On Wednesday, the Securities and Exchange Commission (SEC) proposed amendments to modernize the internet adviser exemption from prohibition on SEC registration for smaller advisers. Investment advisers are typically prohibited from SEC registration unless they advise over $100 million in assets, advise a registered investment company, or qualify for an exemption. Currently, internet advisers are exempt from the prohibition under Rule 203A-2(e) of the Investment Advisers Act of 1940, if they use an interactive website to provide advisory services to clients.
The proposed amendments would require an adviser relying on the internet adviser exemption to at all times have an operational interactive website through which the adviser provides advisory services on an ongoing basis to more than one client. Importantly, it would eliminate the de minimis exception, which permits internet advisers to provide services to fewer than 15 non-internet clients in a 12-month period. As such, an internet adviser would be required to have an operational, interactive website, where they exclusively provide investment advice to clients at the time of registration with the SEC.
The proposed amendments are designed to modernize Rule 203A-2(e) since its original adoption in 2002. As of last December, the SEC reported a total of 266 advisers who were claiming the use of the internet adviser exemption. Out of the 266 advisers, 101 advisers reported advising 0 clients. The SEC intends to better align current practices in the investment advisory-space and reflect the evolution in technology. The proposal will remain open for the next 60 days for comments.
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