Rescission of Political

FACT SHEET

Rescission of Political

Contribution Rule for Investment

Advisers

On September 3, 2026, the Securities and Exchange Commission proposed the rescission of

the “pay-to-play" rule (Rule 206(4)-5 under the Investment Advisers Act of 1940) that prohibits

investment advisers from providing investment advisory services for compensation to a

government client for two years after making a political contribution to certain elected officials or

candidates, and related recordkeeping requirements.

Background

Investment advisers play a vital role in helping governments responsibly manage public

funds and honor commitments to their taxpayers; public-sector employees and retirees; and

retirement benefit plan participants. Adopted in 2010, the political contribution rule was

intended to reduce the possibility that campaign contributions and other support of elected

officials and candidates for public office by investment advisers and covered associates

would result in fraudulent activity (so-called “pay-to-play” practices).

The Commission has determined that the political contribution rule has led to significant

unintended consequences, such as prohibitions by some advisers on political contributions

at the state and local level. As discussed in the release:

•

Advisers have indicated that the rule is operationally challenging to implement, and

creates a de facto strict liability standard, which can lead to situations where small

donations or “foot faults” potentially trigger substantial prohibitions.

•

Advisers may be prevented from hiring or promoting qualified individuals into roles

where they would be considered a “covered associate” for either six months or two

years following an individual’s contribution, despite the contribution potentially having

an attenuated relationship or no relationship to pay-to-play practices.

•

Public pension plans may be unable to hire the most qualified or cost-effective

advisers or may ultimately lose the services of an existing adviser because of

contributions by the adviser’s covered associates during the two-year lookback

period.

•

It can be difficult for an adviser to identify which persons fall within the definition of

an “official” who is “indirectly responsible for, or can influence the outcome of, the

hiring of an investment adviser by a government entity.” Making the determination

could require analysis of government entity oversight structures, an official’s

appointment authority, or the scope of duties of a state government employee.

•

The definition of “covered associate” can be difficult to interpret and may have been

applied more broadly than intended, with employees whose contributions are unlikely

to be related to pay-to-play practices being subjected to restrictive policies.

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FACT SHEET | Political Contributions by Certain Investment Advisers

•

The exemptive process through which the Commission may, upon application,

conditionally or unconditionally exempt an investment adviser from the prohibitions of the

rule may be costly and time-consuming to pursue.

In its proposal to rescind the political contribution rule, the Commission stated its view that

the rule’s goals of deterring fraud would be better achieved using a principles-based

approach and that other existing laws and regulations provide a sufficient framework to

support this approach.

Highlights of the Proposing Release

The proposal would rescind the political contribution rule in its entirety and amend the

recordkeeping rule under the Advisers Act to eliminate the provisions requiring a registered

investment adviser to make and keep certain records in connection with the political

contribution rule.

Other existing requirements of the Advisers Act and associated rules would continue to

apply, including prohibitions on fraud, fiduciary duty requirements, and rules requiring

investment adviser compliance procedures and practices and codes of ethics. The

Commission notes that these and other existing federal, state, and local requirements could

avoid many of the issues and unintended consequences associated with the political

contributions rule and lead to more appropriate measures by investment advisers to address

pay-to-play practices.

What’s Next?

The public comment period will remain open for 60 days following the publication of the

proposing release in the Federal Register.

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