IAA Supports SEC Proposal to Rescind Pay to Play Rule

November 9, 2026

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The IAA has submitted a comment letter strongly supporting the SEC’s proposal to rescind Rule 206(4)-5 under the Investment Advisers Act, commonly known as the Pay to Play Rule, and its associated recordkeeping requirements. The Rule generally prohibits advisers from receiving compensation for providing advisory services to a government entity for two years following certain political contributions by the adviser or its covered associates.

The IAA has advocated for more than two decades for a proportionate approach to addressing pay to play practices. We have consistently supported safeguards against improper political influence while raising concerns about the Rule’s disproportionate compliance burdens, operational complexity, and unintended consequences for advisers, their personnel, and government clients. The SEC’s proposal is a welcome development that reflects many of the concerns the IAA has raised over the years.

“The IAA strongly opposes pay to play practices and supports meaningful protections against improper political influence,” said Karen Barr, President & CEO of the IAA. “But this prescriptive rule is not the right way to address the problem. Rescinding it would leave in place numerous other protections against misconduct while allowing advisers to maintain compliance programs appropriate to their businesses and the risks they face. We urge the SEC to move forward with its proposal.”

What Are the IAA’s Key Recommendations?

The IAA strongly supports rescission and highlights several considerations:

• Disproportionate Consequences. The Rule’s de facto strict-liability framework can trigger a two-year compensation prohibition even for modest or inadvertent political contributions unrelated to an attempt to influence government business. The limited returned-contribution exception and discretionary exemptive relief do not adequately address these concerns.
• Significant Compliance Burdens. The Rule imposes substantial operational requirements, including political-contribution preclearance, employee training, monitoring, and diligence concerning covered associates and prospective employees. These burdens can extend to advisers with limited or no current government-client exposure.
• Unintended Consequences. The Rule’s lookback provisions can complicate hiring and promotion decisions, while concerns about inadvertent violations can lead firms to restrict otherwise lawful political participation. Compensation prohibitions may also negatively affect existing advisory relationships and government clients.
• Continuing Regulatory Safeguards. Rescission would not eliminate protections against pay to play misconduct. Advisers would remain subject to applicable federal, state, and local anti-corruption, campaign-finance, ethics, and procurement requirements, as well as applicable fiduciary, antifraud, and compliance obligations. Government entities and public pension plans also maintain governance and procurement safeguards and may impose their own political-contribution disclosures and contractual restrictions.
• Flexible, Risk-Based Compliance. The IAA urges the SEC to preserve advisers’ flexibility to address pay to play risks through policies and procedures tailored to their businesses. The SEC should make clear that rescission would not shift the Rule’s requirements into the existing Compliance Rule or establish uniform compliance expectations for all advisers.

The IAA also supports rescission of the associated recordkeeping requirements and opposes imposing new Form ADV disclosure obligations concerning advisers’ pay to play policies as an alternative to the Rule.

What Should Members Consider?

• The SEC’s proposal has not been finalized, and the existing Pay to Play Rule and related recordkeeping requirements remain in effect.
• Advisers should continue complying with applicable requirements, including political-contribution restrictions and monitoring and recordkeeping obligations, while following developments with the rulemaking.
• If the SEC rescinds the Rule, advisers should evaluate their existing pay to play policies and procedures in light of their business activities and risk profile, government-client exposure, and other applicable legal and regulatory requirements.

What Happens Next?

The SEC will consider public comments before determining whether to finalize the proposed rescission. The IAA will keep members informed of developments relating to the proposal and any resulting changes to advisers’ regulatory obligations.

How Can the IAA Help?

Members may contact the IAA Legal Team with questions about the proposal, the IAA’s advocacy, or the potential implications for their firms.