SEC Proposes Banning Solicitation Payments and Political Contributions for Public Plans
The SEC is proposing a new rule that would prohibit advisers seeking to manage public plans from making political contributions or paying solicitors. Under the proposal, an adviser that makes a political contribution to “an elected official in a position to influence the selection of the adviser” could not provide advisory services for a period of 2 years from the date of the contribution. The proposal would also ban payments to solicitors or placement agents to solicit advisory business from public plans. The proposed rule would apply to public plans including government employee retirement plans and 529 plans.
OUR TAKE: Many states already have bans on, or disclosure rules concerning, political contributions by vendors seeking to manage public plan assets. The outright ban on solicitation payments seems overbroad. When it comes to solicitors, why are public plans different than employee benefit plans or other fiduciary clients? The SEC already has a rule (206(4)-3) requiring full disclosure to the investor of any payments received by a solicitor. Banning solicitors may have the unintended consequence of limiting public plans to a few large investment managers that have significant marketing resources.