The Securities and Exchange Commission’s Rule 206(4)-5 (Pay-to-Play Rule) under the Investment Advisers Act of 1940, as amended, prohibits, among other restrictions, an investment adviser subject to the rule, 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 adviser, unless such third party is a “regulated person.” A regulated person is defined as (1) an SEC-registered investment adviser, (2) a registered broker or dealer subject to pay-to-play rules adopted by a registered national securities association such as the Financial Industry Regulatory Authority, or (3) a registered municipal advisor that is subject to pay-to-play rules adopted by the Municipal Securities Rulemaking Board (MSRB). In addition, the SECmust by order find that the national securities association and/or MSRB pay-to-play rules: (1) impose substantially equivalent or more stringent restrictions on broker-dealers or municipal advisors respectively than the Pay-to-Play Rule imposes on investment advisers; and (2) are consistent with the objectives of the Pay-to-Play Rule.

In a June 2012 release (Investment Advisers Act Rel. No. 3418), the SEC extended the compliance date for the ban on third-party solicitation to nine months after the compliance date of a final rule adopted by the SEC by which municipal advisors must register under the Securities Exchange Act of 1934. Because the final date on which a municipal advisor must file a complete application for registration was October 31, 2014, the SEC provided notice on June 25. 2015, that the compliance date of the third-party solicitation ban is July 31, 2015. However, neither FINRA nor the MSRB have yet adopted pay-to-play rules. Therefore, on June 25, in response to a new Pay-to-Play Rule frequently asked question, the Division of Investment Management stated that it will not recommend enforcement of the third-party solicitation ban until the later of (1) the effective date of such a FINRA pay-to-play rule, or (2) the effective date of such an MSRB pay-to-play rule. Consequently, the compliance date for the ban on third-party solicitation loses significance until after FINRA and the MSRB adopt pay-to-play rules.