- Prohibit an adviser from providing payment to any third party for a solicitation of advisory business from any government entity on behalf of such adviser unless the third-party is registered with the SEC or FINRA. This prohibition goes into effect one year after the effective date.
- Prohibit an adviser from soliciting or coordinating contributions (i.e. bundling) to officials or candidates or payments to political parties where the adviser is providing or seeking government business. This prohibition will first be triggered by contributions made six months after the effective date.
- Require a registered adviser to maintain records of the political contributions made by the adviser or covered executives and employees. The record retention rule goes into effect six months after the effective date.
Citing pay-to-play problems in the management of public funds by investment advisors, on June 30 the Securities and Exchange Commission passed new rules that prohibit pay-to-play practices. The SEC first considered these rules, modeled after the MSRB G-37 and G-38 rules, in 1999. While the rules generally go into effect 60 days after publication in the Federal Register, the effective dates for some of the rules are extended to provide time for compliance. The new rules prohibit investment advisers from receiving compensation for advisory services to a government client for two years if they or “covered associates” make political contributions to covered officials or candidates. Covered officials include an incumbent, candidate or successful candidate for elective office of a government entity if the office is directly or indirectly responsible for, or can influence the outcome of, the selection of an investment adviser or has authority to appoint any person who is directly or indirectly responsible for or can influence the outcome of the selection of an investment adviser. “Covered Associates” include the adviser’s general partners, managing members, executive officers, and other individuals with a similar status or function. Employees of the adviser who solicit government entity clients for the investment adviser and the supervisors of any such employees are also covered associates. Additionally, any political action committee controlled by the investment adviser or any of the adviser’s covered associates is included in the definition of covered associates. This prohibition will first be triggered by contributions made six months after the effective date; thus, contributions prior to the November 2010 elections are not covered by the new rules. Investment advisors should, of course use this six-month transition period to identify their covered associates and to modify their compliance programs and corporate political activity policies to enable full compliance with the new requirements before they take affect. The new rules also: