Investment Advisers Act of 1940
Candlefocus EditorThe Investment Advisers Act of 1940 is a federal law that governs the conduct of investment advisers. The primary purpose of the Act is to protect investors by regulating the activities of investment advisers. The Act applies to all investment advisers who provide advice or counsel to their clients about investments and related services.
The Act requires all registered investment advisers to adhere to a high standard of conduct when providing investment advice. Specifically, investment advisers must act in their clients’ best interests, and are held to the same fiduciary standard as lawyers and doctors. Investment advisers must act with trust and loyalty to their clients, provide “utmost good faith” and make full disclosure of all material facts regarding investments.
The Act also requires investment advisers to both pass a qualifying exam and register with a regulatory body. The qualifications exam tests their knowledge of securities regulations, rules, and legal and compliance requirements. Registration with a regulatory body is designed to ensure that investment advisers meet the standards set forth in the Act.
Moreover, investment advisers must also adhere to a “Know Your Customer” policy. This policy requires investment advisers to acquire and maintain an understanding of their clients’ financial situation, tax status, and investment goals and objectives. This is done to ensure that the investment advice they provide is tailored to the specific needs and circumstances of the client.
The Investment Advisers Act of 1940 is designed to protect investors’ interests and encourage the ethical practice of investment advice. It ensures that investment advisers are held to high standards and must adhere to a fiduciary duty to act in the best interests of their clients when providing advice and counsel. The Act also requires investment advisers to pass a qualifying exam, register with a regulatory body, and meet a “Know Your Customer” policy. Together, these regulations help ensure that investment advisers are providing quality advice and acting in their clients’ best interests.