In recent editions to our Legal News: Investment Management Update, we summarized the new SEC pay-to-play rule (Rule 206(4)-5 or the Rule), which required compliance (starting on March 14, 2011) by registered and exempt investment advisers under the Investment Advisers Act of 1940.
Our investment adviser clients and other counsel to investment management firms are telling us that most advisers are imposing a $150 cross-the-board limit for political contributions made by employees and their spouses. The basic reasoning behind this broad approach appears to be the concern over monitoring of employee contributions and keeping track of who is a “covered associate,” as defined under the Rule. While this approach may make sense for a particular firm, it does not eliminate the need for the firm to have a policy in place to ensure that employees stay within the $150 limitation. Firms should either require preclearance of all employee political contributions or, at the minimum, require each employee to reaffirm on an annual basis that they have read and understand the firm policy and that they have not violated the $150 contribution limit. The firm also may want to include within its policy the ability by a designated person at the firm to waive the $150 contribution limit for certain employees if it would serve the firm's interests and still be within the Rule's provisions.
The investment advisory firm also should remind employees that most states have limitations on individual campaign contributions that may be more limiting than the firm's policy limitations.