SEC Proposes To Rescind Advisers Act “pay-to-play” Rule

On September 3, 2026, the Securities and Exchange Commission (the “SEC” or “Commission”) proposed rescinding Rule 206(4)-5 under the Investment Advisers Act of 1940 (the “Advisers Act”), commonly known as the “pay-to-play” rule, applicable to registered investment advisers, exempt reporting advisers, and foreign private advisers.¹

In his statement, SEC Chairman Paul Atkins explains that the Commission is reconsidering both the rule’s effectiveness and its regulatory costs and that advisers’ implementation of the rule has effectively resulted in the suppression of political speech and that the rule is “needlessly penalizing, burdensome, and complex to implement, and misaligned with the SEC’s mandate.²

The proposal is subject to a 60-day public comment period following publication in the Federal Register. The rule remains in effect through the November 2026 midterm elections.

Background on the pay-to-play rule and current design

Rule 206(4)-5, adopted in 2010, prevents investment advisers from obtaining advisory business from government entities, such as public pension plans, on the basis of political contributions. The current pay-to-play regime was designed to address concerns that investment advisers and related entities might seek to influence the award of advisory business, particularly from public entities, through campaign contributions and other political support. The scope of the rule is broader than a direct advisory relationship: it also treats an adviser to a covered pooled investment vehicle in which a government entity invests, or is solicited to invest, as providing or seeking to provide investment advisory services directly to the government entity. The rule applies to contributions to candidates as well as sitting officials, and it reaches related solicitation and coordination activity.

Under the current rule, an adviser may not receive compensation for providing advisory services to a government entity for two years after the adviser or any “covered associate” (generally executives, soliciting employees, their supervisors, and controlled political action committees) contributes to an official or candidate of that entity whose office can influence the award of advisory business.

The rule’s exceptions are narrow, limited to small de minimis amounts, a conditional returned-contribution cure, and rarely used exemptive relief.

Key features of the proposal and rationale

As described in the SEC statement, the proposal would:

• Rescind the pay-to-play rule in its entirety. Until any final rule becomes effective, however, the current rule remains in force, and its restrictions continue to apply.
• Remove the corresponding Rule 204-2(a)(18) recordkeeping requirements for registered investment advisers, while leaving other books-and-records obligations in place.
• Eliminate compliance costs. The Commission estimates approximately USD51 million in aggregate one-time transition costs and approximately USD416m in annual aggregate savings, including annual savings of approximately USD3,750 for smaller firms, USD161,500 for medium firms, and USD323,000 for larger firms.

The proposing release outlines several considerations driving the Commission’s proposal to rescind the rule:

• The SEC is reassessing whether the rule continues to be necessary or effective in mitigating the types of conflicts of interest it was intended to address and whether other legal regimes or market practices may already address these concern.
• The Commission highlights operational complexity and costs, including monitoring political contributions, determining whether a person is an “official” or “covered associate,” maintaining records, implementing compliance systems, and overseeing associated persons.
• The Commission requests comment on the rule’s effect on political speech and participation by advisers and their personnel as it evaluates whether the constraints imposed by the rule are appropriately tailored in light of constitutional and policy considerations.
  • The SEC cites survey data in which 12% of investment adviser respondents indicate having some form of blanket prohibition on political contributions for their employees.

Practical implications for advisers

Even if the proposal is adopted, other regulatory frameworks and contractual obligations would continue to apply, and advisers should bear the following considerations in mind:

• Advisers Act antifraud provisions (Section 206(1) and (2)), fiduciary duty requirements, existing obligations regarding continued compliance (17 CFR § 275.206(4)-7), and the code of ethics rule (17 CFR § 275.204A-1) would still address pay-to-play practices without the pay-to-play rule in place.
• State and local pay-to-play, anti-bribery, and procurement requirements would be unaffected, as would restrictions on contributions and reporting required by some public pension plans. Similarly, advisers should be aware of side letters or similar undertakings with public pension plans that incorporate Rule 206(4)-5 by reference or restate its contribution and placement-agent restrictions.
• While the proposal would eliminate a dedicated pay-to-play rule, questions would remain as to how investment advisers should address pay-to-play concerns.

Request for public comment and takeaway

The SEC is soliciting public comment on all aspects of the proposed rescission. Advisers, particularly those with government entity clients and those with covered investment pool clients that have public pension plan investors, should consider submitting comments.

A final rule could come as early as the first half of 2027. Until then, advisers should continue reviewing political contributions for compliance with Rule 206(4)-5 and their internal policies and procedures.

Footnotes

1. Political Contributions by Certain Investment Advisers, Release No. IA-6994 (September 3, 2026).

2. Chairman Paul S. Atkins, SEC Statement on Proposal to Rescind “Pay-to-Play” Rule (Sept. 3, 2026), available at https://www.sec.gov/newsroom/speeches-statements/atkins-statement-proposal-rescind-pay-play-rule-090326