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July 29, 2015 at 10:36 AM
While advisors welcome the “much-needed clarity” provided by the Securities and Exchange Commission in its June 25 frequently asked questions (FAQ) regarding compliance with a new provision in its pay-to-play rule, the FAQ “effectively renders” the formal July 31 compliance date “a nonevent,” says Karen Barr, president and CEO of the Investment Adviser Association.
Why? “Because the SEC says it won’t be enforcing the ban on advisors’ use of third parties to solicit business from government entities” until the Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board “finalize their pay-to-play rules governing the third-party solicitors and those rules become effective.”
However, it’s unclear when FINRA and MSRB will act. A FINRA spokesperson says the self-regulator hopes to file a final rule soon, but couldn’t provide a specific date.
Barr says that as IAA noted in its comment letter to FINRA, “we have concerns over some of the requirements in FINRA’s pay-to-play rule proposal related to affiliates of investment advisors. We are hopeful that FINRA will address these concerns in its final rule.”
Pay-to-play rules adopted in 2010 prohibit an advisor from providing advisory services for compensation to a government client for two years after the advisor or certain of its executives or employees (“covered associates”) make a contribution to certain elected officials or candidates.
The new rule, Rule 206(4)-5, prohibits an advisor and its covered associates from providing or agreeing to provide, directly or indirectly, payment to any third party for a solicitation of advisory business from any government entity on behalf of such advisor, unless that party is a “regulated person” (“third-party solicitor ban”).
