Every investment adviser subject to the Investment Advisers Act shall establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse in violation of this act or the Securities Exchange Act of 1934, of material, nonpublic information by such investment adviser or any person associated with the investment adviser. The brochure rule mandates delivery of a disclosure statement to both existing clients and prospective clients. The prohibitions of this paragraph shall not apply to any transaction with a customer of a broker or dealer if such broker or dealer is not acting as an investment adviser in relation to such transaction. These provisions apply to all investment advisers, whether registered at the federal or state level. Many states require a minimum capitalization amount as a prerequisite to granting investment adviser registration approval.
Some states require a bond and an audited financial statement to accompany the application.
In order to be subject to the Investment Advisers Act of 1940, a person s activities must fulfill all three of the tests. The compensation element is one of the three criteria that must be met to subject a person to the registration requirements of the act. Attorneys and accountants are exempt only if investment advising is solely incidental to the practice of their profession.