The Rule seeks to protect the beneficiaries of invested state and municipal assets, such as state and municipal pension plans and their participants, by curtailing the ability of investment advisers to use political contributions to influence those governmental officials responsible for the hiring of investment advisers, otherwise known as pay-to-play practices.Īccording to the SEC, pay-to-play practices potentially result in higher fees paid to advisers for potentially inferior advisory services, provided to government entities because of an attempt to recoup political contributions by the adviser, or because contracts are not negotiated at arms-length. Below, we discuss key aspects of the Rule and its potential effects on investment advisers and their compliance policies and procedures, and recordkeeping obligations. The Rule, which was adopted substantially as proposed, restricts the contribution and solicitation practices of investment advisers and certain of their related persons, and poses significant consequences for slip-ups. Securities and Exchange Commission (SEC) adopted new Rule 206(4)-5 (the Rule) under the Investment Advisers Act (Advisers Act) aimed at curtailing pay-to-play practices by investment advisers that seek to manage assets of state and local governments.

Pay to play services