Eleanor Finch
Political campaigns are financed by donations from individuals, political party committees, and political action committees (PACs). Federal and state laws govern campaign financing, including who can contribute, contribution limits, and reporting requirements. These laws vary across different levels of government and are influenced by judicial decisions, such as the U.S. Supreme Court's Citizens United v. FEC ruling, which impacted the regulation of independent expenditures by corporations and other organizations. Investment advisers and their firms have been known to make political contributions, raising concerns about the potential influence on the selection of advisers by government entities. This has led to proposals to limit or prohibit certain contributions. Understanding the complex interplay of campaign finance laws and the potential influence of donations is crucial for assessing the role of financial advisors in political campaigns.
| Characteristics | Values |
|---|---|
| Federal law | Puts limits on campaign contributions to candidates for president and Congress |
| Prohibits contributions, donations, expenditures, and disbursements by foreign nationals in connection with any federal, state, or local election | |
| Allows individuals under 18 to make contributions, subject to certain limitations | |
| Allows candidates to spend their own funds without limits, but they must report the amount to the FEC | |
| Federal Election Campaign Act of 1971 | Limits the amount of money individuals and political organizations can give to a candidate running for federal office |
| Allows donations to more than one candidate in each federal election | |
| Allows nonconnected PACs to make contributions to influence federal elections, subject to limitations and reporting requirements | |
| Does not allow Super PACs and Hybrid PACs to make contributions to candidates | |
| Allows incorporated charitable organizations to make contributions in connection with federal elections | |
| Allows unincorporated tribal entities to be considered "persons" and thus subject to contribution prohibitions and limitations | |
| State and federal campaign finance laws | Vary in terms of who can contribute to a campaign, contribution amounts, and reporting requirements |
| Allow campaigns to raise funds from individuals, political party committees, and PACs | |
| Do not allow corporations, labor organizations, and membership groups to contribute directly to federal campaigns | |
| Allow corporations, labor organizations, and membership groups to influence federal elections by creating PACs | |
| Allow taxpayers to direct $3 to the Presidential Election Campaign Fund in their tax returns to fund presidential campaigns | |
| SEC rules | Limit or eliminate the costs of political contributions incurred by investment advisers through pay-to-play practices |
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What You'll Learn
Investment advisers and political donations
Political campaigns are financed by donations from individuals, political party committees, and political action committees (PACs). While federal law puts limits on campaign contributions to candidates for president and Congress, there are no restrictions on the size of political contributions. The Federal Election Campaign Act of 1971, enforced by the Federal Election Commission (FEC), sets limits on campaign fundraising and spending and establishes disclosure requirements for campaign contributions.
Investment advisers are regulated by the Advisers Act and have been known to make political contributions to influence the selection process, particularly at the state and local government levels. These contributions are typically made by executives or persons who solicit government clients on behalf of the adviser, rather than the firm itself. The SEC has proposed a rule to limit the application of rule G-37 to contributions made by advisers, partners, executive officers, or solicitors to reduce the costs of political contributions and potential conflicts of interest.
Elected officials serving as trustees have solicited campaign contributions from investment advisers, and failure to contribute has reduced the interest of the official in the adviser's role. However, contributing a sufficient amount can lead to the official championing the selection of the adviser, even over the recommendation of professional staff. To avoid the perception of a conflict of interest, officials may voluntarily abstain from voting on matters concerning an adviser that has made contributions.
The proposed rule by the SEC aims to reduce the influence of political contributions on the selection of investment advisers and lower advisory fees for state and local governments. By limiting contributions to those made by the adviser or its partners, executive officers, or solicitors, the rule could result in the selection of the most qualified adviser, benefiting state and local governments and taxpayers.
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Federal Election Campaign Act
The Federal Election Campaign Act (FECA) is a piece of legislation adopted in the United States in 1971 to regulate the raising and spending of money in U.S. federal elections. The Act imposes restrictions on the amounts of monetary or other contributions that can be made to federal candidates and parties, and it mandates the disclosure of contributions and expenditures in campaigns for federal office. FECA also introduced outright bans on certain corporate and union contributions, speech, and expenditures.
FECA has been amended several times since its enactment. The first amendment came in 1974 following the Watergate scandal, and further amendments were made in 1976 after the Supreme Court struck down several provisions as unconstitutional in Buckley v. Valeo. In 2002, the Bipartisan Campaign Reform Act (BCRA) amended FECA, which went into effect immediately following the 2002 elections and governed all U.S. federal elections until the Supreme Court's decision in Citizens United v. Federal Election Commission (2010). This decision invalidated the BCRA's restrictions on corporate and union spending on independent political advertising.
The Federal Election Commission (FEC) enforces FECA and can impose civil money penalties for late and unfiled campaign finance disclosure reports based on a published schedule of penalties. FECA also includes provisions that determine who can and cannot contribute to political campaigns. For example, federal law prohibits contributions, donations, expenditures, and disbursements solicited, directed, received, or made directly or indirectly by or from foreign nationals in connection with any federal, state, or local election. Additionally, incorporated charitable organizations are prohibited from making contributions in connection with federal elections, and campaigns may not accept or solicit contributions from federal government contractors.
