Series 7

AAA

Rules and Regulations - Political Contributions

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.
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