Regulations and Requirements - Registration and Licensing

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.)
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