The Securities and Exchange Commission is proposing new rules aimed at stopping "pay to play" practices by investment advisors who seek to manage money for government pension and 529 plans.
The SEC voted unanimously on Wednesday to propose the new rules, which it says are designed to prevent an advisor from making political contributions or hidden payments so they will be picked by government officials to manage public programs, including traditional pension plans, retirement plans for teachers and other government employees, and 529 plans.
Under the proposed rules, an investment advisor who makes a political contribution to an elected official in a position to influence the selection of the advisor would be barred for two years from providing advisory services for compensation, either directly or through a fund.
SEC Chairman Mary Schapiro said similar rules were considered in 1999. Since then, the SEC has taken several fraud and regulatory actions against advisors charged in kickback schemes the new rules are aimed at preventing. The stakes are higher now, she said, noting the 529 plan industry was in its infancy in 1999 but today includes more than $104 billion in assets. Also, public pensions plans now have about $2.2 trillion in assets, one third of all U.S. pension assets, she added.
The rules would apply to investment advisors and their employees and would involve contributions made to political incumbents as well as candidates for a position that could influence the advisor's selection.
However, the rules do include a provision that permits advisors or their employees to make contributions of up to $250 per election per candidate if the contributor is entitled to vote for the candidate.
The proposed rules also would prohibit advisors and their employees from paying a third party, such as a solicitor or placement agent, to solicit a government client on their behalf.
Advisors also would be prohibited from directing or funding contributions through third parties such as spouses, lawyers or companies affiliated with the advisor if that conduct would violate the rule if the advisor did it directly.
The SEC plans to publish the proposed rule in the Federal Register and seek comments within 60 days after. The full text of the proposed rule will be posted to the SEC Web site as soon as possible.