Last week, Donald J. Trump, the Republican nominee for U.S. president, selected Governor Mike R. Pence of Indiana as his running mate for vice president. The selection of Governor Pence might have implications under the SEC’s “pay-to-play” rule.

Rule 206(4)-5 under the Investment Advisers Act of 1940 (Rule) generally prohibits an investment adviser from providing advisory services for compensation to a government entity within two years after the adviser or any of its “covered associates” makes a political contribution to an “official” of that government entity. The prohibition on the receipt of compensation is generally known as a “time out” under the Rule. In addition, the Rule generally prohibits an investment adviser and its covered associates from soliciting from others, or coordinating, contributions to “officials” of government entities to which the adviser is providing, or seeking to provide, advisory services. The term “official” includes any person that, at the time of the contribution, was a sitting government official with the ability to appoint trustees of a public pension plan, as well as candidates for the office. A contribution to the campaign of an “official” (e.g., a mayor or governor) running for federal office is covered by the Rule.

Governor Pence is an “official” under the Rule with respect to the Indiana Public Retirement System (INPRS). Because the president and vice president of the United States are elected jointly, a political contribution to Mr. Trump might be considered a contribution to Governor Pence under the Rule. Similarly, solicitation activities on behalf of Mr. Trump might be considered solicitation activities on behalf of Governor Pence. For these reasons, under the Rule, either action might adversely affect investment advisers currently doing business, or those seeking to do business, with Indiana public pension plans. A similar analysis would apply to the presidential campaign of presumptive Democratic nominee Hillary R. Clinton, if she were to select a sitting state or local “official” as her running mate.

Neither the Securities and Exchange Commission (SEC) nor its staff have provided any guidance on the application of the Rule to contributions to Mr. Trump’s campaign. However, the Municipal Securities Rulemaking Board (MSRB) previously cautioned that MSRB Rule G-37, the MSRB’s pay-to-play regulation on which the Rule is substantially modeled, would apply to officials running for president andvice president.1 The same reasoning could apply with respect to the pay-to-play regulations governing “municipal advisors” and “swap dealers.”

While the SEC may choose not to follow the MSRB’s guidance on MSRB Rule G-37 in interpreting the Rule, investment advisers who have, or are seeking, advisory business from Indiana public pension plans should exercise caution – including, among other things, reminding employees who are “covered associates” that, unless expressly authorized by the adviser’s compliance department: (1) any political contribution to Mr. Trump’s campaign should be within the de minimis exception under the Rule2 and (2) they should not engage in any fundraising efforts on behalf of Mr. Trump’s campaign.

The limitations of the Rule would generally not affect the ability of “covered associates” to express their opinion of, or engage in other political activities on behalf of, Mr. Trump or Governor Pence, subject to certain conditions. For example, the SEC has stated that volunteer work would generally not constitute a contribution under the Rule (and thus would not trigger a time out on the receipt of compensation), provided (1) the adviser did not solicit the volunteer’s efforts; (2) the adviser’s resources (e.g., office space and telephones) were not used; and (3) the volunteer work occurred during non-work hours, the volunteer was using vacation time, or the adviser did not otherwise pay the volunteer’s salary (e.g., the volunteer work occurred during an unpaid leave of absence). However, under MSRB guidance, expenses incurred in connection with volunteer work (e.g., hosting a reception) would generally constitute a contribution, except for expenses that are purely incidental to volunteering and unreimbursed by the adviser (e.g., cab fares and personal meals).3