SEC - U.S. Securities and Exchange Commission

09/03/2026 | Press release | Distributed by Public on 09/03/2026 15:43

First Amendment Sense and Sensibilities: Statement on Proposed Rescission of Pay-to-Play Rule

Today, the Commission proposed to rescind Investment Advisers Act rule 206(4)-5, the investment adviser "Pay-to-Play Rule." I am thrilled that we are proposing to eliminate rather than simply amend the rule, which always has bothered my First Amendment sensibilities.[1]

Although ensuring that campaign donations are not driving adviser selection makes sense, the rule effectively functions as a restriction on political speech. The rule is broad,[2] and its exceptions are narrow.[3]The Commission's enforcement of the rule has not moderated its breadth,[4]and the Commission rarely uses its unwieldy exemptive authority under the rule.[5] Advisers' implementation of the rule has compounded its consequences: as the Commission acknowledges in today's proposing release, one effect of the Pay-to-Play Rule has been "advisers prohibiting contributions outright."[6]

Political speech is at the core of what the First Amendment protects.[7] The SEC, even when its motives are good, must tread carefully in curtailing such speech. Today's proposal respects the First Amendment's protections of speech and the limits of our authority to override such protections.

The rescission, if adopted, would not pave the way for adviser pay-to-play practices. These practices are and would still be prohibited by other laws, including the antifraud provisions of the Advisers Act. In fact, prior to the adoption of the Pay-to-Play Rule, the Commission brought antifraud actions against advisers for their pay-to-play practices.[8] Notably, other government bodies exist to pursue political corruption.

I look forward to receiving comments from advisers, advisory personnel, state and local government entities and officials, and other interested parties on this proposal. I would welcome feedback on the following:

  • As noted in the Proposing Release, the Pay-to-Play Rule was modeled, in large part, on the Municipal Securities Rulemaking Board rule G-37 (the MSRB political contribution rule).[9] In addition, rule 15Fh-6 under the Securities Exchange Act contains a similar political contribution prohibition for security-based swap dealers. FINRA rule 2030 prohibits certain FINRA members from engaging in distribution or solicitation activities for compensation with a government entity on behalf of an investment adviser that provides or is seeking to provide investment advisory services to such entity within two years after a contribution to an official of the government entity is made by the FINRA member (except when the member is engaging in activities that would cause the member to be a municipal adviser). Should these rules be rescinded too?
  • Will advisers, even after the rule is rescinded, prohibit employees from making state and local political contributions? Would guidance from the Commission make this unintended outcome less likely?

Thank you to the staff in the Division of Investment Management, the Division of Economic and Risk Analysis, and the Office of the General Counsel for their thoughtful work on the proposed rescission.

[1] See, e.g., Commissioner Hester M. Peirce, Peirce Out: Remarks at the U.S. Chamber of Commerce Capital Markets Summit (June 9, 2026), https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-chamber-commerce-capital-markets-summit-060926#_ednref12; Commissioner Hester M. Peirce, Expect the Inquisition: Dissent from Obra Capital Management, LLC (Aug. 19, 2024), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-obra-capital-management-081924; Commissioner Hester M. Peirce, There's Got to be a Better Way: Statement of Dissent Regarding Wayzata Investment Partners LLC (Apr. 15, 2024), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-wayzata-041524; Commissioner Hester M. Peirce, Laudable Ends, Poorly Pursued: Statement Regarding Recent Pay-to-Play Rule Settlements (Sept. 15, 2022), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-pay-play-rule-settlements-091522.

[2] In general, the rule restricts an investment adviser from providing advisory services for compensation to a government entity if it or any of its covered associates (including a person who becomes a covered associate within two years after making a contribution) contributes to an official of the government entity. See rule 206(4)-5(a)(1). Under the rule an "official" includes, both incumbents and candidates, if the office held or sought "has authority to appoint any person who is directly or indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser." See rule 206(4)-5(f)(6)(ii). Even an official that merely appoints another person who then participates in the selection of an investment adviser is included within the scope of the rule. See Political Contributions by Certain Investment Advisers, Investment Advisers Act Rel. No. 3043, 75 FR 41018 (Jul. 14, 2010) at nn.141-143 and accompanying text.

[3] For example, the rule excludes contributions made by a covered associate that in the aggregate do not exceed $350 per election to any official for whom the covered associate was entitled to vote. See rule 206(4)-5(b)(1). If the covered associate was not entitled to vote for the official, the maximum for the exception is $150.

[4] See, e.g., Commissioner Hester M. Peirce, Laudable Ends, Poorly Pursued: Statement Regarding Recent Pay-to-Play Rule Settlements (Sept. 15, 2022), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-pay-play-rule-settlements-091522, at text accompany notes 5-6. ("The four enforcement actions share similar facts. All involve one-time, small-dollar contributions by one or two people, and all the investment advisers had established advisory relationships with the relevant government entities before the contributions occurred. Three of the four actions involve closed-end funds investments where "investors were generally prohibited from withdrawing their money for the life of the Funds." In the fourth, the contributor was not covered by the Rule at the time of the contribution in July 2018; the contributor became a covered associate when promoted in September 2018.Nowhere do the Commission's orders find that any of the investment advisers solicited new or additional business from any governments at the time of or after the contributions.") (footnotes omitted).

[5] See rule 206(4)-5(e).

[6] See Political Contributions by Certain Investment Advisers, Investment Advisers Act Rel. No. 6994 (Sept. 3, 2026) ("Proposing Release") at text accompanying n.53. In addition, investment adviser personnel who choose to run for office also cannot collect campaign donations from colleagues and supporters in the advisory community because such a candidate is not able to solicit campaign contributions from people with whom they have worked.

[7] See Nat'l Republican Senatorial Comm. V. FEC, 146 S. Ct. 2404, 2415 (2026)("The First Amendment's protection of free speech has its 'fullest and most urgent application precisely to the conduct of campaigns for political office.'") (quoting FEC v. Ted Cruz for Senate, 596 U.S. 289, 302 (2022)).

[8] See, e.g., SEC v. Henry Morris, et al., Litigation Release No. 21036 (May 12, 2009); SEC v. Paul J. Silvester, et al., Litigation Release No. 16759 (Oct. 10, 2000).

[9] See Proposing Release at text accompanying n .109.

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