Reuters: Money: Election year advice for investment advisers

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Election year advice for investment advisers Mar 13th 2012, 20:27 By Suzanne Barlyn Tue Mar 13, 2012 4:27pm EDT (Reuters) - One year after investment advisers had to comply with a tough new rule that restricts their donations to political campaigns, many are still plodding through the fine print. So-called "pay to play" rules, including one adopted by the Securities and Exchange Commission in 2010, are designed to prevent advisers from using campaign contributions as an incentive for state and local governments to hire them. But many advisers are still confused about what types of donations are acceptable. The penalty for violating the SEC rule is steep: An adviser can be banned from selling their services to state and local governments for two years - devastating for advisers whose livelihood depends on bidding for contracts to advise on public retirement plans or other services, such as underwriting. It's all leading to some unnecessary angst and caution, Ki Hong, a Washington-based lawyer, said at a recent conference hosted by the Investment Adviser Association in Arlington, Virginia. That's likely to increase as the U.S. election year progresses. For many advisers - who were first required to comply with the rule a year ago - this has meant reviewing the basics and leaving a window for correcting violations. The first year of complying with a new rule "is the time when everything gets tested and checked out," said Hong, who advises companies on political law issues. POLICY LIMITATIONS Many advisers are still uncertain about which donations can trigger a two-year ban. Among their worries: a local hospital requesting donations and an employee who wants to support a social welfare group. But those types of charitable donations are generally allowed, as long as the groups are not using their money for political purposes. The basic rule is this: Advisory firms and many of their employees typically cannot donate to candidates running for state and local offices. They can also get into trouble for donating to state and local officials who are running for federal office, according to Hong. The rule applies mainly to advisory firms, their executives, and employees responsible for snagging business from government entities. Donating to the remaining U.S. presidential candidates would not trigger the ban, according to Hong. Republican front-runners Mitt Romney and Rick Santorum, for example, do not hold state or local office. But donating to Rick Perry's campaign would have been a problem because he was and is the governor of Texas. And the SEC can "look back" at an individual's donation history over the previous two years. "Just because Perry dropped out of the race doesn't mean you don't have to worry," Hong said. Not all donations to national political groups have dire consequences. Donations to certain national party committees, such as the Democratic National Committee and Republican National Committee, are generally allowed, as long as the committees are not backing specific state and local candidates. But don't assume that donating to a national committee will mean you're completely off the hook. If there are only a few elections for those groups to back in a given year, the ban could be triggered. For example, there were few notable campaigns in 2009 other than the races for governor in New Jersey and Virginia. There is some latitude for individuals covered by the SEC rule. They can give up to $150 per election to anyone, and up to $350 per election to candidates running in races they can vote in, without triggering the ban. Those exceptions, however, are not available to advisory firms. FIRM PROCEDURES Concerned advisers can broaden or tweak their policies to mirror those used successfully at other firms. One to look at: Allianz Global Investors of America L.P., a unit of insurance company Allianz SE, which decided to restrict political contributions by all employees, even those not covered by the SEC rule. The company took the extra measure because any employee could take on a new role at any time, and the SEC's ability to "look back" on past contributions could lead to problems. "We just don't have a magic ball to tell us what employees are going to be in a 'covered associate' position," said Nancy Morris, chief regulatory counsel for Allianz Global Investors, speaking at the conference in Virginia. Allianz developed a "pre-approved" list of political organizations that do not trigger the ban. If employees want to donate elsewhere, the company often must research the organization to see if the SEC ban would apply, she said. Employees must also get firm approval before they or a spouse make their own political contributions, said Morris. While the SEC rule does not apply to spouses, pay-to-play laws in 19 states do, she said. The company requires employees to sign quarterly certifications about their adherence to the political donation rule. At Allianz, the process prompted one employee to realize that she had texted a $10 contribution to President Barack Obama's campaign without the firm's permission. However, the donation was allowed under the SEC rule. Certifications can reveal improper political donations. SEC rules allow advisers to withdraw such improper donations within 30 days of the end of each quarter. Just get the information early enough to make the fix on time, Morris said. (Reporting By Suzanne Barlyn; Editing by Walden Siew, Jennifer Merritt and John Wallace) Link this Share this Digg this Email Reprints

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