IAA Supports SEC Proposal to Rescind Pay to Play Rule
November 9, 2026
Vanessa A. Countryman
Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090
Re: Political Contributions by Certain Investment Advisers [SEC Rel. No. IA-6994; File No. S7-2026-31]
Dear Ms. Countryman:
The Investment Adviser Association (IAA)[1] appreciates the opportunity to comment on the Securities and Exchange Commission’s proposal to rescind Rule 206(4)-5 under the Investment Advisers Act of 1940 (Advisers Act), commonly known as the pay to play rule (Rule), and its associated recordkeeping requirements.[2] We commend the Commission for undertaking this important initiative and believe that rescission is warranted considering the Rule’s longstanding compliance burdens, operational complexity, and unintended consequences for advisers, their personnel, and government clients. Importantly, existing protections under the Advisers Act, as well as other federal, state, and local laws and other safeguards, would continue to provide meaningful protection against improper political influence following rescission. The IAA urges the Commission to move forward with the Proposal.
For more than two decades, the IAA has advocated for meaningful and proportionate protections against genuine pay to play practices.[3] We strongly support preventing improper political influence in the selection of investment advisers for government clients but have consistently urged that the regulatory framework target actual risks without imposing unnecessary burdens on advisers, their personnel, or the clients they serve. As discussed below, the Rule’s disproportionate burdens and unintended consequences demonstrate why rescission is warranted.
The Rule’s disproportionate burdens and unintended consequences warrant rescission.
The IAA strongly supports the objectives underlying federal, state, and local laws and regulations designed to prevent improper political influence and protect the integrity of the process for selecting investment advisers to manage government assets. However, the Rule’s broad, prescriptive framework imposes disproportionate burdens and can produce consequences unrelated to those objectives, including disruptions to advisory relationships established on the basis of performance, strategy, cost, or specialized expertise.
The Rule’s de facto strict-liability framework is the central concern.[4] A covered contribution may trigger a two-year prohibition on receiving compensation for advisory services to a government entity without regard to whether the contribution was intended to influence the award of business. Even modest or inadvertent contributions made for personal or civic reasons may have consequences disproportionate to the conduct involved. The limited returned-contribution exception and case-by-case exemptive process do not adequately address these concerns.[5] Moreover, the consequences may extend beyond the adviser to government clients and their beneficiaries if a compensation prohibition negatively affects an existing advisory relationship.
The Rule also imposes substantial operational and compliance burdens, including political-contribution preclearance, employee training, monitoring across jurisdictions, covered-associate and official determinations, and diligence concerning prospective employees.[6] While some of these measures may be appropriate depending on an adviser’s business model and exposure to pay to play risks, they are not necessarily warranted for every firm or in every circumstance. Moreover, the Rule’s broad definitions, indirect-contribution restrictions, and potentially severe consequences for inadvertent violations often lead firms to adopt more extensive controls than their actual risks warrant,[7] including firms with limited or no current government-client exposure.[8]
These challenges are particularly evident in the Rule’s lookback provisions, which can affect hiring and promotion decisions.[9] Under these provisions, certain political contributions made before an individual becomes a covered associate may trigger a compensation prohibition for the adviser. As a consequence, advisers must conduct diligence into prospective employees’ past contributions, even when those contributions preceded the employment relationship and were unrelated to the adviser’s government business. Reliable contribution information can be difficult to obtain, particularly for state and local elections, and public records may be delayed or incomplete. Firms therefore must often rely on employee disclosures while facing potentially significant consequences for inadvertent violations. These requirements can also discourage advisers from hiring or promoting otherwise qualified individuals.
The Rule can also discourage legitimate political participation.[10] To avoid inadvertent violations, firms may broadly restrict employee contributions well beyond what would be necessary to avoid true pay to play concerns. This practical chilling effect further illustrates the disproportionate consequences of the current framework.
Pay to play misconduct would remain subject to existing regulatory and other safeguards.
Rescission of the Rule would not leave pay to play misconduct unregulated. As the Commission recognizes, federal, state, and local anti-corruption, campaign-finance, ethics, procurement, and pay to play requirements continue to govern relevant conduct independently of the Rule.[11] Advisers also remain subject to their fiduciary and antifraud obligations under the Advisers Act,[12] as well as applicable compliance[13] and code of ethics[14] requirements. Importantly, the Commission brought enforcement actions involving pay to play misconduct before adopting the Rule in 2010.[15] These requirements provide important protections against conflicts of interest and misconduct, including in connection with efforts to obtain or retain government advisory business.
