Exemption for Certain Investment Advisers Operating Through the Internet

Conformed to Federal Register version and consolidated with correction IA-6354A SECURITIES AND EXCHANGE COMMISSION

Exemption for Certain Investment Advisers Operating Through the Internet

AGENCY:

ACTION:

SUMMARY:

(i)

advisers”) designed to modernize the rule’s conditions to

DATES:

 Use the Commission’s

--- page 2 ---

post all comments on the Commission’s website ( Comments are also available for website viewing and printing in the Commission’s Public

Operating conditions may limit access to the Commission’s

any such materials will be made available on the Commission’s website electronic receipt of such notifications, sign up through the “Stay Connected” option at

A summary of the proposal of not more than 100 words is posted on the Commission’s

FOR FURTHER INFORMATION CONTACT:

Chief Counsel’s Office; or

--- page 3 ---

SUPPLEMENTARY INFORMATION:

1940 (“Advisers Act” or “Act”)

TABLE OF CONTENTS

--- page 4 ---

Alternative Definitions of “Interactive Website”

IV. Paperwork Reduction Act

V. Initial Regulatory Flexibility Analysis

VI. Consideration of Impact on the Economy Statutory Authority

--- page 5 ---

I. BACKGROUND

Exemption’s

2(e) (“Internet Adviser Exemption”) under

adviser’s reliance on the rule.

(“NSMIA”

--- page 6 ---

Commission’s Reform and Consumer Protection Act (“Dodd Frank Act”)

--- page 7 ---

prohibition on registration for certain advisers (“internet investment advisers”), which typically

therefore, “do not fall neatly into the model assumed by Congress when it added [s]ection 203A to the Act to divide regulatory authority over advisers.” The Commission concluded that, “as

“unfair, a burden on interstate commerce, or otherwise inconsistent with the purposes of [section

] (“2002 Adopting Release”).

] (“2011 Redesignation”).

--- page 8 ---

203A].”

--- page 9 ---

the Internet Adviser Exemption was adopted, the “multi state adviser exemption” enabled an investment

--- page 10 ---

relationship.html (“Easy s with their advisor and share documents.”). Commission’s ’s pace).

--- page 11 ---

provided by the adviser’s interactive website or otherwise provide investment advice to client

, outside of the adviser’s interactive website

other than through the adviser’s

(“Risk Alert”).

No. 5110 (Feb. 12, 2019) (“Ajenifuja”) (finding that the

(“RetireHub”)

--- page 12 ---

internet investment adviser’s advisers’ affiliates were operating as unregistered investment adviser’s registration as a basis for their own registration increased since the rule’s adoption

(“Boyeda”)

--- page 13 ---

so from the rule’s adoption in 2002 through 2016.

, the Commission established a “narrow exemption,” allowing certain investment

adviser’s interactive website or otherwise provid

--- page 14 ---

We believe that the “narrow exemption” created over twenty years ago should be

the Commission’s

[Sept. 1, 2021)] (“2021 RFC”). The Commission

--- page 15 ---

II. DISCUSSION

“operational” interactive website.

--- page 16 ---

enhance investor protection through more efficient use of the Commission’s

--- page 17 ---

of “operational interactive website”

--- page 18 ---

local businesses that can be effectively regulated by a state, consistent with Congress’ intent in ’s amendments to definition of “ interactive website” the rule’s application to advisers’ use of technology, including their use of mobile applications,

Commission stated in the 2002 Adopting Release: “Nor is it likely Internet Investment Advisers could rely

2(c) as a basis for registration (“120 day rule”), the interactive website would need to be operational within 120 days of the adviser’s registration.

--- page 19 ---

in the definition of “operat interactive website,” interactive website in a manner that best suits their needs and their clients’ needs.

are proposing to define “digital investment advisory services” “investment operational interactive website’s

he term “mobile application” general

“ Aug. 21, 2014) (“[M]obile remaining 40%.”); ‘Healthy Paranoia’ Drives Innovation at Vanguard

(“Next on the horizon is mobile applications. When you travel [outside of the U.S.], centric technology does not exist anywhere else[.] In the future, [ ... [i]t’s going to be all ul, apps will be left behind [ .... ]”) (internal

(“Mobile applications frequently serve to provide users with similar services to those accessed on PCs.”);

(“Dedicated mobile applications for smartphones and tablets can enable unified digital – a combination of email, chat, voice and video.”).

