USA—General regulation of investment advisers
USA—General regulation of investment advisers

The following Financial Services guidance note provides comprehensive and up to date legal information covering:

  • USA—General regulation of investment advisers
  • Fiduciary duty
  • Advisers Act prohibitions designed to prevent fraud and other substantive regulation
  • Record keeping requirements
  • Contractual requirements
  • Applicability to non-US advisers
  • Reporting requirements for investment advisors

The Investment Advisers Act of 1940 (Advisers Act) imposes a broad fiduciary duty on investment advisers registered with the Securities and Exchange Commission (SEC) to act in the best interests of their clients. (Note that most small to mid-size investment advisers are required to register with one or more states and are prohibited from registering as an investment adviser with the SEC.) For an outline of the duties owed by these investment advisers, reference must be made to the applicable state statutes and regulations. There are five broad types of obligations or requirements imposed on investment advisers by the SEC:

  1. fiduciary duty of care to their clients

  2. Advisers Act prohibitions designed to prevent fraud and other substantive regulation

  3. books and records requirements

  4. SEC oversight through inspection

  5. contractual requirements

Fiduciary duty

Although not specifically enumerated in section 206 of the Advisers Act (the so called anti-fraud provisions of the Advisers Act), there is a general requirement that investment advisers act as a fiduciary in all dealings with their clients. The investment adviser must avoid conflicts of interest with its clients and is prohibited from taking unfair advantage of its clients' trust. This duty is considered to be more than merely acting with honesty and good faith. The investment adviser must put its clients' interests above those of its own. An investment