Compliance Reminder: Political Contributions
In this heated political climate, it is very easy to contribute to a candidate without thinking about your consequences with regards to your status as an Investment Advisor. As an Investment Advisor, there are contribution limits and the Investment Advisers Act Rule 206(4)-5 (the “Pay-to-Play Rule”) talks about these contribution limits. Per the SEC de minimis contributions exception: Advisors will be allowed to contribute $350 per election to politicians if the advisor is entitled to vote for the candidate. The limit is $150 if the advisor cannot vote for the candidate. Please keep in mind that this applies to anyone under your household and/or through an outside business activity. There are additional exceptions so if you feel that you need to submit a larger contribution, please contact me to see if you qualify for an exemption. But all in all, if you follow these limit rules, you will meet the compliance requirements.
Clarification: As an Advisor, you can make a contribution over the limits ($350/$150) as long you can supply to the Firm evidence that the contribution was not for a pay to play scenario. As an Advisor, you should ask yourself the following questions – “Was the recipient an official of a government entity to which our firm (or an affiliate of our firm) is currently providing or seeking to provide advisory services?” and/or “Was the recipient a political party of a state or locality to which our firm (or an affiliate of our firm) is currently providing or seeking to provide advisory services?”. If you answer Yes to any of these questions, you must comply with the SEC de minimis contribution limit.
In the past years, I have been monitoring political contributions by all advisors and as an issue was detected, I have addressed them with the Advisor. Depending on how long it takes for your donation to be listed on the Federal Election Commission website, it could take up to six months before I would find out if an Advisor inadvertently contributed over the limit. A historic review of fines that were assessed to an Advisor for not following the contribution rule were averaging around $10,000. Many fines were assessed because the contribution that was submitted was over the limit by only $50!
Starting in Q4, I will include a quarterly political form asking if any contributions have been made in the last quarter. This will allow the Firm to monitor this activity within a shorter span. The form is simple to fill out. Like other quarterly forms, if you have nothing to disclose, you would select the checkbox and sign at the bottom of the page. Otherwise, you would follow the instructions to complete the form.
If you have any questions regarding this reminder, please contact Jerry Moore.
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