Section 201 of the Investment Advisers Act of 1940 (“Advisers Act”) sets forth the basis for the Advisers Act.
The main components of the Act are described below.
1. The Advisers Act defines “investment adviser”, provides exceptions to the definition and establishes the requirement for federal registration on Form ADV.
2. Recordkeeping and reporting requirements are set forth in the Act. Also included is the SEC's right to make reasonable and periodic or special examinations (Both components were added by amendments to the Advisers Act in 1960).
3. Each registered adviser is required to deliver ADV Part II or a written disclosure statement containing the information contained in Part II to clients.
4. Advisers are required to have written policies and procedures designed to prevent the use of material, nonpublic information by the investment adviser or any person associated with the adviser (Added by 1988 amendments).
5. Investment adviser contract standards contain restrictions on certain adviser performance fee compensation arrangements and prohibit the assignment of the advisory contract without client consent.
6. Prohibited transaction provisions address defrauding clients or engaging in conduct that operates as a fraud or deceit. Advisers are required to disclose to clients the capacity in which the adviser acts in a transaction and obtain client consent, for example, if the adviser is acting in a principal capacity for its own account and selling to or buying from a client.
7. Rules under the Advisers Act also cover: advertisements by investment advisers;
custody or possession of funds or securities of clients; payment of a cash fee to a solicitor for its solicitation activities; financial and disciplinary information disclosure to clients; requirement for written proxy voting policies; and requirement for written compliance policies and procedures, and annual review of their adequacy and designation of a chief compliance officer.
State securities laws are preempted by the Advisers Act in many respects. If an investment adviser manages at least $30 million in assets, or advises a mutual fund, it is required to register with the SEC. Advisers with at least $25 million but less than $30 million in assets may elect to register with the SEC. Other investment advisers register only with the state in which the adviser maintains its principal place of business. If a state does not require advisers to register, advisers located in the state are regulated by the SEC. (Currently, Wyoming is the only such state.) If an adviser representative for a SEC-registered adviser has a place of business in a state, that state may require licensing of the adviser representative. The states retain the authority to initiate action for fraud against advisers.
The National Securities Markets Improvement Act of 1996 (“NSMIA”), Title III, Investment Advisers Supervision Coordination Act, amended the Advisers Act to exempt from Advisers Act registration, and thereby subject certain advisers primarily to state regulation, any adviser regulated in the state in which it maintains its principal office and place of business and that has less than $25 million in assets under management and that does not advise a registered investment company. Subsequent SEC rules permit an adviser to defer registration with the SEC until its assets under management reach $30 million.
Here is a link to the Nevada Statutes-
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