services to municipal underwriters and financial advisers.