SEC Updates Rules for Robo-Advisors
The changes better reflect the digital marketplace in 2024, said Gary Gensler, the agency's chairman.
The Securities and Exchange Commission adopted amendments Wednesday to update its rule governing advisors operating exclusively through the internet.
SEC Chairman Gary Gensler said Wednesday in a statement that the amendments “modernize a 22-year-old rule to better protect investors in a digital age.”
The changes, Gensler relayed, “better reflect what it means in 2024 truly to provide an exclusively internet-based service,” and “will better align registration requirements with modern technology and help the Commission in the efficient and effective oversight” of RIAs.
The SEC proposed the rules on July 26. The public comments are available online.
The amendments, according to a fact sheet:
- require an investment advisor relying on the internet adviser 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.
- eliminate the current rule’s de minimis exception by requiring an internet investment adviser to provide advice to all of its clients exclusively through an operational interactive website and to make certain corresponding changes to Form ADV.
An exemption written in 2002 “allows gaps in 2024,” Gensler added in the statement.
In recent years, Gensler relayed, SEC staff “have observed compliance deficiencies by advisers relying on this exemption.”
A 2021 risk alert noted that nearly half of the examined advisors that claimed the exemption in fact were ineligible.
“If really true that SEC found that half of advisers who claimed internet exemption weren’t eligible, I can see why they’d clarify the rule,” Sara Crovitz, a partner at Eversheds Sutherland, told ThinkAdvisor in an email Wednesday.
The Investment Adviser Association said Wednesday in a statement that the amendments will ”allow SEC registration for advisers that offer their advisory services exclusively through an interactive website, which basically means that these advisers won’t be allowed to have any non-internet clients.” These advisers can have up to 15 non-internet clients.
The amendments “narrow and provide clarity around the exemption, but their impact is likely to be very modest since only a small number of advisers rely on the exemption today (around 250) and even fewer are likely to rely on it as amended,” IAA said.
The amendments will become effective 90 days after publication in the Federal Register.
Advisors relying on the internet adviser exemption must comply with the rule, including the requirement to amend their Form ADV to include a representation that the RIA is eligible to register under the internet adviser exemption, by March 31, 2025.