Advice360°: Navigating political contributions and staying in compliance

Advice360° is a series designed to help advisors increase their productivity using our digital wealth management software.

In this installment, Steven Niedzwiadek, Advisor360°’s Product Manager for Compliance, shows financial advisors how our Political Contributions Reporting capability can save them time and keep them in compliance.

Campaign season is in full swing. While we have an idea of who will be on the presidential ballot this November, state and local candidates are hot on their respective campaign trails seeking votes from the electorate. This opens the door to potential conflicts of interest and running afoul of financial services industry regulations. Strict rules surrounding the disclosure of financial contributions to political candidates and other activities keep compliance departments busy, particularly every four years. As such, it is increasingly important to own the best political contribution tracking solutions that can save your firm time and reduce the chance of raising red flags for regulators.

Advisor360°’s wealth management platform makes reporting political contributions seamless. Covered employees can easily disclose whether they or someone in their household has offered financial support to a candidate, official, and/or political party. Annual attestations are simplified through our tool for both the advisor and the back office. Furthermore, we have partnered with a third-party solution to provide the most up-to-date information on upcoming elections and candidate lists.

Why firms track political contributions

Making financial contributions to candidates and political parties has become a common way to express our support. But it can also create ethical, legal, and business-related conflicts. For instance, if employees of a brokerage company contributed to a candidate that could affect the decision of who gets a government contract the brokerage company may be bidding on, then eyebrows might be raised.

Ultimately, there are a range of reasons why investment and financial advisory companies must maintain clear and detailed records of employee political contributions. Big picture, here are the top three:

1. Risk mitigation
Tracking political contributions, including keeping a straightforward pre-clearance process, is critical to ensuring transparency and compliance with firm-level and industry-wide policies. It is a legal obligation, yes, but also a strategic advantage to mitigate risk. Friction often arises when politics and e-commerce meet, so compliance departments should strive to reduce even the appearance of questionable behavior. Without a robust reporting and tracking system, a company could face severe penalties for non-compliance, including fines and bans on doing business in certain jurisdictions.
2. Safeguarding a firm’s reputation
Along with the obvious financial repercussions, your reputation is at stake if it’s found that a key employee worked alongside a candidate who was at odds with the company’s mission or its customers’ best interests. At a more basic level, the negative press associated with news stories detailing a financial services firm’s lack of oversight may cause investors and institutional clients to take their business elsewhere.
3. Strategic alignment
The end goal of compliance is to ensure a commitment to ethical conduct across an organization. Maintaining independence from political influence fosters a fair and impartial business environment. The integrity of each advisor and executive is at stake—investing in the best compliance technology to prevent any semblance of bias or conflict of interest is critical.

Advisor360°’s political contribution tracking capability

Advisor360° has joined forces with a leading political data and analytics company to help make contribution reporting seamless. The tool guides employees through a user-friendly interface, making the submission process as efficient and error-free as possible. Here’s how our platform works:

Employee-friendly functionality

A brief set of questions guides covered persons to disclose involvement in political campaigns since their last annual attestation. The user must enter the planned amount, year-to-date contribution, payment method, and to whom the contribution was made, along with a few other details. This is a pre-clearance step, then the back-office compliance team is tasked with either approving or rejecting the contribution. The most common disclosures will be for financial contributions, but some non-financial activities also require reporting.

To make the data entry as efficient and simple as possible, Advisor360° has integrated with government and third-party data vendors to maintain a list of every political candidate, federal, state, and local, as well as all registered political action committees (PACs) within our system.

As soon as a candidacy is filed, they become a selectable option in the pre-clearance process helping our platform to stay up-to-speed with the latest and most accurate candidate lists.

Entering the details is fast and painless for, say, a busy advisor with just a few minutes between client meetings. We limit free-form text entries and use drop-down options wherever possible. If the candidate or PAC is not found on our drop-down list, there is the functionality to enter it manually as free-form text.

Editing contributions and accommodating on-leave employees

Covered persons need not re-key identical entries when they change their mind on a particular contribution. The platform allows users to access and edit previously submitted information, which then runs through the pre-clearance process once more. And when an employee will be on leave for an extended period, an exception can be noted in the system in advance, reducing the burden on both the employee and the operations team down the road.

Data management and reporting: A back-office perspective

The back-office can easily track all political contributions made by employees and run reports within the platform. The compliance department can quickly highlight any potential conflicts and easily export data to Excel, too.

Auto-aggregation: Streamlining risk management

Among the platform’s most popular functionalities is auto-aggregation. Because our application is able to track contributions at the candidate level, we show users the contributions they have made to date along with how much more they are eligible to donate before they exceed the threshold. This helps stop NIGO items before they occur. It also allows us to quickly close benign contribution requests and highlight those that require more scrutiny from a home office supervisor creating a risk-based approach to supervision.

The bottom line

The election season is heating up, and thorough reporting of political campaign contributions is a must for firms across the financial services industry. Our solution requires just a few clicks from covered persons and reveals key real-time insights, empowering compliance departments to effectively aggregate data and prevent conflicts of interest.

Advice360° offers tips and guidance to advisors on increasing their productivity through the Advisor360° wealth management software Learn what other wealth advisors are doing to benefit their practice.

Steven Niedzwiadek is Product Manager for Compliance and defines and oversees product features that improve broker-dealer, advisor, and investor performance and efficiencies in the banking, investment, and insurance industries.