Investment Advisers Act of 1940
The federal law that requires investment advisers managing assets above certain thresholds to register with the SEC and comply with fiduciary standards.
What is Investment Advisers Act?
The Investment Advisers Act of 1940 is the primary federal law regulating investment advisers in the United States. It requires any person or firm that, for compensation, provides advice about securities to register with either the SEC or their state securities regulator. SEC registration is generally required for advisers with at least $100 million in assets under management (AUM) or that advise registered investment companies (mutual funds). Smaller advisers typically register with state regulators. The Act imposes a fiduciary duty on registered advisers — they must act in clients' best interests, disclose conflicts of interest, and avoid making misleading statements. Registered advisers must file Form ADV with the SEC, which discloses their business practices, fee structures, disciplinary history, and conflicts of interest. Violations can result in enforcement action, fines, suspension, or criminal prosecution. The Act is the foundation upon which Regulation Best Interest (Reg BI) and other adviser conduct rules are built.
Example
A wealth management firm with $250 million in AUM is required to register as an investment adviser with the SEC under the Investment Advisers Act. It files Form ADV annually, disclosing that it receives referral fees from a mutual fund company — a conflict of interest it must disclose to clients. As a fiduciary, the firm must recommend only funds that are in clients' best interests, not those that generate higher fees for the firm.