As the U.S. heads into a presidential election year, the Investment Advisers Association (IAA) is asking the SEC to lighten up when it comes to its political contribution and pay-to-play rules.

“We strongly support the commission’s goals in preventing investment professionals from ‘buying business’ through campaign contributions," IAA General Counsel Gail C. Bernstein General Counsel said in a letter to SEC Chairman Jay Clayton, all SEC commissioners and Dalia Blass, director of the SEC’s Division of Investment Management. "However, the pay-to-play rule is unnecessarily complex, costly and burdensome and should be more narrowly tailored to its intended purpose.”

Bernstein argued the rules are so draconian they may stop advisors and their employees from particiapting in the political process.

The IAA is a not-for-profit trade group that represents SEC-registered investment advisor firm members that manage more than $25 trillion in assets.

Under current pay-to-play rules, RIAs are prohibited from providing advisory services for compensation to a government client for two years after the advisor, executives or employees make a contribution to officials or candidates, unless the firm manages $25 million or less and qualifies for a “small business” exemption.

Bernstein is asking the SEC to revisit the rules as part of the agency’s annual required review of the impact of their rules on small entities, which is mandated by the Regulatory Flexibility Act (RFA).

RIAs are also prohibited from providing direct or indirect payment to any third party for a solicitation of advisory business from any government entity, unless such third parties are registered broker-dealers or registered investment advisors, in each case themselves subject to pay-to-play restrictions, according to the rules, which the SEC finalized in 2010.

Additionally, the rules prevent an advisor from soliciting political contributions from others, or coordinating contributions to elected officials or candidates or payments to political parties, where the adviser is providing or seeking government business.

Problematic for the IAA is the fact that the SEC has defined “small” RIAs at such a low asset level that very few firms qualify for exemptions from the limits or the onerous record-keeping requirements the rules require.
The IAA has repeatedly asked the SEC to raise its limits for defining small advisors from $25 million in assets under management so that more firms qualify for an exemption.

“The current asset-based definition of small business ... makes the commission’s analysis of the economic impact of its regulations on smaller investment advisers under the RFA virtually meaningless,” Bernstein said.

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