SEC proposes letting investment advisers donate to officials who award public pension mandates

Divide 1.11 million employees by 16,434 registered firms and you get about 67 people per adviser ^[4], which is the wrong average to think with and also the only one on offer, because the burden the SEC is describing is per-person: the two-year fee timeout attaches to a contribution by a covered person, not to a decision taken by the firm ^[2]. That asymmetry is the Commission's real argument. A single small check from a newly promoted employee, picked up by the lookback provision before anyone internally treats him as covered ^[14], can switch off compensation from a government client for two years ^[2], and WilmerHale told clients in a May 19 alert that this can happen even where the contribution is relatively small and shows nothing resembling improper intent ^[13]. Firms priced that risk the cheap way and banned political giving outright ^[12].

What the proposal does not do, at least as reported, is size the prize. Public pension funds, state retirement systems and public university endowments are named as the holders of the large mandates the rule was written to protect ^[16], with no dollar figure attached ^[21], so the release counts the population of potential donors down to the last adviser and leaves the money they would be donating toward unmeasured.

The empirical record cuts against the confident version of the SEC's case. Research covering 22,000 SEC-registered advisory firms from 2001 to 2016 found that donations to state authorities and political action committees corresponded to increases in public pension business ^[10], and that giving by managers with a lot of government business fell significantly once the rule was in force ^[11]. That sample is 5,566 firms larger than the agency's current registrant count, roughly a third more ^[17], which tells you it was not some corner of the industry. The Commission's answer is that antifraud provisions, fiduciary obligations, compliance requirements and codes of ethics remain, alongside procurement and anti-corruption law at three levels of government ^[7], and that these already deter bribery ^[20]. Both readings can hold: the rule bit, and it bit by operating as what the SEC now calls a de facto strict liability standard ^[8].

This is probably wrong, but the load-bearing part of the proposal is the recordkeeping repeal rather than the lifted timeout ^[1], since a firm-level ledger of covered contributions is what makes a donation checkable during an examination, and procurement law moves one case at a time. This could unfold in one of a few ways. State and local restrictions bind hard enough that nothing measurable changes; firms keep their internal bans because a fiduciary explaining a donation to a trustee is a worse conversation than declining to make one; or giving resumes into what the SEC itself notes is a record year for corporate political spending ^[5], and competition for public money regains a channel it has not had in fifteen years ^[18]. The Investment Adviser Association's stated position, reform short of full repeal ^[15], suggests the industry thinks the middle outcome is purchasable. Comments close roughly November 2, sixty days from the September 3 proposal ^[6].

I would be wrong about the recordkeeping if the Commission drops only the fee ban and keeps the contribution records, and wrong about the whole thesis if giving by government-heavy managers stays near current levels after the timeout lifts, which would mean the rule was never the constraint that moved their behavior in the first place ^[11]. Chairman Paul Atkins put the case on speech grounds on September 3, saying people should not have to choose between their political speech rights and a job in a particular industry ^[9], and that is a proposition about liberty rather than about who wins the mandate.