Compliance Risks from Political Contributions | Donna DiMaria Insights
VIGILANT INSIGHTS
Introduction
The Pay-To-Play Rule for Investment Advisors provides on-going compliance difficulties for Firms, especially in an election year.
This topic can be complex at times, as Firms must weigh the risks of employee political contributions against current and future business interests.
In a recent WealthManagement.com article, Vigilant Director, Donna DiMaria, MBA, discussed the compliance considerations surrounding the Pay-To-Play Rule, and provided some helpful insights for Firms looking to stay compliant.
Donna DiMaria Insights
A Firm that had recently been charged for Pay-To-Play violations saw a significant drop in its AUM from 2023 to 2024.
Although we are unsure of the cause of the asset loss, Donna DiMaria notes that SEC charges can cause significant reputational risks for Firms. Investors typically do not want to be involved with Firms dealing with SEC charges. To protect one’s business, especially in an election year, she warns that now is the time to be proactive.
Donna suggests having a Pre-Clearance Policy for all political contributions. This allows management to assess how contributions could impact future business development. This is important due to the 2-year look-back provision. Some clients are not as concerned because they have no plans for business with state or local governments. However, Donna highly suggests everyone does a review at least annually “as you just never know where your next client’s going to come from”.
Vigilant’s Conclusion
It is important that firms are prepared for the potential compliance risks involved with political contributions.
Vigilant offers a Gap Analysis of Compliance Policies and Procedures, which can identify compliance risks to your Firm. We also provide On-Going CCO Support for your compliance department, which can include performing a review of your employees’ political contributions.