The Investment Advisers Act of 1940 - Who Is an Investment Adviser
![handle is hein.journals/ukalr24 and id is 77 raw text is: 1975] 67
THE INVESTMENT ADVISERS ACT OF 1940-WHO
IS AN INVESTMENT ADVISER?
Fred B. Lovitch*
The first step towards federal regulation of persons selling advice about
securities was the enactment of the Public Utility Holding Company Act of
1935.' Section 30 of that Act directed the Securities and Exchange Commission
(SEC) to conduct a study of investment trusts and investment companies.
As part of this study' the SEC surveyed investment advisers and advisory
services and issued the results in a supplemental report8 in 1939. Although the
survey was limited both in the type of persons surveyed4 and the abuses and
problems examined,' the SEC concluded that the activities of investment
advisers and advisory services patently present various problems which
usually accompany the handling of large liquid funds of the public.' Largely
as a result of the SEC's survey and report,7 the Investment Advisers Act of
1940 (Advisers Act)' was enacted simultaneously with the Investment Com-
pany Act of 1940 (Investment Company Act).,
The general objective of the Advisers Act, as summarized by the Senate
Report0 on amendments to the Act enacted in 1960, is to protect the public
and investors against malpractices by persons paid for advising others about
securities.' As originally enacted, the Advisers Act required all persons sub-
ject thereto to register with the SEC, specified the grounds upon which the
SEC could deny an application for registration, prohibited registered invest-
ment advisers from entering into contracts with clients that include profit-
sharing provisions or permit assignment without consent of the client, and
made it unlawful for these persons to engage in practices that constitute fraud
or deceit. In addition, registered investment advisers were required to disclose
the nature of any interest that they had in transactions effected for clients.
*Associate Professor of Law, University of Kansas. B.S. 1962, LL.B. 1965, University of Pennsylvania.
149 Stat. 838 (1935), as amended, 15 U.S.C. SS 79 to 79z-6 (1970), as amended, 15 U.S.C.A. S
79z-3 (Aug. 1975 Pamph.).
'The SEC's report of the study was published in five parts during the years 1938-1941. SEC,
REPORT ON THE STUDY OF INVESTMENT TRuSTS AND INVESTMENT CoMPANiEs. H.R. Doc. No. 707, 75th
Cong., 3d Sess. (1938); H.R. Doe. No. 70, 76th Cong., 1st Sess. (1939); H.R. Doe. No. 279, 76th
Cong., Ist Sess. (1939-40); H.R. Do. No. 136, 77th Cong., 1st Sess. (1941); H.R. Doe. No. 246, 77th
Cong., Ist Sess. (1941).
'H.R. Doc. No. 477, 76th Cong., 2d Seas. (1939). Five other supplemental reports were issued:
H.R. Doe. No. 380, 76th Cong., 1st Seas. (1939); H.R. Doe. No. 476, 76th Cong., 2d Sess. (1939);
H.R. Doe. No. 482, 76th Cong., 2d Sess. (1939); H.R. Doe. No. 567, 76th Cong., 3d Sess. (1940);
H.R. Doe. No. 659, 76th Cong., 3d Sess. (1940).
'H.R. Doe. No. 477, 76th Cong., 2d Sess. 1 (1939).
'Id. at 28.
5Id.
'7 SEC ANN. REP. 29 (1941).
854 Stat. 847 (1940), as amended, 15 U.S.C. SS 80b-1 to 80b-21 (1970), as amended, 15 U.S.C.A.
SS 80b-3, 80b-4, 80b-17 (Aug. 1975 Pamph.).
'54 Stat. 789 (1940), as amended, 15 U.S.C. S§ 80a-1 to 80a-52 (1970), as amended, 15 U.S.C.A.
SS 80a-9, 80a-10, 80a-13, 80a-15, 80a-16, 80a-18, 80a-31, 80a-35, 80a-48 (Aug. 1975 Pamph.).
S. REP. No. 1760, 86th Cong., 2d Sess. (1960).
Pub. L. No. 86-750, 74 Stat. 885 (1960).
2S. REP. No. 1760, 86th Cong., 2d Sess. 1 (1960).](ViewImageLocal?handle=hein.journals/ukalr24&div=9&collection=&method=preview&ext=.png&size=3)
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