SEC updates “Internet Advisory” rules in anticipation of growing, digital-only products & services world

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Today Gary Gensler, head of the U.S. Securities and Exchange Commission, issued an update to the 20+ year old “Internet Advisor Exemption”. This move signals an expectation of expanding adoption of “internet based” advisory services, triggered in part to more online based investors.

Financial professionals utilizing the “Internet Advisor Exemption” have traditionally done so for a few key reasons:

  • Technological innovation: Internet advisers have the opportunity to leverage cutting-edge technology, such as robo-advisors and algorithmic trading, to provide more sophisticated and personalized investment strategies to their clients.
  • Marketing Reach: By leveraging the internet to deliver advisory services, these types of advisors have been able to reach a wider audience of investors who prefer digital interactions.
  • Reduced Cost: Reduced regulatory burden: The exemption allows qualifying advisors to avoid certain registration and reporting requirements, reducing the administrative burden and associated costs.

“These changes better reflect what it means in 2024 truly to provide an exclusively internet-based service.” – Gary Gensler

New rules, new requirements. The SEC’s update to the “Internet Advisers Exemption” focuses on two areas:

  • The new amendment will require advisers using “Internet Advisers Exemption” 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.
  • Require advisers seeking to rely on the Internet Advisers Exemption to provide advice to clients exclusively through this operational, interactive website. (Currently, the rule allows advisers to qualify as internet advisers while, for instance, also serving a small number of investors in person, over the phone, or by other means.)

“The website cannot be used as a prop, akin to how a person behind the curtain used props to pretend to be the Wizard of Oz.” – Gary Gensler

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