SEC Pay-to-Play Practices & Act 44

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SEC Approves Measures to Curtail Pay to Play Practices by Investment Advisors

In late June the SEC instituted new measures to curb pay-to-play practices by investment advisors in the management of public pension accounts and similar government investment accounts. 

 SEC Chairman Mary L. Schapiro Discusses the Prohibitions on "Pay to Play" Practices:

The new SEC rules have three key elements:

• It prohibits an investment adviser from providing advisory services for compensation — either directly or through a pooled investment vehicle — for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser.    
• It prohibits an advisory firm and certain executives and employees from soliciting or coordinating campaign contributions from others — a practice referred to as "bundling" — for an elected official who is in a position to influence the selection of the adviser. It also prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business.
• It prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions.

There is a provision in the SEC rules that permits the contributions of $350 per election per candidate if the contributor is entitled to vote for the candidate, and up to $150 per election per candidate if the contributor is not entitled to vote for the candidate. 

Pennsylvania Act 44 and the New SEC Pay to Play Regulations

In the Pennsylvania municipal pension market these new SEC rules go hand in hand with last year’s Act 44 legislation (Link) that requires the disclosure of information regarding professional advisors to municipal pension plans. 

The new SEC rules and Pennsylvania’s Act 44 aim to bring objectivity and transparency to the advisor selection process. 

These new laws highlight the regulators focus on fiduciary responsibility in how municipal plans are run and how plan service providers are selected.  Clearly, a comprehensive process for managing fiduciary duties is essential in the current regulatory environment.