What is The Investment Advisers Act of 1940?
The Investment Advisers Act of 1940 is a federal law that regulates investment advisers in the United States. The law requires investment advisers who manage $25 million or more in assets to register with the Securities and Exchange Commission (SEC), and it sets standards for the conduct of registered investment advisers, including requirements for disclosing conflicts of interest, maintaining records, and safeguarding client assets. The law also gives the SEC the authority to examine registered investment advisers and to take enforcement action against those who violate the law’s provisions. The law also creates a private right of action for clients to sue their registered Investment advisor for fraud.
History of the Investment Advisers Act of 1940
The Investment Advisers Act of 1940 was passed by the United States Congress as part of the New Deal program to reform the securities market and protect investors from fraud and misconduct. The Act was signed into law by President Franklin D. Roosevelt in 1940.
The Act was created in response to concerns about the potential for fraud and misconduct among investment advisers, who at the time were largely unregulated. Many individuals and firms were operating as unregistered investment advisers, and there was a lack of oversight of their activities. This lack of regulation created a potential for fraud and abuse, as well as a lack of information for investors about the qualifications and track records of the investment advisers they were working with.
The Act was designed to address these concerns by requiring investment advisers to register with the Securities and Exchange Commission (SEC) and to disclose certain information about their qualifications, fees, and conflicts of interest. The Act also set standards for the conduct of registered investment advisers, including requirements for maintaining records and safeguarding client assets. Additionally, the Act gave the SEC the authority to examine registered investment advisers and to take enforcement action against those who violate the law’s provisions.
The Act has been amended several times over the years. In the 1970s, the SEC adopted rules implementing the Act, which clarified certain provisions and established additional regulatory requirements for investment advisers. In 1996, the National Securities Markets Improvement Act (NSMIA) amended the Act to create a separate regulatory regime for investment advisers with less than $25 million of assets under management.
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed, which included provisions to further regulate investment advisers and increase the SEC’s oversight of the industry. The Dodd-Frank Act included provisions that increased the SEC’s examination and enforcement authority and required certain advisers to register with the SEC, even if they were previously exempt.
Today, the Investment Advisers Act of 1940 is considered one of the primary federal laws regulating the investment advisory industry in the United States, and it continues to be enforced by the SEC to protect investors from fraud and misconduct.
Where to Get Updates on the Investment Advisers Act of 1940
Updates on the Investment Advisers Act of 1940 can be obtained from various sources, including:
The Securities and Exchange Commission (SEC): The SEC is the primary regulator of investment advisers and is responsible for enforcing the provisions of the Investment Advisers Act of 1940. The SEC’s website (www.sec.gov) provides information on the Act, as well as updates on any changes or amendments to the Act and regulations.
Government publications: The Government Printing Office (GPO) website (www.gpo.gov) has the full text of the Investment Advisers Act of 1940, as well as any subsequent amendments and updates.
Professional organizations: Organizations such as the Investment Adviser Association (IAA) and the National Association of Investment Professionals (NAIP) provide updates on the Act and regulations to its members and the public.
Legal and financial publications: Many legal and financial publications, such as the Wall Street Journal, Investment News, and Bloomberg, provide updates on changes and developments related to the Investment Advisers Act of 1940.
Law firms: Law firms specializing in securities law often provide updates on changes and developments related to the Investment Advisers Act of 1940 and its regulations.
It is important to note that the SEC has the final authority on interpreting the act and regulations, and any updates from the SEC should be considered the most accurate and up-to-date information.