SEC Requires Internet Advisers to Be 100% Online

The Securities and Exchange Commission finalized rules on Wednesday that will require advisers using the internet adviser exception to register with the SEC to provide all advice through an interactive website. Previous rules had a de minimis exception which allowed advisers to provide advice to 15 or fewer clients through other means, such as direct phone calls or meetings, while still using the internet adviser exception.

Advisers are required to register with the SEC if their assets under management reach $110 million, and they may elect to register if their assets reach $25 million. In 2002, the SEC made an exception for advisers who conduct most of their business online which allowed them to voluntarily register even if their assets were less than $25 million.

The Exemption for Certain Investment Advisers Operating Through the Internet was initially issued in 2002 to allow small, internet-based advisers to register with the SEC instead of with their home state—the common practice for small advisers. As the market has evolved, however, the SEC found that, as SEC Chairman Gary Gensler wrote in a statement Wednesday, “an exemption written in 2002 allows gaps in 2024.” The final rule, he wrote, is motivated in part by consistent compliance issues from smaller advisers relying on the exemption while still offering financial planning offline.

An SEC risk alert from 2021 stated that “nearly half of the advisers claiming reliance on the Internet adviser exemption were ineligible to rely on the exemption, and many were not otherwise eligible for SEC-registration. This has been a common finding for many years.”

The SEC staff noted that it had observed “advisers that: (1) did not have an interactive website; or (2) provided advisory personnel who could expand upon the investment advice provided by the adviser’s interactive website or otherwise provide investment advice to clients, such as financial planning.”

Gensler wrote that the changes now “better reflect what it means in 2024 truly to provide an exclusively internet-based service. This would better align registration requirements with modern technology and help the Commission in the efficient and effective oversight of registered investment advisers.”

The new rule becomes effective 90 days after being published in the Federal Register. An adviser that becomes ineligible to use the exemption must register in one or more states and withdraw their registration with the SEC by filing Form ADV-W by June 29, 2025.

The Investment Adviser Association issued a statement on the new rule that “the amendments narrow and provide clarity around the exemption, but their impact is likely to be very modest since only a small number of advisers rely on the exemption today (around 250) and even fewer are likely to rely on it as amended.”