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the Investment Advisers Act of 1940 that prohibits an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates.
- I. Compliance Dates
- II. Definition of “Covered Associate”
- III. Definition of “Government Entity” and “Official”
- IV. Third-Party Solicitors
- V. Miscellaneous
Question I.1. Compliance Date for Recordkeeping Obligations.
Q:When must an adviser subject to the pay to play rule begin to comply with the related requirement in Advisers Act rule 204-2 to make and keep a record of all government entities to which it provides or has provided advisory services (or which are or were investors in any covered investment pool to which the adviser provides or has provided investment advisory services)? A: An adviser subject to the pay to play rule that is also subject to Advisers Act rule 204-2 must begin to keep such a re...
Question I.2. Coverage Period for Recordkeeping Requirements.
Q: Advisers Act rule 204-2 provides that an adviser subject to the pay to play rule must make and keep a record of all government entities to which it provides or has provided advisory services (or which are or were investors in any covered investment pool to which the adviser provides or has provided advisory services) for the past five years, but “not prior to September 13,2010” (see rule 204-2(a)(18)(i)(B)). Does this mean that an adviser’s records must extend back to September 13, 2010? A...
Question I.3. Compliance Date for Regulated Person Recordkeeping
Q:The Commission recently extended the compliance deadline for the pay to play rule's ban on third-party solicitation from June 13, 2012 to nine months after the compliance date of a final rule adopted by the Commission by which municipal advisor firms must register under the Securities Exchange Act of 1934 (see Investment Advisers Act Release No. 3418). May an adviser also delay compliance with the related recordkeeping requirements? A:The Division would not recommend enforcement action to t...
Question II.1. Parent Company.
Q:Footnote 179 in the Adopting Release states that, depending on facts and circumstances, there may be instances in which a person who formally resides at an adviser’s parent company, but who supervises an adviser’s covered associate, could also thereby be considered a covered associate. Would the parent company itself be considered a covered associate? A: No. Rule 206(4)-5(f)(2) provides that only natural persons (and political action committees (“PACs”) controlled by those natural persons o...
Question II.2. Managing Members’ PACs.
Q: If a company is the managing member of an investment adviser, would its PAC be a covered associate? A: No. The definition of covered associate only includes managing members who are individuals (i.e.,natural persons) (see rule 206(4)-5(f)(2)). Therefore, unless the adviser or any of its covered associates has the ability to direct or cause the direction of the governance or the operations of the managing member’s PAC, that PAC would not be a covered associate. (Posted March 22, 2011).
Question II.3. Affiliates.
Q:Can an adviser choose to treat its affiliated company or that affiliate's personnel as covered associates of the adviser in order to enable them to solicit on behalf of the adviser? A:No. Covered associates include only an investment adviser's general partner, managing member or executive officer, or other individual with a similar status or function; any employee who solicits a government entity for the investment adviser and any person who supervises, directly or indirectly, such employee...
Question III.1. Foreign Governments.
Q:Does the definition of government entity include foreign governments? A:No. (Posted March 22, 2011).
Question III.2. Participant-Elected Members of a Board.
Q: Can a participant-electedmember of a public pension board be considered an official of a government entity? A: Yes. The pay to play rule does not differentiate between popularly elected officials and participant-elected officials. The board member would be an official if he or she was, at the time of a contribution, an incumbent, candidate or successful candidate for the office, if the office: (i) is directly or indirectly responsible for, or can influence the outcome of, the hiring of an...
Question IV.1. Trailing Compensation for Solicitation.
Q:Under many solicitation agreements, an adviser continues to compensate a solicitor for soliciting a client for as long as the client remains a client of the adviser. If an adviser obtained a government entity client with the assistance of a solicitor (that does not qualify as a regulated person) prior to the pay to play rule’s compliance date applicable to the adviser, would trailing payments after that date be prohibited? A: If the solicitor does not solicit the government entity client af...
Question IV.2. Shared Employee of an Adviser and Affiliated Broker-Dealer.
