SEC passes amendments to Internet consultant exemption rule

On March 27, 2024, the U.S. Securities and Exchange Commission (SEC) adopted an amendment to Section 203A-2(e) of the Investment Advisers Act of 1940 (the “Amendment”), known as the “Internet Advisor Exemption.” The Internet Advisor Exemption allows certain advisors who provide investment advice through interactive websites (Internet advisors) to register with the SEC even if the assets they manage are insufficient to qualify for federal registration.

This amendment eliminates at the lowest limit An exception allows Internet advisors to provide investment advice to fewer than 15 non-Internet clients in the past 12 months while still enjoying the exemption. All client interactions must occur exclusively through an operational interactive website, except for matters not related to providing investment advice (for example, troubleshooting technical issues, helping clients navigate the website, or gathering feedback).

The amendments require Internet advisers to provide investment advice to all clients solely through “operating” interactive websites. “Operating” an interactive website is defined as a website, mobile application, or similar digital platform through which an investment adviser provides “digital investment advisory services” to multiple clients on an ongoing basis (except during temporary interruptions). Digital investment advisory services refer to operating interactive websites that use software-based models, algorithms or applications to generate investment advice based on the personal information provided by each client.

The SEC is also amending Form ADV to require investment advisers using the Internet adviser exemption as a basis for registration to indicate on Schedule D of their Form ADV that they have an operational interactive website.

The compliance date for the revised rules is March 31, 2025. Advisors who are no longer eligible to rely on the revised Internet advisor exemption and do not have a basis for registration with the SEC must withdraw their registration with the SEC by June 29, 2025 and register in one or more states.

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