SEC proposal to rescind pay-to-play rule splits wealth managers

Wealth managers are split over the SEC's proposal to rescind the pay-to-play rule for investment advisors as the comment period nears its end, WealthManagement.com reported.

The September proposal would revoke the 2010 amendments to the Advisers Act that bar advisors from providing compensated investment advisory services to government clients for two years after political contributions to those clients. Under the 2010 changes, advisors could donate $350 per election cycle to candidates they can vote for and $150 to others.

Because the SEC has only proposed the change, the two-year compensation bar and the contribution limits remain in effect for firms with government clients.

Chairman Paul Atkins argued the rules led to de facto prohibitions on contributions, that the SEC is "not the nation's elections regulator" and that they had "effectively resulted in the suppression of political speech." Opponents worry that scaling back the rules would reopen the potential for the kinds of scandals that prompted the commission to pass the changes. In the statement accompanying the original amendments, officials cautioned that unlimited contributions could lead officials to choose advisors for government business who charge higher fees or deliver poorer performance.

In the American Securities Association's comment letter, CEO Christopher A. Iacovella argued that existing anti-fraud provisions and advisors' fiduciary duties already address the risk of pay-to-play, and that the monetary limits have not been adjusted for inflation. He asked the SEC to bring enforcement actions only when there is evidence an advisor made a contribution to obtain or retain business, or failed to disclose a conflict.