On September 3, 2026, the SEC proposed to rescind Rule 206(4)-5 under the Investment Advisers Act of 1940, commonly known as the investment adviser “pay-to-play” rule. If adopted, the proposal would eliminate the SEC rule that can prohibit an investment adviser from receiving compensation for advisory services provided to a government entity for two years following certain political contributions by the adviser or its covered associates.
The SEC would also amend Rule 204-2, the Advisers Act books and records rule, to eliminate the recordkeeping requirements associated with the pay-to-play rule.
What Would Change?
Rule 206(4)-5 was adopted in 2010 to address concerns that investment advisers could make political contributions to influence the selection of advisers to manage public pension plans and other government assets.
The rule currently imposes significant compliance requirements on investment advisers that conduct business, or may seek to conduct business, with state or local government entities. Most notably, certain political contributions by an adviser or its covered associates can trigger a two-year prohibition on receiving compensation for advisory services provided to the applicable government entity.
If the proposal is adopted as proposed, the SEC would eliminate Rule 206(4)-5 in its entirety, as well as its associated recordkeeping requirements. This would substantially reduce the federal compliance obligations associated with political contributions for SEC-registered investment advisers.
In proposing the rescission, the SEC cited several concerns arising from its experience administering the rule, including:
- operational challenges associated with monitoring political contributions;
- the potential for relatively small contributions or inadvertent compliance violations to result in significant consequences;
- the rule’s application to contributions made by employees before joining an investment adviser; and
- concerns regarding the rule’s effects on individuals’ political activity.
SEC Chairman Paul Atkins stated that political contributions are more appropriately governed through state and local laws and federal election regulations.
What Should Investment Advisers Do?
For now, Rule 206(4)-5 remains in effect. Accordingly, advisers subject to the rule should continue to maintain their existing political contribution policies, pre-clearance procedures, certifications and other controls pending any final SEC action.
Even if the SEC ultimately rescinds Rule 206(4)-5, advisers should not necessarily eliminate their political contribution compliance programs entirely. State and local pay-to-play laws, campaign finance requirements, public pension restrictions and other applicable requirements may continue to restrict political contributions or impose disclosure, registration or other obligations.
In addition, the SEC emphasized that rescission of Rule 206(4)-5 would not affect advisers’ obligations under other provisions of the Advisers Act, including the antifraud provisions, fiduciary duty requirements, Rule 206(4)-7 and the Code of Ethics Rule.
The SEC’s proposal is therefore potentially significant for advisers managing assets for public pension plans and other government entities, but advisers should await adoption of a final rule before making material changes to their existing pay-to-play compliance programs.
The public comment period will remain open for 60 days following publication of the proposal in the Federal Register.