SEC Proposes Restricting Internet Adviser Exemption

The Securities and Exchange Commission proposed on Wednesday an update to registration requirements for financial advisers who provide advice primarily through the internet.

In 2002, the SEC permitted some advisers with less than $25 million in assets under management to register with the SEC; normally, they would instead file with a state securities authority. The exemption was given to advisers who conduct their business primarily over the internet, as opposed to in person, for which the regulator did not alter the filing threshold.

Wednesday’s proposal would require advisers using the exemption to provide all advice over the internet, according to the update, which requires that “An internet investment adviser provides advice to all of its clients exclusively through an operational interactive website.” The proposed amendment also requires advisers to maintain an interactive website and to provide services to more than one client using that site.

The “de minimis” exemption, which allows advisers to continue to be considered internet advisers if a small number of their clients are advised off the internet, would be removed by the proposal.

Matt Rogers, an attorney with K&L Gates LLP, says the removal of the de minimis provision is the “big takeaway” for advisers relying on the internet exemption.

Such advisers will have to provide advice solely through the internet under the proposal and can no longer classify as internet advisers if they advise clients in person.

The SEC will accept public comments on the proposal via its website for 60 days after the proposed amendment is published in the Federal Register.