In addition to these regulatory protections, many public plans employ formal requests for proposals, investment committees, independent consultants, and other governance and oversight procedures in selecting investment advisers. These processes provide important safeguards designed to promote objective, merit-based selection decisions. Government entities and public pension plans also retain the ability to mandate political-contribution disclosures, certifications, contractual restrictions, and other protections tailored to their particular circumstances.
Taken together, these existing regulatory requirements and government procurement safeguards provide an important framework for addressing improper political influence. While they serve different purposes and operate in different ways, their continued applicability reinforces the case for the Commission’s proposed rescission, particularly considering the Rule’s disproportionate burdens and unintended consequences.
The Commission should preserve a flexible, risk-based approach to compliance.
In considering the regulatory framework that would remain following rescission, the Commission asks whether advisers could address pay to play risks through policies and procedures under the existing Compliance Rule and identifies potential measures such as risk assessments, contribution preclearance, monitoring, training, and periodic reviews. The IAA agrees that advisers should address pay to play risks through reasonably designed policies and procedures under the Compliance Rule, as appropriate to their businesses and the risks presented. We appreciate the Commission’s recognition that such policies and procedures should be risk-based and tailored to each adviser’s particular business model and circumstances.[16]
Consistent with this approach, we believe that the measures identified by the Commission should be illustrative rather than treated as a checklist, minimum standard, or expectation applicable to every adviser, and that the Commission should make this explicit. An adviser with substantial government business, for instance, may reasonably maintain more extensive controls than one with little or no exposure. Advisers with no material exposure to government advisory business, by contrast, should not be expected to maintain separate pay to play-specific policies and procedures solely because of the possibility that such risks could arise in the future. Prescribing uniform measures through rulemaking, guidance, or examination expectations would risk recreating the one-size-fits-all burdens the Commission is now reconsidering. The Commission should therefore make clear that rescission is not intended to shift, nor should it be interpreted as shifting, the existing Rule’s requirements into the Compliance Rule. The Commission also should not replace the Rule with enhanced Form ADV disclosure requirements concerning advisers’ pay to play policies and procedures.[17] Such requirements could impose additional burdens, particularly on advisers with limited or no government-client exposure, without a demonstrated corresponding investor-protection benefit.
Similarly, the Code of Ethics Rule permits advisers to establish standards of employee conduct but does not itself prescribe political-contribution restrictions. Firms should retain flexibility to determine whether and how their codes of ethics and other policies address these activities, consistent with applicable law and their particular risks. The Commission should also expressly clarify that an adviser’s failure to prevent or detect an isolated violation of the adviser’s related policies and procedures does not, standing alone, establish a violation of the Compliance Rule or Code of Ethics Rule.[18]
The Commission should move forward with the Proposal.
For the reasons discussed above, the IAA strongly supports the Commission’s proposal to rescind Rule 206(4)-5 and its associated recordkeeping requirements. Rescission would address the Rule’s disproportionate burdens and unintended consequences while preserving important legal and regulatory safeguards and allowing advisers to adopt appropriately tailored, risk-based compliance measures. We urge the Commission to finalize the Proposal.[19]
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Thank you for your consideration of our comments on this important issue. Please do not hesitate to contact the undersigned at (202) 293-4222 if we can be of further assistance.
Respectfully,
Gail C. Bernstein
General Counsel and Head of Public Policy
Sanjay Lamba
Associate General Counsel
cc:
Honorable Paul S. Atkins, Chairman
Honorable Mark T. Uyeda, Commissioner
Brian Daly, Director, Division of Investment Management
[1] The IAA is the leading organization dedicated to advancing the interests of fiduciary investment advisers. For nearly 90 years, the IAA has been advocating for advisers before Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the U.S. economy. Our members range from global asset managers to the medium- and small-sized firms that make up the majority of our industry. Together, the IAA’s member firms manage more than $57 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org and see the IAA’s Investment Adviser Industry Snapshot.
[2] Political Contributions by Certain Investment Advisers, Advisers Act Rel. No. IA-6994, 91 Fed. Reg. 57698 (Sept. 10, 2026) (Proposal).
