On September 3, the Securities and Exchange Commission (SEC) proposed a rule (RIN 3235-AN65) that would rescind the 16-year-old “pay-to-play” rule (Rule 206(4)-5) that prevents state and local entities, including public pension funds, from doing business with investment advisors who, within two years, made political contributions of $150 to $350 or more to state and local elected officials.

The proposed rescission rule makes clear that fraud, fiduciary rule and other relevant SEC requirements remain in full force. But, the SEC said, the other rules are “enough” to combat pay-to-play practices. “Advisers’ implementation of the rule has effectively resulted in the suppression of political speech,” SEC Chairman Paul Atkins said. “Ultimately, matters involving political contributions are more properly governed by local ordinances, state laws, and federal election regulations — not by the SEC.”

NAIFA’s PAC has been significantly impacted by the pay-to-play rule that the SEC now proposes to rescind. Its rescission could make NAIFA’s PAC revenue sharing practices substantially easier if and when the financial institutions for whom NAIFA members work ease up on the requirements they imposed in response to the pay-to-play rule. However, the pay-to-play rule remains in effect until/unless the SEC finalizes its rescission proposal. And there are other important agency-specific, state and local rules that will not be rescinded. Thus, it is too soon to change any current practices or procedures.

Prospects: The SEC’s proposed rescission of its pay-to-play rule has already triggered pushback as well as support. For example, Sen. Elizabeth Warren (D-MA) called the proposal “another example of how Donald Trump and his administration are rigging our markets to work for the wealthy and well-connected while working people pay the price.” But the financial services industry is expected to support the proposal. For example, the Investment Company Institute praised the SEC proposals, saying it protects the free speech of financial services professionals.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org