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Investment Advisers Act Framework
The principles-based statutory framework of the Investment Advisers Act of 1940 has proven remarkably robust in protecting investors while allowing the fiduciary advisory profession to grow, benefiting investors, the capital markets, and the U.S. economy. The IAA supports this evergreen and adaptable approach, which facilitates tailoring regulatory requirements to an investment adviser’s business. We oppose recent proposals by the SEC that would move away from this highly effective approach and impose prescriptive, one-size-fits-all requirements on investment advisers.
This shift to a more prescriptive regulatory framework for advisers is evidenced in the SEC’s proposals to amend the Custody Rule and adopt rules relating to advisers’ use of technology, cybersecurity, and oversight of outsourcing. We are working constructively to present the SEC with alternatives where appropriate that can achieve its regulatory objectives in a principles-based and more effective way.
Fiduciary Standard
At the core of the Advisers Act framework is the overarching principle that investment advisers are fiduciaries to their clients. An investment adviser’s fiduciary duty extends to all aspects of the advisory relationship and to all methods by which the investment adviser provides advice. The IAA has long advocated that all financial professionals who provide investment advice about securities to clients should be required to act under fiduciary principles.
We advocate before the SEC to hold all financial professionals to a robust investor-protective standard and clearly delineate the essential differences between brokerage and advisory activities.
Impact of Regulation on Small Businesses
Small businesses are the backbone of the fiduciary advisory community with 92 percent of investment advisory firms having 100 or fewer non-clerical employees. Only 1.7% have a workforce of over 500 people, while the median investment adviser employs 7 people. Policy decisions should preserve the vital place of these small businesses in the financial services ecosystem and allow them to thrive. To that end, the IAA has petitioned the SEC to more accurately consider the impact of regulations on smaller advisers and strongly supports bipartisan efforts in Congress to ease the regulatory burden on smaller advisory firms.
SEC Oversight of Advisers
Effective oversight of the advisory profession is critical to investor protection. The IAA believes that the SEC – an experienced and accountable governmental regulator – is in the best position to provide that oversight and that it should retain its primacy in this area. To that end, the IAA supports efforts to ensure that the agency can deploy sufficient resources for effective investment adviser oversight.
Federal Preemption of State Regulation of Investment Advisers
The IAA played a key role in passing the 1996 law (NSMIA) that divided regulation of investment advisers between the SEC and the states and preempted, i.e., prohibited, state regulation of SEC-registered investment advisers and their representatives, with very limited exceptions. The IAA objects to efforts by states to expand their regulatory reach over SEC advisers and their representatives and advocates for strict adherence to NSMIA’s preemption provisions, a position recently affirmed by a federal district judge in a case in Missouri.
Cumulative Impact of Regulation
The IAA urges policymakers to consider regulation holistically. Policymakers should conduct cost-benefit analyses, not only of each regulatory proposal individually, but also of their cumulative effects on investment advisers and their clients. Policymakers should also consider the interrelationship of their proposals and streamline new regulations to strike an appropriate balance between potential benefits and costs.
Tax Reform/Retirement Savings
The IAA supports expansion and strengthening of the U.S. retirement savings system, including efforts to expand access to retirement plans and to fiduciary advice.
In its 2025 deliberations on expiring tax provisions, we urge Congress to restore and expand the deductibility of advisory fees as an itemized deduction to encourage investors to seek fiduciary advice. In addition, the IAA urges Congress to make advisory and other financial services firms eligible for the Section 199A pass-through deduction.
Anti-Money Laundering
The Treasury Department has adopted new anti-money laundering (AML) requirements for investment advisers. The IAA supports efforts to combat money laundering and terrorist financing, but these efforts must be risk-based and designed to fill identified gaps in the existing AML regulatory landscape rather than duplicate the protections that already exist. The IAA is continuing to advocate for a tailored approach that effectively addresses specific risks while avoiding unnecessary regulatory burdens, especially burdens on smaller investment advisers.
Pay to Play Rule (Political Contributions)
The IAA strongly agrees with the goal of preventing investment professionals from “buying business” through campaign contributions. However, the SEC’s “pay-to-play” rule governing political contributions by investment advisers is unnecessarily complex, costly, and burdensome. The rule has resulted in draconian penalties being imposed without considering the intent behind political contributions, assuming that even a small and routine contribution is a violation. The SEC should move away from a strict liability approach that penalizes “foot faults” and consider alternative approaches that are more tailored to its underlying objectives.
ESG/Sustainable Investing
Many investment advisers engage in Environmental, Social, and Governance (ESG) investing strategies or consider some of these factors as part of the investment process. This is driven by investment advisers’ prudent risk management as well as investors’ interest in ESG investing. The IAA strongly supports the view that investment advisers should clearly articulate their investment strategies, including ESG and sustainable investment strategies, so that investors understand the investment adviser’s philosophy and can make informed investment decisions.
The IAA objects to actions by policymakers that would limit the ability of investment advisers to consider any factors they deem important or pursue investment strategies on behalf of their clients.
Active and Passive Management
Both active and passive investment strategies have valuable and important roles to play in investment management. The IAA supports policy approaches that promote a level playing field for both strategies or combinations of strategies and opposes laws and regulations that limit investor choice or the tools available to investment advisers to maximize the ability of their clients to reach their investment goals.
Financial Exploitation of Seniors
The IAA urges Congress to enact the Financial Exploitation Prevention Act (H.R.500/S. 1481). This bipartisan bill would allow investment companies to delay redemption of securities if they reasonably suspect financial exploitation of seniors or others who are unable to protect their interests.
Data Privacy/Cybersecurity
The IAA strongly supports a uniform, national approach to data privacy and cybersecurity laws and regulations that would create consistency and reduce complexity. The IAA also supports the creation of a single, national data breach notification regime that would make it easier for affected companies to comply with the law while ensuring that clients are protected. We believe that the SEC should coordinate its efforts in these areas with other federal regulators as it implements its data privacy regulations and moves forward with cybersecurity reporting and disclosure requirements for investment advisers.
Diversity, Equity, and Inclusion
The IAA recognizes that the investment adviser profession has a long way to go in matters of diversity, equity, and inclusion (DEI). To address the issues that have resulted in lack of diversity and make meaningful progress that can also contribute to financial benefits and create a workforce that better reflects the communities our members serve, the IAA is working collectively with our members to seek to promote DEI as a value for our industry and to provide information and resources to help foster change. The IAA supports measures that help track progress in our industry.
Accredited Investor
The IAA believes that the definition of accredited investor should be expanded to provide greater opportunities for retail clients to invest in private offerings with appropriate guardrails. We support legislation that would deem clients of fiduciary investment advisers as accredited investors.
For additional information, please contact:
Karen Barr, President & CEO
karen.barr@investmentadviser.org
Neil Simon, Vice President, Government Relations
neil.simon@investmentadviser.org
Gail Bernstein, General Counsel
gail.bernstein@investmentadviser.org