The Investment Advisers Act of 1940 is the federal legislation that sets forth guidelines for business requirements and activities of investment advisers. The Investment Advisers Act of 1940 defines an investment adviser as anyone who gives Advice regarding securities or anyone in the Business of advising on securities and receives Compensation for that advice. (Tip: use the ABC test to determine if someone is an investment advisory.) The Act of 1940 not only defines who an investment adviser is, but it also sets the rules regarding the activities of the advisers. As per the Act, investment advisers must be registered in order to conduct business at either the state or federal level.
Applying "Investment Advisers Act of 1940" to Securities Exams:
The fiduciary duty of an investment adviser goes beyond that of a broker dealer. The investment adviser is required to develop a client profile when opening the client’s account and must update it regularly as the client’s needs change. Investment advisers have a fiduciary duty to provide only suitable advice to clients. Violations of state and federal laws may result in fines, expulsion from the state or industry, or a jail term. Investment advisers are expected to adhere to all of the rules and regulations set forth in the Investment Advisers Act of 1940, as well as all state and federal laws. The Investment Advisers Act of 1940 regulates industry professionals who charge a fee for the advice they offer to clients. The Investment Advisers Act sets forth registration requirements for advisers as well as disclosure requirements relating to the adviser’s:
Methods of recommendations
Types of securities recommended
Professional background and qualifications
Fees to be charged
Method for computing and charging fees
Types of clients
All students who are taking the series 63, 65 and 66 exams administered by NASAA will all see questions relating to the Investment Advisers Act of 1940. The series 65 and 66 will place significant emphasis on this material and you should be sure that you have mastered it prior to taking your exam. All of our series 63, 65 and 66 exam packages come with our Greenlight money back pass guarantee.