
By Buddy Doyle
Subscribe to our original industry insightsIn 2010, the SEC passed the “pay to play” rule (Rule 206 (4)-5) which gives advisors a choice between allowing employees and independent contractors to provide meaningful financial support to political candidates that represent their views or earning fees for managing accounts for government entities. In general, the rule prohibits an investment advisor from providing advisory services to a government entity for two-years if the advisor or their associates have made a political contribution to certain officials of the entity. This rule does not just limit the individual ability to support a preferred candidate, but also prohibits the individual from indirectly supporting them through family members, attorneys and so forth.
So how do firms approach political contributions? It depends on the business model. Some firms don’t have clients that are municipal pension plans or similar government entities that would initiate the requirement to provide services for no compensation. In those cases, firms typically don’t require employees to report their political contributions.
Other firms use governance, risk, and compliance workflow tools like Oyster Solutions to track political contributions. There are a few important things to consider when establishing a risk assessment, policy, procedure and workflow around political contributions, including:
Now is a good time to look at your client base and decide if it is time to review and update your pay to play policies and procedures.
Whether it is writing Policies and Procedures or Written Supervisory Procedures (WSPs), Oyster will update your firm’s guidelines, and conduct a deep dive into your firm’s practices and procedures. We ensure your guides match actual business practices and provide reasonable solutions based on your unique business model.
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