A new SEC rule would not ban or limit the amount of political contributions an investment adviser ("IA") 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.  The rule targets so-called "pay-to-play" practices in which IA's contribute to campaigns of elected officials so as to influence the award of contracts to manage public pension plan assets and other government investment accounts. 

    What's Prohibited Under Advisers Act Rule 206(4)-5.   The new rule applies to SEC RIA's and certain advisers exempt from registration with the SEC who provide IA services, or are seeking to provide IA services, to government entities.  The rule subjects these advisers to several restrictions designed to curb pay to play activities.  In particular, the rule prohibits:

• an IA from providing advisory services for compensation to a government entity - directly or through a pooled investment vehicle - for 2 years after the IA or certain of its execs or employees make political contributions above specified thresholds to an elected official or candidate for political office, if the office is directly or indirectly responsible for, or can influence that government entity's selection of the adviser;

• an IA and certain of its execs and employees from paying or agreeing to pay a 3rd-party placement agent or "finder" to solicit business from a government entity on the adviser's behalf unless the 3rd party is a registered B/D or SEC RIA subject to pay to play restrictions;  and,

• an IA and certain of its execs and employees from soliciting or coordinating contributions - i.e., "bundling" - from others to a political official, candidate or political party in a state or locality where the IA provides or is seeking to provide advisory services.

    Other Rule Provisions.   Rule 206(4)-5 includes a provision that makes it unlawful for an IA or certain of its execs or employees to do anything indirectly which, if done directly, would result in a violation of the rule.  The rule allows IA's subject to the rule to apply for an exemption.  In addition, a RIA subject to the rule also will have to maintain certain records under a related amendment to the Investment Advisers Act recordkeeping rule that the Commission adopted along with the new rule.  For further details, click onto:  [ SEC Final Rule: Small Entity Compliance Guide, 9/13 ].