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SEC Reforms Decades-Old Exemption for Internet Advisers

By Robert R. Boeche, Partner; Robert D. Conca, Partner; and Melissa Donaldson, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Tuesday, July 9, 2024.

As we have highlighted, on March 27, 2024, the Securities and Exchange Commission (“SEC”) amended the internet adviser exemption by requiring functional websites and prohibiting in-person clients. The amendments aim to modernize the 22-year-old rule’s investor protections and address what the SEC considers significant compliance gaps by advisers relying on the exemption.

What is the Internet Adviser Exemption?

In 2002, the SEC adopted Rule 203A-2(e) of the Advisers Act to allow advisers who offered services primarily through the internet to register with the SEC instead of with state regulators.[1] Also known as the “internet adviser exemption,” to use this exemption, advisers must provide all their investment advice through an interactive website. Internet advisers must also not control, be controlled by, or be under common control with another investment adviser who registers with the SEC solely in reliance on their connection with the internet adviser. The original exemption allowed advisers to give advice by non-internet means to 15 or fewer clients over a 12-month period. In the 20 years since the exemption’s introduction, technology use in the industry has changed, and the SEC found that almost half of the firms using this exemption did not meet its requirements and were ineligible for SEC registration.[2] The SEC observed that many of these advisers lacked an interactive website or had personnel offering investment advice outside the website.

What Has Changed?

The SEC’s amendments to the internet adviser exemption expand the definition of an "operational interactive website" and remove the de minimis exemption.[3] Advisers must also verify that they have an operational interactive website in Schedule D of their Form ADV. Below is a breakdown of the changes.

De Minimis Non-Internet Client Exemption Removed

Previously, the internet adviser exemption provided a de minimis in-person threshold, letting advisers provide advice outside their websites to 15 or fewer clients over a 12-month period. In 2022, the SEC allowed this flexibility because digital advice services were fairly new and investment advisers operating solely through the internet were still rare. Today, the SEC believes improvements in digital platforms and widespread internet use make this exemption unnecessary.[4] The recent amendments therefore remove this de minimis in-personthreshold.[5] This means advisers using the internet exemption cannot engage directly with any non-internet clients and must conduct all client interactions through their interactive website. Internet advisers giving direct investment advice will violate the amended rule.

Operational Interactive Website Defined

Originally, the internet adviser exemption required advisers to use an “interactive website” with software producing investment advice based on a client’s personal information. The amended exemption changes “interactive website” to “operational interactive website,” defining it as a website or application providing ongoing digital investment advice to multiple clients.[6] This new definition narrows the internet adviser classification by requiring such advisers to have an operational website at all times, except for minimal technical outages. The change expands applicable platforms beyond just websites, including mobile apps and similar digital platforms, to accommodate future technology. Internet advisers must also keep records showing their services were entirely provided through their operational interactive website in compliance with the rule.[7]

Digital Investment Advisory Service Defined

The amended exemption defines “digital investment advisory service” as investment advice generated by the website's software models, algorithms, or applications based on personal information provided by clients through the website.[8] This definition ensures advisers do not generate, provide, or modify client-specific investment advice, prohibiting human-directed advice even if delivered electronically.

Form ADV Updated

The amendments include an update to Form ADV to require internet advisers to confirm they have an “operational interactive website.”[9] Although Form ADV already asks advisers if they are using the internet adviser exemption, this update to Form ADV itself aims to ensure all registrants are aware of the new website requirements.

What’s Next

The Rule 203A-2(e) amendments are effective as of July 8, 2024.[10] The compliance deadline is March 31, 2025, as most advisers file their annual Form ADV updates by the end of March each year.[11] By this deadline, all advisers relying on the internet adviser exemption must update and file their Form ADV to confirm eligibility with the amended requirements. Advisers who relied on the exemption but do not meet the amended requirements and have no other basis for SEC registration must withdraw their registration or find another basis to remain registered by or before June 29, 2025. After this date, the SEC will cancel the registration of any ineligible advisers.

If you have questions about the new internet adviser rule, or about other compliance or legal matters, we are here to help. Our firm regularly advises clients on SEC regulations, including understanding and complying with new and amended registration requirements. With offices in San Diego, Irvine, Los Angeles, San Francisco, and New York, Shustak Reynolds & Partners, P.C. represents investment advisers, broker-dealers, registered representatives, and high net worth investors across the country. Contact Shustak Reynolds & Partners, P.C. today for a confidential consultation.


Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.
Attorney Robert R. Boeche can be reached in the firm’s San Diego office at (619) 696-9500.


[1] See Exemption for Certain Investment Advisers Operating Through the Internet, Rel. No. 1A-2091 (December 12, 2002).
[2] See SEC Division of Examinations, "Observations from Examinations of Advisers that Provide Electronic Investment Advice" (November 9, 2021).
[3] See Exemption for Certain Investment Advisers Operating Through the Internet, Rel. No. 1A-6578 (March 27, 2024); amended 17 C.F.R. 275.203A-2(e)(1) (“rule 203A-2(e)”).
[4] See SEC Chair Gary Gensler, Statement on Internet Investment Advisers (March 27, 2024).
[5] See amended rule 203A-2(e)(1).
[6] See amended rule 203A-2(e)(2).
[7] See amended rule 203A-2(e)(1)(ii).
[8] Id.
[9] See amended 17 C.F.R. 279.1.
[10] See Exemption for Certain Investment Advisers Operating Through the Internet, Rel. No. 1A-6578 (March 27, 2024).
[11] See SEC Adopts Reforms Relating to Investment Advisers Operating Exclusively Through the Internet (March 27, 2024).




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