Summary

More than 17,000 individuals and firms advertise themselves as "investment advisers," providing consumers with everything from analyses of securities to financial advice on planning for college and retirement. The Investment Advisers Act of 1940 requires investment advisers to disclose their background and business practices and to adhere to high standards of honesty and loyalty. GAO is concerned that unless oversight of investment advisers improves, the 1940 legislation may be doing more harm than good, giving consumers the illusion that advisers registered with the Securities and Exchange Commission (SEC) have a government "seal of approval." Given the limited protections afforded consumers by existing federal oversight, GAO believes that Congress should either strengthen federal regulatory oversight or consider abolishing the regulation of investment advisers. If Congress decides on the former, it should provide SEC with more money and require SEC to beef up its registration and inspection programs.