The selection of investment advisers and money managers by public entities and their pension plans should be merit-based and not influenced by political contributions. Finance officers and plan administrators are concerned about any improper linkage, whether perceived or actual, between political contributions and the selection of investment advisers. Even the appearance of such linkage erodes the confidence of the taxpayers and beneficiaries of involved state and local governments and public pension funds.

GFOA Position

The Government Finance Officers Association (GFOA) strongly supports the use of an open, competitive, merit-based process for the selection of investment advisers. In response to allegations of questionable practices concerning the selection of investments advisers by public funds, GFOA also supports reforms that are narrowly targeted to specific abuses and are developed on a consensual basis by all affect market participants. To facilitate this process, the Securities and Exchange Commission (SEC) should make the results of its investigations into the selection of investment advisers available in order to better identify and substantiate the nature and extent of problems.

GFOA believes that the disclosure and reporting of campaign contributions is one of the most effective ways to deal with perceived or actual improper linkages between campaign contributions and the awarding of investment adviser contracts. Furthermore, GFOA believes that the regulation and reporting of contributions made to state and local elected officials and candidates for public office is best regulated at the state and local levels of governments, but recognizes that improvements may be needed to ensure that sufficient information is easily accessible on a timely basis. GFOA supports the development of model state statutes that follow the design of those states that have already undertaken such actions. GFOA urges the SEC to cooperate with all market participants to develop workable and equitable improvements for the selection and regulation of investment advisers.
Any proposed rule developed by the SEC relating to political contributions and prohibitions on investment adviser business should contain the following:

• Any limitation place on political contributions by investment advisers to public funds should be consistent with the limitations place on all other political contributions under federal election law, which is $1,000 per individual to a candidate or candidate committee per election and, consistent with federal election law, should not include any geographic restrictions.
• Consistent with the National Securities Markets Improvement Act, any rule promulgated by the SEC regarding political contributions to public funds by investment advisers should apply only to those investment advisers required to be registered with the SEC.
• The designation of who is an official or employee of a state or local government or public pension fund for purposes of any prohibition on political contributions by investment advisers must be clear and narrowly defined.
• The meaning of the term "contribution" as it applies to prohibitions or limitations on the political contributions of investment advisers to public funds must be clearly and narrowly defined.
• If the SEC determines that political contributions to an employee or official of a state or local government or public pension fund should be disclosed and reported by the contributing investment adviser to the SEC, this disclosure should be required on no more than an annual basis.

• Publication date: May 1999