The SEC on March 27 adopted amendments to its rule allowing internet investment advisers to register with the federal regulator, aiming to modernize the 22-year-old rule.
First adopted in 2002, the Internet Advisers Exemption allows for advisers providing most of their services via the internet to register with the SEC instead of state regulators. The new amendments require that advisers relying on the exemption must, at all times, have an operational, interactive website through which it advises more than one client.
“That means firms that rely on the exemption — thus being regulated by the SEC rather than state securities regulators — actually will need to advise clients through the internet and do so from the moment the firms rely on this exemption,” SEC Chair Gary Gensler said in a statement. “The website cannot be used as a prop, akin to how a person behind the curtain used props to pretend to be the Wizard of Oz.”
The amendments also require that those relying on the exemption provide advice to their clients solely through their website, eliminating the rule’s exception that allowed advisers to serve less than 15 clients over the phone, in person, or in other ways.
“These changes better reflect what it means in 2024 truly to provide an exclusively internet-based service,” Gensler added in his statement. “This would better align registration requirements with modern technology and help the commission in the efficient and effective oversight of registered investment advisers.”
The amendments will take effect 90 days after publication in the Federal Register, though advisers already relying on the exemption must comply with the changes, which includes updating filing forms, by March 31, 2025. An adviser no longer eligible for the exemption that has no other basis for SEC registration must withdraw registration from the commission and register with one or more states by June 29, 2025.
