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. Investing

    What's an Investment Advisor?

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

    Should You Choose a Fee-only Financial Advisor?

    Is working with a fee-only financial advisor always your best option?
  5. Financial Advisor

    Why Financial Advisors Disagree

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

    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.
  7. Financial Advisor

    A Financial Advisor’s Job Is Not to Beat the Market

    Understand what the real job responsibilities of a financial advisor are, and why they do not include picking investments that beat the market.
  8. Financial Advisor

    Ethical Standards You Should Expect From Financial Advisors

    Professional ethics in the financial services profession can be confusing. Here are some ways to ensure you are getting the best out of your advisor.
  9. 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.
  10. Personal Finance

    What You Should Know Before You Hire an Advisor

    Hiring a financial advisor can be an important step in your financial journey. Just make sure you understand who they are and what they do first.
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