Regulatory Watch – Proposed Change to SEC Rule for Internet-Based Investment Advisers

July 28, 2023

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SEC Proposes Amendments to Internet Adviser Exemption

Regulatory Watch

The U.S. Securities and Exchange Commission (“SEC”) has proposed amendments to its rule permitting certain investment advisers that provide investment advisory services through the internet to register with the SEC.

Securities Regulator

U.S. Securities and Exchange Commission

Proposed Rule

Exemption for Certain Investment Advisers Operating Through the Internet at at pages 70 – 72 &


Existing investment adviser firm currently registered with the SEC on the basis of the Internet exception; and

Prospective investment adviser firm seeking to register with the SEC on the basis of the Internet exception and which does not otherwise qualify for SEC registration on the basis of managing $100 million or more of assets under management, advising a registered investment company or qualifying another exemption under SEC rules or the Investment Advisers Act of 1940 as amended.

Key Highlights

Need More Than One Client at All Times – The proposed amendments would require an investment adviser relying on the internet adviser registration rule to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client. According to the proposed rule release, this requirement is intended to reflect that advisers with zero or one client are more akin to local businesses that can be effectively regulated by a state, which is consistent with the intent of Congress in the National Securities Markets Improvement Act’s amendments made in 1996 to the Investment Advisers Act.

Elimination of Any De Minimis for Non-Internet Clients – The proposed amendment would also eliminate the de minimis exception from the current rule, which presently permits investment advisers relying on the internet adviser exemption to have a limited number (i.e., fewer than 15) of non-internet clients in a 12-month period. An internet investment adviser would thus be required to provide advice to all of its clients exclusively through an operational interactive website. This change is designed to better align with the original goal of the exemption, which was to provide relief from multiple state registration requirements for advisers with a national presence via the internet.

No Human Directed Advice Via Website – The proposed rule introduces the term “Digital Investment Advisory Service”, which is defined as investment advice to clients that is generated by the operational interactive website’s software-based models, algorithms, or applications based on personal information each client supplies through the operational interactive website. This definition is designed to reflect that an investment adviser’s personnel are not permitted to generate, modify, or otherwise provide client-specific investment advice through the operational interactive website or otherwise. The proposed rule release explains that human-directed client-specific investment advice, delivered through electronic means, would not be eligible activity under the exemption. See at page 21.

Includes Mobile Applications – This new definition is introduced to capture the increasing variety of technological methods by which internet investment advisers provide advice using the internet. Additionally, the proposed addition of the terms “mobile application” and “algorithms” to the definition of an “operational interactive website” would better align with the evolution of the asset management industry, reflecting the increasing use of mobile technology by clients to access services, including investment advisory services.

120 Days to Launch – The proposed rule also utilizes a 120-day rule, which allows new advisers seeking to rely on the internet adviser exemption to develop, evaluate, and launch an operational interactive website and obtain initial clients by the time the 120-day temporary registration expires.


The proposed rule would make it significantly more difficult to register (and maintain registration) with the SEC as an investment adviser under the internet adviser exemption due to the following:

  • Elimination of the de minimis for non-internet clients;
  • No human directed investment advice delivered via the electronic means; and
  • Requirement to maintain more than one client at all times.

Comment Period

The SEC is inviting comments on these proposed changes. Interested parties can submit their comments within 60 days following the publication of the proposing release in the Federal Register.  To make a comment, visit the SEC’s Rulemaking Activity webpage at and click on the proposed rule.


If you are an investment adviser firm registered (or seeking to register) with the SEC and relying upon the internet adviser exemption, RIA Compliance Consultants can be engaged for a consultation to discuss the proposed rule, its potential implications for your business and possible strategies for your firm. If you are an existing client of RIA Compliance Consultants, please contact your consultant. If you are a prospective client, please feel free to contact our Business Development Team at 877-345-4034 or using our online calendar at .


This Regulatory Watch is a brief summary which is general in nature and offered only for educational purposes. It should not be considered as a comprehensive review or analysis of this proposal. This communication is not intended to constitute compliance consulting advice or apply to any particular investment adviser firm’s specific situation without further analysis. This post is not a safe harbor or a legal opinion. The reader should read the proposed rule referenced in this Regulatory Watch (and if approved, the final rule) in detail and consult with his or her compliance professionals. The information in this Regulatory Watch will not necessarily be updated to reflect the most current activity related to the proposed rule.

Posted by Bryan Hill
Labels: Investment Advisor Registration, Regulatory Watch, SEC
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