Definition
The Investment Advisers Act of 1940 is the federal statute that governs the registration, conduct, and disclosure obligations of persons who provide securities advice for compensation, administered by the SEC federally and by state regulators for smaller advisers.
Why it matters
The Investment Advisers Act of 1940 is the statute that determines who owes a fiduciary duty when giving investment advice, and to whom. For lifetime income planning that involves securities (variable annuities, registered index-linked annuities, and the broader investment portfolio surrounding them), the Act's fiduciary standard is the conduct standard that governs the advice. The Act also determines the registration path (federal or state) and the disclosure and record-keeping obligations that apply.
How it works
The Act requires any person who, for compensation, engages in the business of advising others as to the value of securities or the advisability of investing in, purchasing, or selling securities to register as an investment adviser unless an exemption applies. Registration is with the SEC for advisers meeting a federal threshold (generally $100 million or more in regulatory assets under management, with specific rules for pension consultants and internet advisers) and with state securities regulators for smaller advisers. Registered advisers must disclose material conflicts of interest, adopt written policies and procedures, deliver Form ADV Parts 2A and 2B to clients, maintain records, and act consistent with the fiduciary duty the SEC and the courts have interpreted the Act to impose (a duty of care and a duty of loyalty running to each client). Enforcement is by the SEC or state securities regulators, with private client remedies limited but real.
In practice
When someone provides you with investment advice about securities for a fee, that person is generally required to be a registered investment adviser (or an exempt reporting adviser, or the associated person of one). Before the relationship begins, you should receive Form ADV Part 2A (the brochure) and Part 2B (the brochure supplement); these describe the adviser's services, fees, conflicts of interest, disciplinary history, and the individuals who will provide the advice. The operational questions include which registration applies (SEC or state), what the adviser's fee structure is (flat fee, hourly, asset-based, or performance-based, with performance-based fees restricted to qualified clients), what conflicts of interest are disclosed (particularly regarding recommendations of proprietary or affiliated products), and whether the adviser is dually registered as an associated person of a broker-dealer or as an insurance producer (which changes which standard governs which piece of the relationship). A fiduciary adviser is not necessarily the right adviser, but knowing whether the person you are working with is one is a precondition to knowing what standard governs the advice.
In the Longevity Standard Framework
The Investment Advisers Act of 1940 enters the Longevity Standard framework as the federal statute that creates the fiduciary-standard adviser category and governs how advice about securities-based lifetime income products is delivered. The Act's registration threshold divides advisers between SEC and state oversight: federal registration is generally required for advisers with $100 million or more in regulatory assets under management, and state registration applies below that level (subject to several jurisdictional refinements); these are regulatory thresholds, not analytical findings. The Act's fiduciary duty, as interpreted by the SEC and the courts, bears on the interpretive layer around adviser conduct standards in a way that state-level insurance-producer suitability and best-interest rules do not.
Related terms
- Securities Act of 1933
- Registered investment adviser
- Fiduciary standard
- Investment advice fiduciary
- Broker-dealer regulation
- Regulation Best Interest
- Variable annuity as security
- Best interest standard