Individuals under 18 years old may also make contributions to candidates and political committees, subject to certain limitations. For instance, the decision to contribute must be made knowingly and voluntarily by the minor, and the funds, goods, or services contributed must be owned or controlled by the minor. Furthermore, the contribution must not be made using funds given to the minor as a gift for the purpose of making the contribution and must not be controlled by another individual.
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Campaign finance laws
At the federal level, individuals, political party committees, and political action committees (PACs) may contribute to campaigns. PACs are created by corporations, labour unions, and membership and trade associations to solicit donations from members and associates to support campaigns. Super PACs, or independent expenditure-only political committees, do not contribute directly to campaigns but raise money to influence federal elections through advertising. Donations to super PACs are not subject to federal limits.
FECA also prohibits certain groups from contributing to federal campaigns. Corporations, labour organizations, and membership groups cannot contribute directly but can influence federal elections by forming PACs. Federal law also prohibits contributions from foreign nationals and federal government contractors in connection with any federal, state, or local election. Additionally, contributions made by one person in another's name are prohibited. For example, an individual who has already contributed the maximum amount to a campaign cannot give money to another person to contribute to the same candidate.
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Political action committees (PACs)
There are two main types of PACs: connected and non-connected. Connected PACs, sometimes called corporate PACs, are established by businesses, non-profits, labour unions, trade groups, or health organisations. They receive and raise money from a restricted class, such as managers and shareholders in a corporation or members in the case of a non-profit. Non-connected PACs are formed by groups with an ideological mission, single-issue groups, and members of Congress or other political leaders.
Federal law has also recognised a third type of PAC, known as super PACs, or independent expenditure-only committees. These PACs can raise unlimited amounts from individuals, corporations, unions, and other groups, but they cannot coordinate with or contribute directly to candidate campaigns or political parties. Hybrid PACs are similar to super PACs but can give limited amounts of money directly to campaigns while still making independent expenditures in unlimited amounts.
PACs have been a part of the political landscape since 1944, and their influence has been growing. In 1971, the Federal Election Campaign Act (FECA) created rules for disclosure, requiring PACs to disclose donations of $200 or more and to file regular reports with the FEC. Since then, the Supreme Court has declared limits on PACs unconstitutional under First Amendment grounds, and campaign donations from PACs have increased significantly, with $482 million raised in 2022.
PACs are subject to certain regulations, such as contribution limits. For example, PACs can give $5,000 to a candidate committee per election and $5,000 annually to another PAC. They can also receive up to $5,000 from any one individual, PAC, or party committee per year. It is important to note that incorporated charitable organisations are prohibited from making contributions in connection with federal elections, and campaigns cannot accept contributions from federal government contractors.
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Super PACs and their role
Political action committees (PACs) are tax-exempt organizations that pool campaign contributions from members and donate those funds to campaigns for or against candidates, ballot initiatives, or legislation. There are two types of PACs: connected and non-connected. Judicial decisions added a third classification, independent expenditure-only committees, which are colloquially known as "super PACs".
Super PACs are a type of political action committee that came into existence following two judicial decisions in 2010: Citizens United v. Federal Election Commission and Speechnow.org v. FEC. These decisions allowed for the creation of Super PACs, which, unlike traditional PACs, can legally fundraise unlimited amounts of money from individuals or organizations for campaign advertising. However, they are not permitted to coordinate with or contribute directly to candidate campaigns or political parties. They are subject to the same organizational, reporting, and public disclosure requirements as traditional PACs.
Super PACs have been described as "finding creative ways to work in concert" with the candidates they support, working around the legal rules that separate political campaigns from outside groups or Super PACs. In the 2016 presidential campaign, almost every top presidential hopeful had a personalized Super PAC, which raised unlimited sums and was often run by close associates or former aides. FEC regulations allow campaigns to publicly signal their needs to independent groups, and political operatives can communicate directly as long as they do not discuss candidate strategy.
Super PACs are tracked by the FEC and independent organizations like OpenSecrets. Despite disclosure rules, Super PACs have found ways to circumvent them, such as by reporting a non-disclosing nonprofit or shell company as the donor. This allows dark money groups to get around court rulings that require nonprofits running political ads to reveal their donors.
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Frequently asked questions
Financial advisors can donate to political campaigns, but they are regulated under the Advisers Act, and their firms may be influenced by political contributions. There are also rules in place to limit the costs of political contributions incurred by investment advisers.
Yes, there are restrictions on donations to political campaigns. The Federal Election Campaign Act of 1971 sets limits on campaign fundraising and spending, and establishes disclosure requirements for campaign contributions. It also created the FEC, which enforces federal campaign finance law. Additionally, federal law prohibits contributions from foreign nationals and federal government contractors in connection with any election.
Corporations cannot contribute directly to federal campaigns, but they can influence federal elections by creating political action committees (PACs) and making independent expenditures for political communications.
Yes, Arizona, Connecticut, and Maine have highly successful public financing systems for state elections. New York City also has a thriving public financing system that matches donations from residents up to a certain amount.
