SEC Proposes Axing Investment Adviser 'Pay-to-Play' Rule
The proposal would eliminate the two-year timeout on advisory fees from government entities after an adviser makes certain political contributions.
The Securities and Exchange Commission has proposed rescinding Rule 206(4)-5, commonly known as the 'pay-to-play' rule for investment advisers. The current rule prohibits an investment adviser from providing compensated advisory services to a government client for two years after the firm or certain employees make a political contribution to an elected official or candidate in a position to influence the selection of the adviser.
Sophisticated counsel and their investment-adviser clients care because the rule significantly constrains the political contribution activities of firms and their personnel, particularly those managing or seeking to manage public pension funds and other government accounts. Eliminating the rule would remove a major compliance hurdle and could alter the competitive landscape for securing government advisory business. The proposal marks a potential reversal of a key post-financial crisis reform aimed at preventing corruption. The next step is the public comment period, after which the SEC may decide whether to adopt a final rule.