SEC Proposes Changes to Registration Exemption for Internet Investment Advisers

The SEC proposed amendments to exemptions from the prohibition on Commission registration (i.e., Advisers Act Rule 203A-2(e)) for certain investment advisers that provide advisory services through the internet.

The proposed amendments would require internet investment advisers that are allowed to register with the Commission to have an "operational" interactive website at all times. The proposed amendments would remove the de minimis exception which allows internet investment advisers to have less than 15 non-internet clients within a 12-month period. The exemption would only be available to advisers that provide advice exclusively to clients using an operational interactive website. The proposal would also make corresponding changes to Form ADV.

The SEC stated that the amendments would make more efficient use of the SEC’s "limited oversight and examination resources" by (i) allocating SEC resources to advisers with a "national presence" and (ii) providing for smaller advisers with a "sufficient local presence" to be regulated by the states. The SEC said that the proposal comes after a recent increase in the number of advisers that are seeking to rely on the exemption at a time when examination staff have observed "numerous compliance deficiencies" by advisers relying on the exemption.

Comments on the proposal must be submitted within 60 days of publication in the Federal Register.

Commissioner Statements

The following statements on the proposal were provided by:

• SEC Chair Gary Gensler. Mr. Gensler said the proposal would "better reflect what it means in 2023 truly to provide an exclusively internet-based service" and "better align registration requirements with modern technology."
• SEC Commissioner Hester M. Peirce. Ms. Peirce said the amendments were a "seemingly sensible effort to bring the exemption more in line with its intended purpose," but questioned (i) how the proposal would interact with a proposal released simultaneously on technology-related conflicts of interest and (ii) whether the proposal allows for temporary planned outages to implement software upgrades.
• SEC Commissioner Mark T. Uyeda. Mr. Uyeda requested commenters’ input on whether the proposed amendments take the right approach. Specifically, he expressed concern with the decrease in registered advisers due to advisers currently relying on the exemption no longer being eligible should the proposal be adopted.
• SEC Commissioner Jaime Lizárraga. Mr. Lizárraga stated that the rule was "outdated, and in much need of reform." He cited numerous instances of advisers misusing the SEC registration process by falsely claiming that they have a national presence and operate exclusively through an interactive website.
• SEC Commissioner Caroline A. Crenshaw. Ms. Crenshaw stated that the exemption is "chronically misused," and that an exemption that was "intended to be quite narrow has become broad."