The SEC’s Proposed “Pay-to-Play” Rule for Investment Advisers

September 23, 2009
The SEC has proposed new anti-fraud rules under the Investment Advisers Act of 1940 that would generally prohibit registered and certain unregistered advisers from providing advisory services for compensation to a government entity, including a public pension plan, if that adviser or one of its covered associates has made a political contribution to elected officials in a position to influence decisions on the selection or retention of the adviser by that government entity. The proposed rules would also generally prohibit an adviser from using certain third parties—including finders, solicitors, and placement agents—to seek advisory business from government entities. This update examines the proposed rules, which are controversial and likely to have a significant impact on current industry practices.