[3] See IAA letter to the SEC regarding Political Contributions by Certain Investment Advisers, File No. S7-18-09 (Oct. 6, 2009) (supporting measures to address pay to play abuses while expressing concerns regarding the breadth and structure of the proposed pay to play rule). In May 2000, the IAA (then the ICAA) issued a report on pay to play issues, urging the SEC to adopt a code of ethics rule under the Advisers Act. See Report: Pay-to-Play and the Investment Advisory Profession, Investment Counsel Association of America (May 15, 2000). In July 2004, the IAA issued best practices for codes of ethics, including recommended pay to play provisions. See Best Practices for Investment Adviser Codes of Ethics, IAA (July 20, 2004).
[4] See Proposal at 57699, 57701–03 (discussing the Rule’s de facto strict-liability framework, unintended consequences, and burdens).
[5] The Rule provides a limited exception for certain contributions of up to $350 (or $150 in specified circumstances) that are discovered within four months and returned within 60 days of discovery, subject to restrictions on the number of times an adviser may rely on the exception. See Rule 206(4)-5(b)(3). Advisers may also seek exemptive relief from the Commission, but such relief is discretionary and requires a case-by-case determination. See Rule 206(4)-5(e). Neither mechanism provides reliable relief for the full range of inadvertent or immaterial violations.
[6] See Proposal at 57699, 57701–06 (discussing operational challenges and the Rule’s compliance burdens).
[7] For example, advisers that do not actively solicit or provide advisory services to government entities may nevertheless adopt firmwide political contribution policies, preclearance requirements, and monitoring systems because of the difficulty of limiting the Rule’s application to particular business lines, personnel, or prospective client relationships, as well as the significant consequences that may result from an inadvertent violation.
[8] The associated recordkeeping requirements under Rule 204-2 impose additional administrative burdens by requiring advisers to maintain detailed records concerning covered associates, political contributions, government clients, and certain solicitation arrangements. The IAA supports the proposed rescission of these requirements alongside Rule 206(4)-5 because rescission would eliminate recordkeeping obligations tied to the Rule while preserving other applicable recordkeeping requirements.
[9] See Proposal at 57700–03 (describing the Rule’s lookback provisions and potential effects on hiring).
[10] See Proposal at 57699, 57701–03 (discussing restrictions on political contributions resulting from advisers’ compliance practices).
[11] See Proposal at 57699–57700, 57704–06 (discussing federal, state, and local requirements governing public procurement, political contributions, and pay to play practices that would remain applicable following rescission).
[12] See Sections 206(1) and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1)–(2); Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Advisers Act Rel. No. IA-5248, 84 Fed. Reg. 33669, 33670–72 (July 12, 2019) (discussing advisers’ fiduciary duties of care and loyalty and their enforceability under the Advisers Act’s antifraud provisions).
[13] See Rule 206(4)-7 under the Advisers Act, 17 C.F.R. § 275.206(4)-7 (requiring registered advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and its rules) (Compliance Rule).
[14] See Rule 204A-1 under the Advisers Act, 17 C.F.R. § 275.204A-1 (requiring registered advisers to establish, maintain, and enforce written codes of ethics that include standards of business conduct reflecting applicable fiduciary obligations) (Code of Ethics Rule).
[15] See Commissioner Hester M. Peirce, Laudable Ends, Poorly Pursued: Statement Regarding Recent Pay-to-Play Rule Settlements, (Sept. 15, 2022) (observing that the Commission brought pay to play enforcement actions before adopting the Rule and citing SEC v. Henry Morris and SEC v. Paul J. Silvester).
[16] See Proposal at 57706–08 (recognizing that appropriate policies and procedures under the Compliance Rule should be risk-based and tailored to an adviser’s particular business model and circumstances, rather than uniformly prescribed for all advisers).
[17] See Proposal at 57708 (asking in Question 10 whether enhanced Form ADV disclosures regarding advisers’ pay to play policies and procedures should be required following rescission).
[18] Compliance with these rules should be evaluated based on the reasonableness of the adviser’s policies and procedures and, as applicable, its implementation and enforcement of those policies, considering the firm’s particular risks and circumstances. The mere occurrence of a policy violation should not give rise to an inference that the adviser’s compliance program was deficient.
[19] If the Commission ultimately does not rescind the Rule, at a minimum we support substantial amendments addressing, among other things, its de facto strict-liability framework, automatic two-year compensation prohibition, lookback provisions, breadth of coverage, outdated de minimis thresholds, and limited relief for inadvertent violations.