The U.S. Securities and Exchange Commission has adopted amendments to the increasingly utilized “internet adviser exemption.” The exemption, originally adopted in 2002, has fostered the utilization of digital platforms for investment advice because it permits nascent firms to grow nationally under a single regulatory license. However, along with the growth of such platforms, the SEC has observed practices at firms relying on the exemption which the SEC views as inconsistent because it intended the exemption to be used more narrowly.  In particular, the SEC notes that it has observed relying advisers that did not have an “interactive website” at all. In line with the observation, the SEC’s Adopting Release includes a chart indicating that 39 percent of the firms relying on the internet adviser exemption reported having zero clients. The recent amendments are designed to continue the exemption while bolstering criteria that better ensures the exemption is available only to advisers fitting the original intent for a “narrow exemption.”

The internet adviser exemption permits investment advisers to register with the SEC even if they do not yet have sufficient business to qualify for SEC registration under other available avenues. Without the exemption, such advisory firms would have been required to either obtain investment adviser registrations with every state (i.e., a costly option for a new business) or limit the jurisdictions from which they could solicit clients (i.e., a material constraint).

The recently adopted amendments do not meaningfully reduce the availability of the exemption, but they do reduce the ability for misuse of the exemption. The following outline captures some key points about the updated exemption:

  • Must have an “operational interactive website.”
    • The term “operational interactive website” includes websites, mobile applications and a broad category of “similar digital platforms” to account for developments in technology.
    • The operational interactive website must provide “digital investment advisory services” on an ongoing basis to more than one client.
  • Importantly, the operational interactive website requirement must be met at all times, including at the time the firm applies for SEC registration in reliance on the exemption.
    • Accordingly, some firms seeking to rely on the internet adviser exemption may need to initially rely on another basis for SEC registration (e.g., the 120-day rule).
  • “Digital investment advisory services” must be investment advice that is generated by the operational interactive website’s software-based models, algorithms or applications based on personal information supplied by each client through the operational interactive website.
    • This definition specifically addresses the fact that the internet adviser exemption is not to be used to simply deliver human-directed, client-specific investment advice.
  • Internet advisers can no longer have non-internet clients.
    • The exemption currently permits relying advisers to have non-internet clients so long as the number is fewer than 15 during the preceding 12 months.
    • That exception will be eliminated, which will remove the possibility that internet advisers can service any clients directly and personally.
    • Internet advisers can still have human interaction. However, these communications must not be used to expound upon the investment advice generated by the operational interactive website’s algorithm.
      • Instead, the direct human contacts should be limited to matters such as technical issues in using the platform or explaining how the algorithm was developed or operates.
  • The Form ADV will be updated to require that a firm relying on the internet adviser exemption actively represent it maintains an operational interactive website.
  • The compliance date for the amended rule is March 31, 2025.
    • This date corresponds with when advisers will have filed their annual updating amendments generally.
    • Firms that can no longer rely on the Internet Adviser Exemption will have to register with necessary state regulators and withdraw from SEC registration by June 29, 2025.


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