A Historical Analysis of the Investment Company Act of 1940

More than 100 million Americans invest $25 trillion in mutual funds and exchange-traded (collectively, “funds”) regulated by the Investment Company Act of 1940 (the “Act”), making predominant investment vehicle United States. Everyday investors rely on to save for retirement, pay college, seek financial security. In this way, demonstrate how “Wall Street” can connect with “Main improve people’s lives. By way background, are created advisers (“advisers”) that provide advisory (e.g., stock selection) other services their exchange a fee. Investors purchase shares fund, which represent pro-rata interest fund’s net assets—essentially, securities chosen adviser—with hope value those assets, turn, will appreciate. Although managing fund is expensive, pooling investments from public allows an adviser spread its costs over entire professional money management be affordable all. Prior Act, unique structural aspects funds, coupled lack regulation, enabled rogue put own interests ahead shareholders. These include typically relies adviser, seeks make profit, manage day-to-day operations. Before 1940, personnel also dominated boards directors responsible overseeing negotiating compensation. This made susceptible were more interested benefit themselves “affiliates” (i.e., employees related businesses), as opposed increasing funds. Recognizing vital role play both overall economy citizen “small means,” Securities Exchange Commission (SEC) industry worked together draft Congress passed unanimously. The incredible growth past 80 years often attributed oversight direction provided regulates all facets operations arguably most complex our nation’s laws. Understanding policy concerns led helps cut through complexity sense Act’s provisions. As result, article focuses concerns, thought guiding “Principles,” to: (1) prevent insiders taking advantage they manage; (2) require effective disclosure; (3) ensure equitable treatment Principles easier apply serving shoal markers conduct avoid. But, just buoy indicates dangerous areas avoid, help guide steers clear them. thus useful lens interpreting particularly when considering novel situations or whether, per “rubber” built into exemptive relief appropriate. these instances, harnessing history purpose advisers, directors, practitioners, regulators remain driver national and, importantly, investor gain.