--- page 20 ---

” “ website’s consist of information relevant to the client’s financial situation, level of financial sophistication, 14 (discussing an adviser’s duty of care, which includes a duty to provide advice that is in the best c572f2ddb7e8/UploadedImages/resources/Evolution_Revolution_2020_v8.pdf (noting that by 2020, ‘‘two year].’’); Robo “Robo ”) (“ in the United States but spreading to Europe and Asia, have emerged over the last few years.”).

--- page 21 ---

an adviser’

--- page 22 ---

”

--- page 23 ---

“exclusively” through the adviser’s

--- page 24 ---

provide digital investment advisory services to “one or more clients” instead?

“

”

reference to “digital platform” or some other language instead of “website or mobile application”?

--- page 25 ---

(“Wilson Sonsini Comment Letter”)

to at least 51% of its customers”)

existing) “private adviser exemption” which, subject to certain additional conditions, exempted from the requirement to register with

--- page 26 ---

Commission’s experience

IV.A. (stating that “Internet Investment Advisers clients.”).

(“Robo based programs.”).

--- page 27 ---

1Advisers Act’s allocation of responsibility for regulating smaller advisers to state

advisers’ current use of technology in providing investment advice in a better way

III. ECONOMIC ANALYSIS

1

“shall require an investment adviser to register with the securities commissioner of the State” if the adviser “(1) does not have a place of business located within the State; and (2)

State."

eee(a)(5) (excluding from the definition of “investment adviser” a

307, “Continued State Authority”].

described the exemption as “providing relief to certain investment advisers who, or a few states.” At that time, the threshold for the multi

The instructions of Form ADV specify that the category “individuals” includes trusts, estates, and 401(k)

proprieties. “High Net Worth Individual” is defined as an individual who is a qualified client or who is a “qualified purchaser” as defined in section 2(a)(51)(A) of the Investment Company Act of 1940.

on the location of the adviser’s

,

The 2002 rule contemplated internet advisers potentially having clients that “can come from any state, at any time, without the adviser’s prior knowledge” and thus potentially necessitating registration in all states.

and surrounding text, today’s investment advisers are better able to control

,

under the tab “Fees & Accounting.”

1

he Commission’s examination program has identified multiple instances of adviser’s interactive website or otherwise provide investment advice to clients, such as financial

adding the term “digital investment advisory service,” defined to

the website’s

• dding the word “operational,” thus changing the term to “operational interactive website”

• “ “

Augmenting the definition of “interactive website” to include the new defined term “digital investment advisory service” would capture the increasing variety of technological the proposed addition of the terms “mobile application” and “algorithms” would better align with burdens associated with multiple states’ registrations and regulati

instance, advisers without an “operational” website would be excluded from the pool of advisers

check a box on Form ADV indicating they “are an

2e” but

would specifically require that the website be “operational ” and advisers may incur

the term “ applications” and the term “ digital investment advisory service”

or “digital investment advisory service”

1

the Commission’s limited

. The rule’s

amended to “operational interactive website” and would be

current rule’s

2(e)(2). For purposes of the rule, “digital investment advisory service” would be operational interactive website’s

most investment advisers that are small entities (“small advisers”) because they are generally

the proposed rule’

the proposed requirement that the interactive website be “operational.”

Association’s Report on Management & Pro

Schedule D of Form ADV would assist the Commission’s examin

exclusively advise internet clients to be a design standard necessary to better reflect Congress’s

VI. CONSIDERATION OF IMPACT ON THE ECONOMY

“SBREFA,” we must advise OMB whether a proposed regulation constitutes a “major” rule Under SBREFA, a rule is considered “major” where, if adopted, it results in or is likely to result

STATUTORY AUTHORITY--- page 71 ---

. For purposes of this rule, “digital investment advisory service” is investment advice to clients that is generated by website’s

--- page 72 ---

1

--- page 73 ---

 You provide investment advice to all of your

--- page 74 ---

1

--- page 75 ---

□ I will provide investment advice to all of my clients exclusively through an operational

