What does the Investment Advisors Act of 1940 require from investment advisors?

The Investment Advisors Act of 1940 requires investment advisors to register with the Securities and Exchange Commission (SEC) if they manage a certain amount of assets or offer their services to a certain number of clients. Registration is a fundamental requirement that serves as a mechanism for ensuring that investment advisors adhere to standards of conduct and provide transparency in their business practices. This registration process involves the submission of Form ADV, which provides crucial information about the advisor's business, investment strategies, and any potential conflicts of interest.

This requirement for registration is designed to protect investors by increasing the level of scrutiny applied to investment advisors and ensuring that they follow the regulatory framework designed to maintain fair and efficient markets. By having this oversight, regulatory bodies can monitor advisor activities and enforce compliance with securities laws, thereby bolstering investor confidence in the advisory industry.

The other options—annual risk factor disclosures, liquidity requirements, and the establishment of independent audit committees—do not inherently fall under the requirements set by the Investment Advisors Act of 1940. While these practices may be related to sound investment management and corporate governance, they are not specifically mandated by this act in the same manner as the registration requirement.