Unlock the significance of SEC Release IA-1092: A vital document clarifying state and federal adviser laws. Explore its history and implications.
SEC Release IA-1092: What it is, History
In the realm of financial services and regulations, SEC Release IA-1092 stands as a pivotal document. This release, issued by the Securities & Exchange Commission (SEC), plays a crucial role in shedding light on how both state and federal adviser laws apply to entities providing financial services. Let's delve deeper into SEC Release IA-1092, its history, and its significance.
Deciphering SEC Release IA-1092
SEC Release IA-1092 serves as an essential clarification regarding the intricate web of state and federal securities laws in the context of investment advisers and financial planners. This release, which originally surfaced in 1987, is an extension of the Investment Advisers Act of 1940, a landmark legislation designed to safeguard individuals who rely on investment advisers for guidance on securities transactions.
The Genesis of SEC Release IA-1092
The birth of SEC Release IA-1092 can be attributed to a collaborative effort between two prominent entities: the Securities & Exchange Commission (SEC) on the federal front and the North American Securities Administrators Association (NASAA) on the state side. The year was 1987, and the financial landscape was evolving rapidly with a surge in financial planning and investment advisory services.
What IA-1092 Entails
SEC Release IA-1092 expanded upon the definition of an investment adviser (IA) as initially outlined in SEC Release IA-770, bringing forth several important refinements:
1. Inclusive Scope: The release broadened the scope of individuals falling under the umbrella of investment advisers. It now encompassed pension consultants and advisers to athletes and entertainers who offered investment advice.
2. Registration Requirements: IA-1092 introduced registration requirements for certain entities. Firms that recommended investment advisers were mandated to register themselves. Even if an IA didn't primarily engage in providing investment advice but did so regularly, registration became a necessity.
3. Broker-Dealer Exemption: An essential facet of IA-1092 pertained to registered representatives of broker-dealers who established separate business entities for providing financial planning or investment advice for a fee. They were no longer permitted to rely on the broker-dealer exemption from registration, consequently becoming known as statutory investment advisers.
4. Varied Forms of Compensation: The release expanded the concept of compensation beyond monetary transactions. Receipt of products, services, or discounts was also considered as compensation in the context of IA-1092.
5. Exclusion Criteria: Finally, SEC Release IA-1092 explicitly excluded individuals involved in the negotiation of contracts within the sports and entertainment industry, provided they did not render investment advice.
The Connection with the Investment Advisers Act of 1940
The Investment Advisers Act of 1940 serves as the foundational framework for SEC Release IA-1092. This act defines an investment adviser as any person who, directly or indirectly through writing, engages in the business of advising others on the value or profitability of securities and receives compensation for this service.
The National Significance
The guidelines of the Investment Advisers Act of 1940 are enshrined in Title 15 Section 80b-1 of the United States Code. It highlights the national importance of investment advisers due to several key factors:
- The advice, counsel, publications, writings, analyses, and reports provided by investment advisers are integral to interstate commerce.
- Investment advisers typically deal with securities traded on national securities exchanges and in interstate over-the-counter (OTC) markets.
- They are closely connected with securities issued by companies engaged in interstate commerce.
- The substantial volume of transactions in which investment advisers engage has a significant impact on interstate commerce, national securities exchanges, other securities markets, the national banking system, and even the broader economy.
