The Securities and Exchange Commission’s (SEC’s) new pay-to-play rule takes effect today. The rule restricts the state and local political activities of investment advisers who work with state and local pension funds. See this post for more information on the new rule. Given the number of local pay-to-play laws and ordinances already in place around the country, in addition to amendments already proposed for these new rules, compliance with the SEC’s new rules requires careful preparation. The new rule covers a broad spectrum of employees. “Covered Associates” include the adviser’s general partners, managing members, executive officers, and other individuals with a similar status or function. Any employee of the adviser who solicits government entity clients for the investment adviser and any supervisor of any such employee are also covered associates. Additionally, any PAC controlled by the investment adviser or any of the adviser’s covered associates are included in the definition of “covered associates.” Note that the SEC proposed rules in November 2010 that may ultimately change the scope of individuals covered by the rule. Nevertheless, the first step for compliance is identifying employees covered by the rule. We also recommend making sure any affiliated PAC contribution policies are amended accordingly. Covered employees also need to be aware of which officials are covered by the rules. “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. Accordingly, creating awareness of the restrictions applicable to employees through a corporate political activity policy and in-house seminars is crucial to compliance. And since the rule requires registered advisers to maintain records of the political contributions made by advisers or covered executives and employees, it is also important to set-up a vetting policy to make sure the advisor is able to maintain proper records.