Federal securities laws

  1. Securities Act of 1933 - First law enacted by Congress to regulate the securities markets. Requires registration of securities prior to sale and disclosure of pertinent financial information. Also contain antifraud provisions.
  2. Securities Exchange Act of 1934 - Created Securities and Exchange Commission and gave it responsibility for enforcing the Securities Act of 1933. Other provisions require registration of all securities listed on exchanges, disclosure of insider holdings and transactions and registration of exchanges and broker-dealers.
  3. Investment Advisors Act of 1940 - Law governing investment advisers and requiring them to register with the SEC unless exempted.

Regulation of investment advisors and investment advisor representatives
  1. Investment Advisors (IAs)
    The Investment Advisers Act of 1940 was enacted to protect the public by requiring those who provide investment advice for compensation to register as advisors with the Securities and Exchange Commission (SEC).

    The Investment Advisers Act of 1940 is distinct from the Investment Company Act of 1940, which regulates mutual funds and other pooled funds invested on behalf of smaller investors. You can refer to the entire Investment Advisers Act of 1940 here.

The provisions of the Act set out both required and prohibited behaviors for advisors who meet the following definition:

An investment advisor (IA) is an individual or entity who:
For compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.

To translate that definition into plain English, we can break it down to three main components:


  1. Giving advice about securities.
    • This includes references to securities in general, not just specific investment recommendations - for example, even advising a client to invest a set percentage in "stocks" is considered advice about securities.
  2. Being in the business of giving that advice.
    • This refers to presenting yourself as an investment advisor.
  3. Being compensated for that advice.
    • This includes receiving compensation of any kind, including fees, commissions, or a combination of the two - and the compensation does not have to be received directly from the client.

Exclusions:
  • This includes references to securities in general, not just specific investment recommendations - for example, even advising a client to invest a set percentage in "stocks" is considered advice about securities.

Others who are exempt from registration include:
  • This refers to presenting yourself as an investment advisor.


Registration and Licensing (Contd.)

Related Articles
  1. Financial Advisor

    Why Financial Advisors Disagree

    Financial advisors sometimes offer conflicting opinions that can be confusing for many investors.
  2. Financial Advisor

    The Fiduciary Rule: What Advisors Need to Know

    The rules surrounding the DOL's fiduciary proposal are confusing for advisors and clients. Here’s what we know so far.
  3. Managing Wealth

    RIAs and Brokers: What's the Difference?

    RIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
  4. Financial Advisor

    Advisors Fees: What Are You Paying For?

    Fees or commissions? Which is best? Either way, what matters most is that the investor is aware of each charge and how if impacts their portfolio.
  5. Financial Advisor

    Paying Your Investment Advisor - Fees Or Commissions?

    The way a professional is compensated can affect quality of service. Learn more here.
  6. Financial Advisor

    Essential Questions for a Financial Advisor

    If you're a prospective financial advisor client (or an adviser), here are some questions you should ask ... and be prepared to answer.
  7. Financial Advisor

    Question the Funds Picked By Your Financial Advisor

    Learn the importance of having a financial adviser whom you can trust and why questioning the funds he selects is part of that process.
  8. Financial Advisor

    Is Your Financial Advisor Looking Out for You?

    Financial advisors sometimes aren't looking out for clients' best interests. Regulators are scrutinizing their practices; investors should too.
  9. Financial Advisor

    Becoming A Registered Investment Advisor

    To become a registered investment advisor requires specific licensing, qualifications and regulations, but the greater freedom may be worth it.
  10. Financial Advisor

    6 Questions to Ask a Financial Advisor

    Here are 6 questions you should ask to get to know a financial advisor before entrusting them with your financial well-being.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center