Investment Advisers Modernization Act of 2016

Overview

“The statutory framework of the Investment Advisers Act of 1940 has proven remarkably robust in protecting investors and in allowing the advisory profession to grow to benefit clients, the capital markets and the American economy. However, the financial services landscape has evolved significantly over the last 75 years…”

The bipartisan Investment Advisers Modernization Act of 2016 (H.R. 5424) is intended to update portions of the Investment Advisers Act of 1940 by removing duplicative and burdensome regulations affecting federally registered investment advisers that, in the sponsors’ view, impose an unnecessary burden on small business’ access to capital.

The legislation was introduced by House Financial Services Committee members Robert Hurt (R-Va.), with cosponsors Juan Vargas (D-Ca.), Steve Stivers (R-Oh.), and Bill Foster (D-Ill.), on June 9, 2016. It was approved by the full House of Representatives on September 9, 2016 by a vote of 261-145.

The bill is comprised of narrowly crafted provisions that provide relief primarily to private fund advisers. However, the bill also includes provisions with broader application to investment advisers (other than those providing advisory services to mutual funds). Its major provisions would:

  • Repeal a rule dating to 1961 that bans advisers’ use of testimonials and references to past specific recommendations, to the extent the materials are distributed solely to certain sophisticated clients and high net worth individuals, relying instead on well-established anti-fraud standards governing such materials.
  • Amend the SEC’s complex Custody Rule, offering relief from one aspect of the Rule in situations involving privately offered securities where there is little risk of misappropriation by the adviser because restricted securities are not readily transferrable.
  • Ease burdens related to the assignment of advisory contracts for advisers with structures other than partnerships – which are excluded under current law – when there is a change in minority ownership, thereby eliminating an unjustified bias in favor of certain forms of corporate structure.

A summary of the bill’s provisions is available here.

Position

“Certain of the Advisers Act’s provisions have not kept pace with these developments. A number of these provisions impose undue burdens on investment advisers – most of which are small businesses – without commensurate benefit to investors.”

The IAA strongly supports H.R. 5424. The statutory framework of the Investment Advisers Act of 1940 has proven remarkably robust in protecting investors and in allowing the advisory profession to grow to benefit clients, the capital markets and the American economy. However, the financial services landscape has evolved significantly over the last 75 years, and certain of the Advisers Act’s provisions have not kept pace with these developments. A number of these provisions impose undue burdens on investment advisers – most of which are small businesses – without commensurate benefit to investors.

The IAA applauds Reps. Hurt, Vargas, Stivers and Foster for their leadership in this area – and urges IAA members to back this legislation by sending supportive emails to their elected representatives. Members can access a sample email and send it automatically here.

Resources

H.R. 5424

IAA Statements of Support

Media



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