□ I have provided and will continue to provide investment advice to all of my clients

Conformed to Federal Register version and consolidated with correction IA-6354A SECURITIES AND EXCHANGE COMMISSION

Exemption for Certain Investment Advisers Operating Through the Internet

AGENCY:

ACTION:

SUMMARY:

(i)

advisers”) designed to modernize the rule’s conditions to

DATES:

 Use the Commission’s

--- page 2 ---

post all comments on the Commission’s website ( Comments are also available for website viewing and printing in the Commission’s Public

Operating conditions may limit access to the Commission’s

any such materials will be made available on the Commission’s website electronic receipt of such notifications, sign up through the “Stay Connected” option at

A summary of the proposal of not more than 100 words is posted on the Commission’s

FOR FURTHER INFORMATION CONTACT:

Chief Counsel’s Office; or

--- page 3 ---

SUPPLEMENTARY INFORMATION:

1940 (“Advisers Act” or “Act”)

TABLE OF CONTENTS

--- page 4 ---

Alternative Definitions of “Interactive Website”

IV. Paperwork Reduction Act

V. Initial Regulatory Flexibility Analysis

VI. Consideration of Impact on the Economy Statutory Authority

--- page 5 ---

I. BACKGROUND

Exemption’s

2(e) (“Internet Adviser Exemption”) under

adviser’s reliance on the rule.

(“NSMIA”

--- page 6 ---

Commission’s Reform and Consumer Protection Act (“Dodd Frank Act”)

--- page 7 ---

prohibition on registration for certain advisers (“internet investment advisers”), which typically

therefore, “do not fall neatly into the model assumed by Congress when it added [s]ection 203A to the Act to divide regulatory authority over advisers.” The Commission concluded that, “as

“unfair, a burden on interstate commerce, or otherwise inconsistent with the purposes of [section

] (“2002 Adopting Release”).

] (“2011 Redesignation”).

--- page 8 ---

203A].”

--- page 9 ---

the Internet Adviser Exemption was adopted, the “multi state adviser exemption” enabled an investment

--- page 10 ---

relationship.html (“Easy s with their advisor and share documents.”). Commission’s ’s pace).

--- page 11 ---

provided by the adviser’s interactive website or otherwise provide investment advice to client

, outside of the adviser’s interactive website

other than through the adviser’s

(“Risk Alert”).

No. 5110 (Feb. 12, 2019) (“Ajenifuja”) (finding that the

(“RetireHub”)

--- page 12 ---

internet investment adviser’s advisers’ affiliates were operating as unregistered investment adviser’s registration as a basis for their own registration increased since the rule’s adoption

(“Boyeda”)

--- page 13 ---

so from the rule’s adoption in 2002 through 2016.

, the Commission established a “narrow exemption,” allowing certain investment

adviser’s interactive website or otherwise provid

--- page 14 ---

We believe that the “narrow exemption” created over twenty years ago should be

the Commission’s

[Sept. 1, 2021)] (“2021 RFC”). The Commission

--- page 15 ---

II. DISCUSSION

“operational” interactive website.

--- page 16 ---

enhance investor protection through more efficient use of the Commission’s

--- page 17 ---

of “operational interactive website”

--- page 18 ---

local businesses that can be effectively regulated by a state, consistent with Congress’ intent in ’s amendments to definition of “ interactive website” the rule’s application to advisers’ use of technology, including their use of mobile applications,

Commission stated in the 2002 Adopting Release: “Nor is it likely Internet Investment Advisers could rely

2(c) as a basis for registration (“120 day rule”), the interactive website would need to be operational within 120 days of the adviser’s registration.

--- page 19 ---

in the definition of “operat interactive website,” interactive website in a manner that best suits their needs and their clients’ needs.

are proposing to define “digital investment advisory services” “investment operational interactive website’s

he term “mobile application” general

“ Aug. 21, 2014) (“[M]obile remaining 40%.”); ‘Healthy Paranoia’ Drives Innovation at Vanguard

(“Next on the horizon is mobile applications. When you travel [outside of the U.S.], centric technology does not exist anywhere else[.] In the future, [ ... [i]t’s going to be all ul, apps will be left behind [ .... ]”) (internal

(“Mobile applications frequently serve to provide users with similar services to those accessed on PCs.”);

(“Dedicated mobile applications for smartphones and tablets can enable unified digital – a combination of email, chat, voice and video.”).

