Investment Advisers Act of 1940

Investment Advisers Act of 1940
If you want to give people your expert securities advice based on their specific investment situation and receive compensation for doing so, you must register under the Investment Advisers Act of 1940 or under your state securities law. Portfolio managers, financial planners, pension fund consultants, and even many sports and entertainment agents end up having to register to give investment advice to their customers. All open- and closed-end funds are managed by registered investment ad¬visers, and pension funds typically farm out their assets to many different investment advisory firms. Because the role they play is so important and so potentially danger¬ous, all investment advisers must be registered unless they qualify for some type of exemption.
Federal covered advisers are subject to the provisions of the Investment Advisers Act of 1940. A federal covered investment adviser with offices in various states only
complies with the recordkeeping requirements and the net capital requirements set by the SEC.
The SEC promulgates rules under the Investment Advisers Act of 1940, and the state regulators often write their own rules in reference to the rules the SEC has already made. For example, the SEC is very specific on the dos and don'ts for investment advisers putting out advertisements. Most states tell advisers not to do anything that would violate that particular SEC rule.
The SEC doesn't care whether an investment adviser is subject to registration or not. Either way, if the person fits the definition of "investment adviser," he is at least subject to the anti-fraud section of the Investment Advisers Act of 1940. If the investment adviser qualifies for an exemption, he may get to skip various filing re-
quirements, but he would still be subject to the anti-fraud provisions of the Act. That also means that if the person is not an investment adviser, he is not subject to the In¬vestment Advisers Act of 1940, period.
The SEC can discipline federal covered investment advisers through administrative hearings to determine if a license is to be denied, suspended or revoked. They can also represent the U.S. Government in federal court and ask a judge to issue an in-junction/restraining order against an investment adviser violating various sections of the 'Advisers Act."


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