Investment Advisers Act of 1940


DEFINITION of 'Investment Advisers Act of 1940'

A piece of legislation passed in 1940 that, among other things, defined the role and responsibilities of an investment advisor/adviser. The Investment Advisers Act of 1940 was largely drafted as a response to the stock market crash 11 years earlier, as well as the subsequent depression. The Act originated from a report on investment trusts and investment companies that the Securities and Exchange Commission (SEC) prepared for Congress in 1935. The SEC report warned of the dangers posed by certain investment counselors and advocated the regulation of those who provided investment advice. Based on this recommendation, Congress began work on the bill that eventually became the Investment Advisers Act of 1940.

BREAKING DOWN 'Investment Advisers Act of 1940'

A subsequent amendment to the act further stipulated that individuals designated as investment advisors with more than $25 million under management are required to register with the SEC; lower, and advisors only have to register with their state. The act also states the liability of investment advisors have and provides guidelines regarding the fees and commissions they can collect.

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