--- page 20 ---

” “ website’s consist of information relevant to the client’s financial situation, level of financial sophistication, 14 (discussing an adviser’s duty of care, which includes a duty to provide advice that is in the best c572f2ddb7e8/UploadedImages/resources/Evolution_Revolution_2020_v8.pdf (noting that by 2020, ‘‘two year].’’); Robo “Robo ”) (“ in the United States but spreading to Europe and Asia, have emerged over the last few years.”).

--- page 21 ---

an adviser’

--- page 22 ---

”

--- page 23 ---

“exclusively” through the adviser’s

--- page 24 ---

provide digital investment advisory services to “one or more clients” instead?

“

”

reference to “digital platform” or some other language instead of “website or mobile application”?

--- page 25 ---

(“Wilson Sonsini Comment Letter”)

to at least 51% of its customers”)

existing) “private adviser exemption” which, subject to certain additional conditions, exempted from the requirement to register with

--- page 26 ---

Commission’s experience

IV.A. (stating that “Internet Investment Advisers clients.”).

(“Robo based programs.”).

--- page 27 ---

1Advisers Act’s allocation of responsibility for regulating smaller advisers to state

advisers’ current use of technology in providing investment advice in a better way

III. ECONOMIC ANALYSIS

1

“shall require an investment adviser to register with the securities commissioner of the State” if the adviser “(1) does not have a place of business located within the State; and (2)

State."

eee(a)(5) (excluding from the definition of “investment adviser” a

307, “Continued State Authority”].

described the exemption as “providing relief to certain investment advisers who, or a few states.” At that time, the threshold for the multi

The instructions of Form ADV specify that the category “individuals” includes trusts, estates, and 401(k)

proprieties. “High Net Worth Individual” is defined as an individual who is a qualified client or who is a “qualified purchaser” as defined in section 2(a)(51)(A) of the Investment Company Act of 1940.

on the location of the adviser’s

,

The 2002 rule contemplated internet advisers potentially having clients that “can come from any state, at any time, without the adviser’s prior knowledge” and thus potentially necessitating registration in all states.

and surrounding text, today’s investment advisers are better able to control

,

under the tab “Fees & Accounting.”

1

he Commission’s examination program has identified multiple instances of adviser’s interactive website or otherwise provide investment advice to clients, such as financial

adding the term “digital investment advisory service,” defined to

the website’s

• dding the word “operational,” thus changing the term to “operational interactive website”

• “ “

Augmenting the definition of “interactive website” to include the new defined term “digital investment advisory service” would capture the increasing variety of technological the proposed addition of the terms “mobile application” and “algorithms” would better align with burdens associated with multiple states’ registrations and regulati

instance, advisers without an “operational” website would be excluded from the pool of advisers

check a box on Form ADV indicating they “are an

2e” but

would specifically require that the website be “operational ” and advisers may incur

the term “ applications” and the term “ digital investment advisory service”

or “digital investment advisory service”

1

the Commission’s limited

. The rule’s

amended to “operational interactive website” and would be

current rule’s

2(e)(2). For purposes of the rule, “digital investment advisory service” would be operational interactive website’s

most investment advisers that are small entities (“small advisers”) because they are generally

the proposed rule’

the proposed requirement that the interactive website be “operational.”

Association’s Report on Management & Pro

Schedule D of Form ADV would assist the Commission’s examin

exclusively advise internet clients to be a design standard necessary to better reflect Congress’s

VI. CONSIDERATION OF IMPACT ON THE ECONOMY

“SBREFA,” we must advise OMB whether a proposed regulation constitutes a “major” rule Under SBREFA, a rule is considered “major” where, if adopted, it results in or is likely to result

STATUTORY AUTHORITY--- page 71 ---

. For purposes of this rule, “digital investment advisory service” is investment advice to clients that is generated by website’s

--- page 72 ---

1

--- page 73 ---

 You provide investment advice to all of your

--- page 74 ---

1

--- page 75 ---

□ I will provide investment advice to all of my clients exclusively through an operational

□ I have provided and will continue to provide investment advice to all of my clients