The Investment Advisers Act of 1940 defines who is an investment adviser and establishes registration, reporting, and anti-fraud rules for the advisory industry.
Definition of investment adviser: A person who (1) provides advice about securities, (2) as part of a regular business, (3) for compensation.
Registration thresholds: - SEC-registered: Advisers with ≥$110M AUM (or those advising registered investment companies). - State-registered: Advisers with <$100M AUM register with their state. - Buffer zone ($100M–$110M): Advisers may choose either.
Key rules: - Fiduciary duty — advisers must act in clients' best interests; duty of loyalty and care. - Adviser brochure (Form ADV Part 2A) — must be delivered to clients before or at the time of engagement and annually thereafter. - Performance fee restrictions — performance-based fees generally only permitted for "qualified clients" (≥$1.1M AUM with adviser or ≥$2.2M net worth). - Custody rules — strict requirements when advisers hold client assets. - Solicitor rules — cash referral fees require written disclosure.
> Exam tip: The Series 65 and Series 66 test the Advisers Act heavily. Key distinctions: RIAs have a fiduciary standard; broker-dealers have a suitability/Reg BI standard. Know the AUM thresholds for state vs. SEC registration cold.