SEC Proposes to Rescind Investment Adviser Pay-to-Play Rule
Citing compliance burdens and unintended consequences, the SEC has proposed eliminating the two-year ban on advisory fees from government entities after political contributions.
On September 3, 2026, the U.S. Securities and Exchange Commission proposed rescinding Rule 206(4)-5 of the Investment Advisers Act, commonly known as the "pay-to-play" rule. The 2010 rule prohibits an investment adviser from being compensated for advisory services to a state or local government entity for two years after the adviser or certain employees make a political contribution to an official of that entity.
In its proposal, the SEC cited the rule's complexity, significant compliance burdens, and unintended consequences, such as some advisers instituting blanket bans on political speech. The agency suggested that other safeguards—including advisers' fiduciary duties, antifraud provisions, and existing election laws—may be sufficient to prevent quid pro quo corruption.
If the rule is rescinded, advisers would still be subject to state and local pay-to-play laws and any contractual restrictions imposed by government clients. Firms would need to review and tailor their internal compliance policies and codes of ethics to address the specific risks of managing public funds. The SEC's proposal is open for public comment for 60 days following its publication in the Federal Register.