Controversial placement-agent rules to resurface

Industry observers expect to see rules regulating money-manager placement agents to resurface after several proposals suffered temporary setbacks.
The securities industry won an initial victory earlier in the week. On Wednesday, a bill in the California state legislature that could severely restrict placement agents from doing business with state pension plans failed to pass out of a key committee.
The legislation garnered only one yes vote in the Assembly Appropriations Committee.
Nevertheless, the committee is expected to take up the bill again next week. Committee approval is the last hurdle for the legislation before going to the full California Assembly.
Many broker-dealers act as placement agents in helping investment managers gain business from pension plans. Brokers typically earn contingency fees from money managers for a successful placement.
The California bill would ban contingency fees and require agents to register as lobbyists.
Separately, the Securities and Exchange Commission has backed off on a proposed ban on the use of placement agents by investment advisers.
The ban, proposed last August, met with a storm of industry protest.
The SEC is expected to propose, instead, that placement agents be regulated as broker-dealers.
In a letter to the SEC in March, Richard Ketchum, chief executive of the Financial Industry Regulatory Authority Inc., agreed to create rules that would allow broker-dealers to act as placement agents. Those rules would include prohibitions on pay-to-play activities, he said.
SEC spokesman John Heine said the agency has no timetable for proposing a revised version of the rule.
The tighter regulations have been proposed after some unethical practices by placement agents raised questions about pay to play.
The bill in California, for example, is in response to revelations last year that a firm headed by a former California Public Employees’ Retirement System board member had received more than $50 million in fees from investment managers doing business with the state.