Political Contributions

Such contributions should never be used to procure business that should be awarded on the basis of merit only. The intent of these rules is to preserve market integrity. What follow are the rules as they apply to registered investment advisers and municipal securities firms.

  1. Registered Investment Advisors (Rule 206 (4)-5): Under the Investment Advisers Act of 1940, is designed to deter the practice of "pay-to-play." After making a political contribution to certain elected officials or candidates, the adviser may not provide advisory services to a government client for a fee for two years. Advisors are also prohibited from arranging to pay any third party to solicit advisory business on the advisor's behalf, unless that third party satisfies certain criteria that would include the pay-to-play rules. When the advisor is seeking or providing government business, it may not solicit or coordinate contributions to certain elected officials or candidates or payments to political parties. The proscriptions apply when an advisor manages a government entity's assets through a "covered investment pool," a registered investment company that is a fund option in a participant directed government retirement arrangement, such as a Section 457 plan. Should such funds be commingled in an omnibus account, not uncommon, the advisor must register these investment companies in accordance with the rules. Compliance in this area is designed to ensure transparency in the advisor's dealings with government officials and agencies.
  2. Municipal Securities Dealers (Rule G-37): also designed to prevent "pay-to-play" practices, the rule bans the broker, dealer or municipal securities dealer; any municipal finance professional associated with such broker, dealer or municipal securities dealer; or any political action committee controlled by the broker, dealer or municipal securities dealer or by any municipal finance professional, from doing business with issuers for two years after making certain contributions to issuer officials other than small permissible ones. The exception is that municipal finance professionals (MFPs) may make a contribution of $250.00 per election to issuer officials for whom they are permitted to vote. Dealers, MFPs, their political action committees (PACs) and non-MFP executive officers must disclose contributions to state and local political parties. These individuals may not make indirect contributions in an effort to circumvent the rules, nor may they solicit or coordinate contributions when engaging or attempting to engage municipal securities business.



Related Articles
  1. Investing

    What Does a Dealer Do?

    Dealers possess certain qualities that distinguish them from brokers and traders.
  2. Financial Advisor

    Why You Should Invest In Municipal Bond ETFs

    These versatile instruments have become popular with investors in higher tax brackets and fill a specific niche in the wide selection of fixed-income offerings.
  3. Insights

    What's a Dealer Market?

    In a dealer market, market participants buy and sell through dealers who are designated as market makers.
  4. Investing

    Do Municipal Bond Mutual Funds Offer a Tax Incentive?

    Learn about individual municipal securities and municipal bond funds, whose principal stability and tax-free yield appeal to high-income investors.
  5. Investing

    The Top 5 Municipal Bond ETFs for 2016

    Learn about exchange-traded funds that invest in municipal bonds issued by local U.S. municipalities with returns on bonds exempted from federal tax.
  6. Investing

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  7. Financial Advisor

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  8. Investing

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  9. Investing

    Municipalities Free Up Cash With Chapter 9

    Find out what happens to municipalities when they need money, but have no other option than bankruptcy.
  10. Financial Advisor

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
Frequently Asked Questions
  1. How do you calculate r-squared in Excel?

    Calculate R-squared in Microsoft Excel by creating two data ranges to correlate. Use the Correlation formula to correlate ...
  2. What is the Difference Between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ...
  3. Where Did the Bull and Bear Market Get Their Names?

    The terms bull and bear are used to describe general actions and attitudes, or sentiment, either of an individual (bear and ...
  4. What's the difference between Google's GOOG and GOOGL stock tickers?

    Learn the difference between Google's GOOG and GOOGL ticker symbols. Splitting shares into classes prevents management from ...
Trading Center