'40 Act Compliance CONSULTING

Otherwise known as the "pay-to-play" rule, advisers who provide advisory services to state and/or local government entities, including government entities that invest in private investment funds or registered investment companies that are an investment option under a government entity's investment plan (e.g., 529 Plans, 403(b) and 457 retirement plans) advised by the adviser, or seek to provide such services, are required to implement controls to safeguard against violations of the pertinent regulations regarding political contributions. Failure to implement adequate procedures may subject an adviser providing or seeking to provide investment advice to government entities to the rule's two-year "time-out," meaning that an adviser may be prohibited from receiving fees for its services within two years of a contribution made outside of the de minimis contributions permitted under the rule. In designing its political contributions policies and procedures, a firm should consider how restrictive its controls should be. For example, an adviser should consider risks relative to its supervised persons who solicit business from government entities on behalf of the firm. The firm may broaden its restrictions and treat all employees as "covered persons" (a defined term) or apply certain prohibitions only to those that fall within the definition. In addition, the firm should consider whether to apply pre-clearance procedures regarding specific types of contributions under specific conditions. The complexity of firm's policy will drive the costs associated with implementing its compliance procedures.