Political Contributions by Certain Investment Advisers
Summary
SIFMA 1 provided comments on the SEC’s proposed rule changes regarding political contributions by certain investment advisers (the “Proposal”). 2 The Proposal seeks public comment on, among other things, whether the SEC should rescind Rule 206(4)-5, the “political contributions rule” (the “Rule”), and its related recordkeeping requirements, under the Investment Advisers Act of 1940 (the “Advisers Act”).
Excerpt
The SEC adopted the Rule in 2010 with the intention of reducing the possibility that campaign contributions and other support of elected officials and candidates for public office by investment advisers and covered associates would result in fraudulent activity. 3 The primary objective of the Rule is to prevent investment advisers from using political contributions to fraudulently influence the award of public pension and government investment contracts (i.e., what the Proposal – as well as the original 2010 Adopting Release – refer to as “pay-to-play” practices). 4
SIFMA and its members fully appreciate that preventing pay-to-play practices in all of its forms is an important and legitimate objective. However, the Rule’s highly prescriptive, strict liability framework, focused on political contributions, has proven unnecessary and ill-suited to meet the Rule’s primary objective. Indeed, our industry’s collective experience suggests that the Rule is not working as intended.
For advisory firms subject to the Rule, compliance has proven to be burdensome and complex, resulting in significant costs, while imposing strict liability consequences and harsh penalties untethered to the Rule’s anti-fraud objective. The Rule has also inhibited industry professionals from personally participating in the political process by prohibiting them from contributing to their candidates of choice. The look-back provision on prior political contributions by new covered associates also deters advisers from hiring qualified personnel, while also inhibiting the mobility of talent within the industry. For government pension funds and other retirement plans, the Rule can potentially deny them their preferred choice of investment adviser.
Moreover, the Rule is unnecessary due to the broad anti-fraud provisions of the federal securities laws, as well as the wide array of robust federal and state safeguards in place (described at length in the Proposal) to ensure public integrity in the award of government contracts. In the event the Rule is rescinded, campaign contributions will still remain subject to existing federal, state and local campaign finance laws, and pay-to-play practices will still remain subject to existing federal, state and local anti-fraud and bribery laws. In fact, notwithstanding the prospective rescission of the Rule, pay-to-play practices – whether involving political contributions or other things of value – will always remain not only prohibited but also strictly enforced by the SEC and other regulators under the federal securities laws, and other federal, state and local related laws, including anti-fraud and bribery statutes, conflict of interest and ethics laws, and certifications included within the procurement process.
- SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation, and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
- Proposal, 91 FR 57698 (Sep. 10, 2026), https://www.govinfo.gov/content/pkg/FR-2026-09-10/pdf/2026-18424.pdf.
- Political Contributions by Certain Investment Advisers, 75 FR 41018 (July 14, 2010) (the “2010
Adopting Release”), https://www.govinfo.gov/content/pkg/FR-2010-07-14/pdf/2010-16559.pdf - Proposal, 91 FR at 57699; 2010 Adopting Release, 75 FR at 41018. Specifically, the SEC states that pay-t0-play practices arise when: “Political contributions influence the selection of an adviser to provide investment advisory services to State and local governments, including by constituting a prerequisite to competing for an advisory role; or investment advisers seek to influence an elected official’s award of advisory contracts by making or soliciting contributions to that official.” Id.
The goal was to ensure that the selection of investment advisers to manage state pension funds and endowments is “based on the merits, not on the amount of money given to a particular candidate for office.” 2010 Adopting Release at 41023. The Rule therefore generally bars an adviser from providing investment advisory services for compensation to a government client for two years after the adviser or a covered associate of the adviser makes a contribution to certain categories of elected officials or candidates.