Purpose
The Investment Advisors 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 provisions of the act set out both required and prohibited behaviors for advisors who meet the following definition:

Definitions

  • Investment Advisor: 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.

  • IA 1092: IA 1092 was issued in 1987 as a result of the increased activity in financial planning and investment advice. It essentially refined the definition of an investment advisor to include:
    • Pension consultants and advisors to athletes and entertainers are considered to be providers of investment advice.

    • Firms that recommend investment advisors may have to register themselves.

    • An investment advisor does not have to give advice as his/her principal business activity - simply doing so with some regularity is enough to require registration.

    • If a registered representative of a broker-dealer sets up a separate business entity to provide financial planning or investment advice for a fee, he/she may not rely on the broker-dealer exemption from registration; this is known as a statutory investment advisor.

    • Compensation does not have to be monetary to fall under the definition - receipt of products, services or discounts is also considered compensation.

  • Investment Advisor Representatives: Employees of investment advisors must register as investment advisor representatives if they perform any of these functions:
    • Making investment recommendations or giving securities advice
    • Managing client accounts or portfolios
    • Soliciting or offering investment advisory services
    • Supervising employees who perform any of the above

Investment advisor employees who have only clerical duties do not have to register as investment advisor representatives.



Investment Company Act of 1940

Related Articles
  1. Financial Advisor

    How Does Your Financial Advisor Get Paid?

    Some questions to ask your financial advisor about the recommendations they make and how they get paid.
  2. Personal Finance

    What Should You Look for in a Financial Advisor?

    Here are five important considerations for when you are choosing a financial advisor for your investment portfolios and your financial future.
  3. Investing

    What's an Investment Advisor?

    An investment or financial advisor makes investment recommendations and analyzes securities.
  4. Financial Advisor

    What are the Different Types of Financial Advisors?

    There are two primary types of financial advisors: investment advisors and investment brokers, who work for broker-dealers.
  5. Personal Finance

    Not Every Financial Advisor Gives Impartial Advice

    Some financial advisors provide advice that benefits them rather than you.
  6. Personal Finance

    Hiring An Advisor? Ask These 8 Questions First

    Asking these eight questions can help you avoid choosing the wrong financial advisor.
  7. Financial Advisor

    Can You Afford a Financial Advisor?

    Don't think you can afford a financial advisor? Think again. Here's why you should reconsider hiring an advisor.
  8. Tech

    Things That Keep Financial Advisors Up at Night

    Financial advisor worries include the changing technology landscape, the emergence of robo-advisors, government regulation and financial crisis fallouts.
  9. Financial Advisor

    Why Financial Advisors Disagree

    Financial advisors sometimes offer conflicting opinions that can be confusing for many investors.
  10. 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.
Frequently Asked Questions
  1. How do you calculate r-squared in Excel?

    Calculate R-squared in Microsoft Excel by creating two data ranges to correlate. Use the Correlation formula to correlate ...
  2. What is the Difference Between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ...
  3. Where Did the Bull and Bear Market Get Their Names?

    The terms bull and bear are used to describe general actions and attitudes, or sentiment, either of an individual (bear and ...
  4. What's the difference between Google's GOOG and GOOGL stock tickers?

    Learn the difference between Google's GOOG and GOOGL ticker symbols. Splitting shares into classes prevents management from ...
Trading Center