Q: If an adviser’s covered associate is also employed by an affiliated broker-dealer firm to solicit government entities on the adviser’s behalf, would the broker-dealer firm have to be a regulated person? A:If the adviser provides or agrees to provide, directly or indirectly, payment to the broker-dealer firm in connection with such solicitation, then the broker-dealer firm would have to be a regulated person (see rule 206(4)-5(a)(2)(i)). Regardless, the shared employee would also be a cover...
Question IV.3. Single Exception for a Returned Contribution per Employee Does Not Travel with the Employee.
Q:The exception for returned contributions may be used only once per advisory employee (see rule 206(4)-5(b)(3)(iii)). If that employee becomes employed by another firm, would the new firm be prohibited from relying on the exception with respect to another contribution of that employee? A: No. (Posted March 22, 2011).
Question V.1. Affect on State and Local Laws.
Q:Does the pay to play rule pre-empt state and local laws regarding campaign contributions and pay to play activities? A:No. (Posted March 22, 2011).
Question V.2. Reliance on MSRB Interpretations.
Q:Can the MSRB’s rule G-37 interpretations be relied on to interpret the pay to play rule? A:No. MSRB guidance does not provide authoritative interpretations of the Commission’s pay to play rule. However, where the MSRB’s rule G-37 interpretations directly address an issue that the Commission has not addressed, such interpretations might be useful to consider. (Posted March 22, 2011).
Question V.3. Contributions to Others.
Q: If an adviser subject to the pay to play rule, or one of the adviser’s covered associates, makes a contribution to a political party, PAC or other committee or organization, but not to an official, could the adviser still be subject to a two-year time out under rule 206(4)-5(a)(1)? A: A contribution to a political party, PAC or other committee or organization would not trigger a two-year time out under rule 206(4)-5(a)(1), unless it is a means to do indirectly what the rule prohibits if do...
People also ask
Can advisers make political contributions?
What is a political action committee (PAC) rule?
Can an adviser make a payment to a political party?
How much money can a political adviser contribute to an election?
- Advisers Are Prohibited From Doing Business With Any Politician/Public Entity to Which They’ve Made a Political Contribution. Truth: Nothing in the Rule prohibits an investment adviser from continuing to provide services to a state or local entity after making a political contribution.
- The Rule Only Applies If an Adviser Is Seeking to Influence Investment Decisions. Truth: The SEC Rule focuses only on the act of the contribution, but not the motivation for the contribution.
- The SEC Rule Applies to All Political Contributions by Employees. Truth: Only “covered associates” are subject to the Rule, which encompasses senior management and employees involved in soliciting government entities.
- The SEC Rule Caps Employee Political Contributions. Truth: The Rule does not “cap” employee contributions. Rather, it stipulates that an adviser may not earn fees if “Covered Associate” contributions exceed de minimis thresholds (contribution limits of $350 if the employee can vote for the candidate; or $150 otherwise).
(i) An investment adviser that is prohibited from providing investment advisory services for compensation pursuant to paragraph (a)(1) of this section as a result of a contribution made by a covered associate of the investment adviser is excepted from such prohibition, subject to paragraphs (b)(3)(ii) and (b)(3)(iii) of this section, upon ...
Sep 13, 2016 · Q: If an adviser subject to the pay to play rule, or one of the adviser’s covered associates, makes a contribution to a political party, PAC or other committee or organization, but not to an official, could the adviser still be subject to a two-year time out under rule 206 (4)-5 (a) (1)?
Sep 13, 2010 · Importantly, the rule would not ban or limit the amount of political contributions an adviser or its covered associates could make; rather, it would impose a limited "time-out" on conducting advisory business for compensation with a government client after a contribution is made. Advisers Act Rule 206(4)-5
Jul 9, 2010 · The Rule also prohibits an investment adviser or any of its covered associates from coordinating or soliciting other persons (including political action committees, or “PACs”) to contribute to an official of a government entity or to make payments to a political party of a state or other locality.
