Investment Advisers Act of 1940

Investment Advisers Act of 1940 is a federal law that regulates the activities of investment advisers, who provide investment advice to clients for a fee. The law was enacted by the 76th United States Congress and signed into law by President Franklin D. Roosevelt on August 22, 1940, as part of a broader effort to regulate the securities industry, which included the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law has been amended several times, including by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which was signed into law by President Barack Obama. The Securities and Exchange Commission (SEC) is responsible for enforcing the law, which applies to investment advisers who have at least $100 million in assets under management (AUM) and are registered with the SEC.

● Introduction

The Investment Advisers Act of 1940 was introduced in the United States House of Representatives by Representative Sam Rayburn and in the United States Senate by Senator Carter Glass, with the goal of protecting investors from unscrupulous investment advisers. The law requires investment advisers to register with the SEC and to disclose certain information to their clients, including their fee structure and any potential conflicts of interest. The law also prohibits investment advisers from engaging in certain practices, such as churning and front running, which are considered to be unfair or deceptive. The Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC) also play important roles in regulating the activities of investment advisers, in addition to the SEC. The law has been influenced by the work of Benjamin Graham, a renowned value investor and Warren Buffett's mentor, who advocated for greater transparency and accountability in the investment industry.

● Legislative History

The Investment Advisers Act of 1940 was passed in response to the Wall Street Crash of 1929 and the subsequent Great Depression, which highlighted the need for greater regulation of the securities industry. The law was influenced by the Pecora Commission, which was established by the United States Senate to investigate the causes of the Wall Street Crash of 1929. The commission's report, which was released in 1934, recommended greater regulation of the securities industry, including the registration of investment advisers. The law was also influenced by the work of Ferdinand Pecora, the chief counsel to the Pecora Commission, who advocated for greater transparency and accountability in the investment industry. The Glass-Steagall Act of 1933, which was signed into law by President Franklin D. Roosevelt, also played a significant role in shaping the legislative history of the Investment Advisers Act of 1940. Other notable figures, such as John Maynard Keynes and Milton Friedman, have also contributed to the development of the law through their work on monetary policy and economic theory.

● Registration and Regulation

The Investment Advisers Act of 1940 requires investment advisers to register with the SEC and to disclose certain information to their clients. The registration process involves filing a Form ADV, which provides information about the investment adviser's business, including its fee structure and any potential conflicts of interest. The SEC reviews the registration application to ensure that the investment adviser is qualified to provide investment advice and that it has adequate compliance procedures in place. The SEC also conducts periodic examinations of registered investment advisers to ensure that they are complying with the law. The Commodity Futures Trading Commission (CFTC) and the Federal Trade Commission (FTC) also play important roles in regulating the activities of investment advisers, particularly with respect to commodity futures and securities trading. The law has been influenced by the work of Alan Greenspan, a former Chairman of the Federal Reserve, who advocated for greater regulation of the securities industry.

● Exemptions and Exceptions

The Investment Advisers Act of 1940 provides exemptions and exceptions for certain types of investment advisers, including those who have less than $100 million in assets under management (AUM) and those who are registered with the state securities regulators. The law also provides an exemption for investment advisers who provide advice solely on insurance products or commodity futures. The SEC has also issued rules and guidance to clarify the exemptions and exceptions, including the SEC Rule 203A-2, which provides an exemption for investment advisers who have less than $25 million in assets under management (AUM). The National Association of Securities Dealers (NASD) and the Municipal Securities Rulemaking Board (MSRB) also play important roles in regulating the activities of investment advisers, particularly with respect to securities trading and municipal securities. The law has been influenced by the work of Arthur Levitt, a former Chairman of the SEC, who advocated for greater transparency and accountability in the investment industry.

● Enforcement and Penalties

The Investment Advisers Act of 1940 provides for enforcement and penalties for investment advisers who violate the law. The SEC has the authority to bring enforcement actions against investment advisers who engage in unfair or deceptive practices, including churning and front running. The law also provides for penalties, including fines and disgorgement of profits, for investment advisers who violate the law. The SEC has also established a whistleblower program to encourage individuals to report violations of the law. The Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) also play important roles in enforcing the law, particularly with respect to anti-money laundering and banking regulation. The law has been influenced by the work of Eliot Spitzer, a former Attorney General of New York, who advocated for greater enforcement of the law.

● Impact and Amendments

The Investment Advisers Act of 1940 has had a significant impact on the securities industry, including the regulation of investment advisers and the protection of investors. The law has been amended several times, including by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which expanded the regulation of investment advisers and increased the assets under management (AUM) threshold for registration with the SEC. The law has also been influenced by the work of Paul Volcker, a former Chairman of the Federal Reserve, who advocated for greater regulation of the securities industry. The Sarbanes-Oxley Act of 2002, which was signed into law by President George W. Bush, also played a significant role in shaping the impact and amendments of the Investment Advisers Act of 1940. Other notable figures, such as Warren Buffett and Charlie Munger, have also contributed to the development of the law through their work on value investing and corporate governance. Category:United States federal securities legislation