On July 26, 2023, the SEC issued proposed rules under the Investment Advisers Act of 1940 to narrow the types of smaller investment advisers that can register with the SEC in reliance on the Internet adviser exemption. Currently, an investment adviser with less than $25 million in assets under management that would ordinarily be too small to register with the SEC may register so long as it provides investment advice to clients exclusively through an interactive website and engages in appropriate recordkeeping. An adviser also may provide investment advice to fewer than 15 clients through other means during the preceding 12 months. The amendments are designed to modernize the exemption and address investment advisers that rely on the exemption but continue to provide non-Internet-based advice through adviser personnel.

The amendments would:

  • Clarify that Internet investment advisers relying on the exemption must have an “operational” interactive website, which would include mobile applications, at all times that it is relying on the exemption;
  • Require that an Internet investment adviser provide only “digital investment advisory service,” i.e., investment advice to clients generated by the operational interactive website’s software-based models, algorithms or applications based on personal information clients supply through the operational interactive website;
  • Eliminate the de minimis 15-client exception so that the Internet investment adviser must provide investment advice to all clients solely through the interactive website; and
  • Require a representation on Form ADV that, among other things, an Internet investment adviser relying on the exemption has an operational website.

Comments on the proposal are due by October 2, 2023. 

The SEC’s proposing release is available here, a related fact sheet is available here  and a related press release is available here.