Recent commentary has generally focused on the lack of certainty to the business community on how these rules will be applied, as well as the administrative difficulties that will likely arise as the rule first goes into effect. RealClearPolitics has an interesting new take on the regulations, which focuses on how this could impact the 2012 Republican Presidential Primary.
More on that later. As a reminder, the SEC’s new rule has three key elements:
1) It prohibits investment advisors from providing advisory services for compensation—either directly or through a pooled investment vehicle—for two years, if the advisor or certain of its executives or employees have made prohibited political contributions to an elected official in a position to influence the selection of the advisor;
2) It prohibits advisory firms and certain executives and employees from soliciting or coordinating campaign contributions from others (a practice referred to as “bundling”) for any elected official in a position to influence the selection of the adviser. It also prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business; and
3) It prohibits investment advisors from paying third parties, such as placement agents, from soliciting a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment advisor or broker/dealer subject to similar pay to play restriction.
Importantly, for the purposes of campaign fundraising, it doesn't matter whether a state official directly oversees a fund or can appoint someone who does. In either situation, investment advisers interested in obtaining contracts for those funds cannot donate more than $150 to their campaigns in a cycle. The limit goes up to $350 if the investment adviser lives in the state of the elected official.
National political reporter for RealClearPolitics, Erin McPike, writes in "SEC 'Pay to Play' Rule Could Inhibit Barbour, Daniels" that:
Daniels has a direct role on a board that oversees some public funds in the Hoosier State, and Barbour appointed his chief of staff to sit on a board that oversees the public retirement fund in Mississippi, meaning both potential presidential contenders’ campaign accounts could take a hit from the new rules.
In the presidential race, they appear to be the only two politicians in the still-forming field who could be affected by the rule. President Obama is not affected, and the rest of the GOP field is populated by former officials and a senator, none of whom have to worry about the rules.
It remains to be seen how deeply the rules will shape the money chase in the impending GOP presidential primary. A number of sources say that while the giving trends of investment advisers have tended to favor Democrats, there's a growing interest in the industry for two potential Republican candidates: [Mitt] Romney, who isn't affected by the rules, and Daniels, who is.
Interestingly, the SEC’s rules are also impacting other races nationwide. McPike further explains:
Of course, the rules affect candidates down the ballot and across the country, so Barbour and Daniels are not alone. Take Indiana, for example. Indiana Treasurer Richard Mourdock plans to challenge Republican Sen. Dick Lugar in a primary, so Mourdock's role on the same board on which Daniels sits that oversees a state fund impairs the treasurer's ability to raise money from this part of the financial services industry. If Republican Rep. Mike Pence runs for governor, he'll face the same complication given the governor's role on the board and the fact that candidates for affected offices are included.
In neighboring Ohio, Treasurer Josh Mandel has the authority to appoint an investment designee to the Ohio Public Employees Retirement System Board of Trustees. Mandel, a Republican, is a potential opponent for Democratic Sen. Sherrod Brown, and investment advisers would be subject to penalty if they donated substantial contributions to him for the Senate race.
Chalk this up as another unintended consequence of pay-to-play regulations. While it is still unclear just how much these restrictions will limit an impacted candidate’s fundraising prowess, what is clear is the need for comprehensive compliance programs in order to proactively address these challenges prior to March 14.