Advisor Insights

The SEC Should Try Enforcing the Investment Advisers Act of 1940

W. Scott Simon

According its website, the U.S. Securities and Exchange Commission has a three-part mission: protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. Many believe, however, that the SEC places undue emphasis on protecting the interests of broker/dealers and, by extension, the registered representatives they employ to the detriment of investors. This, they maintain, is due to the SEC's belief that broker/dealers are crucial in facilitating capital formation in our country's financial markets.

The view that the SEC favors the interests of broker/dealers over those of investors happens to be one that I share. The source from which that favoritism springs is the failure of the SEC to enforce the limited broker/dealer exclusion found in the Investment Advisers Act of 1940 ('40 Act).