SEC Proposes Amendments to the Internet Adviser Exemption

Who may be interested: Investment Advisers

Quick Take: The SEC recently proposed amendments to modernize the internet adviser exemption in Rule 203A-2(e) under the Advisers Act, which allows specific investment advisers providing services through the internet to register with the SEC despite not meeting the SEC’s assets under management minimum threshold. Under the proposed amendments, an adviser relying on the exemption would need to maintain an operational interactive website and would no longer be able to provide services to clients other than through that website.

Rule 203A-2(e) currently permits some internet investment advisers to register with the SEC, even if they don’t satisfy the AUM threshold for federal adviser registration. This exemption was adopted in 2002 and is designed to remove the burden of multiple state registration requirements that could apply to internet-based advisers serving investors located throughout the United States.

The proposed amendments would require an investment adviser relying on Rule 203A-2(e) to have, at all times, an “operational interactive website” through which the adviser provides investment advisory services on an ongoing basis to more than one client. Under the proposed amendments, an adviser would need to have its website operational at the time of registration or rely on the 120-day exemption under Rule 203A-2(c) to develop its website within the 120-day period.

Currently, Rule 203A-2(e) provides a de minimis exception to allow an adviser relying on the Rule to provide advisory services outside of its interactive website to up to 14 clients in a 12-month period. The proposed amendments would eliminate this de minimis exception and require an internet adviser to provide its advisory services exclusively through an operational interactive website.

The proposed amendments include certain corresponding changes to Form ADV.

Comments on the proposed amendments are due within 60 days of the publication of the proposing release in the Federal Register.

The proposed amendments can be found here.