On March 27, 2024, the SEC adopted amendments to Rule 203A-2(e) (the Internet Adviser Exemption) under the Investment Advisers Act of 1940 to narrow the types of small investment advisers that can register with the SEC in reliance on the Internet Adviser Exemption. Section 203A of the Advisers Act generally prohibits investment advisers from registering with the SEC unless the adviser has at least $25 million in assets under management or advises a registered investment company.  The Internet Adviser Exemption permits advisers with less than $25 million in assets under management to register with the SEC if they provide investment advice to all clients exclusively through an interactive website, subject to a de minimis exception permitting investment advice to fewer than 15 non-internet clients during the preceding 12 months.

The amendments to the Internet Adviser Exemption were adopted substantially as proposed and will require an adviser relying on the Exemption to provide investment advice to all clients exclusively through an operational interactive website at all times during which the adviser relies on the Exemption.  The amendments clarify that an operational interactive website means websites, mobile applications or similar digital platforms through which the adviser provides digital investment advisory services on an ongoing basis (except during temporary technological outages of a de minimis duration) to more than one client, and that a “digital investment advisory service” is 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 website.  Human-directed, client-specific investment advice, even if delivered through electronic means, would not be eligible activity under the amended Exemption.  The amendments also eliminate the de minimis exception, thereby requiring advisers relying on the Exemption to provide investment advice to all clients exclusively through an operational interactive website, and require advisers to provide a representation on their Form ADV that they have an operational interactive website.  An adviser that is no longer eligible to rely on the amended Exemption and that does not otherwise meet the requirements for registration with the SEC must register in one or more states and withdraw its registration with the SEC by filing a Form ADV-W by June 29, 2025.

The amendments will become effective on July 8, 2024, and the compliance date is March 31, 2025.  The adopting release is available here, a related fact sheet is available here and a related press release is available here.