Kaal, Wulf A. --- "Investment adviser regulation" [2014] ELECD 516; in Markham, Jerry; Gjyshi, Rigers (eds), "Research Handbook on Securities Regulation in the United States" (Edward Elgar Publishing, 2014) 228

Book Title: Research Handbook on Securities Regulation in the United States

Editor(s): Markham, Jerry; Gjyshi, Rigers

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781782540069

Section: Chapter 8

Section Title: Investment adviser regulation

Author(s): Kaal, Wulf A.

Number of pages: 16

Abstract/Description:

The Dodd-Frank Act and SEC implementation rules have changed investment adviser regulation. This book chapter summarizes the most pertinent rules for investment advisers, emphasizes recent changes in the law and shows how the updated rules have been implemented into the existing regulatory framework for investment advisers.The Investment Advisers Act of 1940(“IAA”) regulates investment advisers that manage funds through custodial accounts or investment companies and disseminate advice through newsletters and other publications. Non-exempt investment advisers are required to register with the SEC,file periodic reportsand subject themselves to periodic examinations.Investment advisers cannot engage in fraudulent practices and make material misrepresentations when rendering investment advice.Investment advisers who are exempt from registration are still subject to the IAA’s antifraud provision,which applies to negligent misstatements and misstatements made with the intent to defraud.The IAA also regulates contracts between investment advisers and their clients. Because contingent fee arrangements could lead to inappropriate risk taking by investment advisers, contingent fee arrangements between investment advisers and their clients are prohibited.Instead, investment adviser fees are based on the total value of the managed fund(s) at pre-specified times. Since 1985, however, certain qualifying large advisory contracts are exempt from the general prohibition of contingent fee arrangements. Moreover, to protect investors against changes in the character or quality of advisory services, the IAA prohibits the assignment of contracts with clients unless the client consents.Should investment advisers violate the securities laws, the SEC has the authority to impose sanctions on registered and unregistered ;0;0?>investment advisers.Sanctions may include limiting the adviser’s activities, imposing a bar order, as well as suspending or censuring the adviser. A basic precept of securities law is the definition of a security.