Changes to the SEC Robo-Adviser Exemption

The U.S. Securities and Exchange Commission (SEC) amended Advisers Act Rule 203A-2(e), resulting in a change to the exemption certain internet investment advisers (robo-advisers) rely on.

The amended rule will require a robo-adviser relying on this exemption to:

• Operate exclusively through the internet (the current de minimis exception allowing robo-advisers to serve fewer than 15 non-internet clients over a 12-month period will be eliminated)
• Have more than one client
• Provide investment advice to all clients exclusively through an “operational” interactive website, mobile application, or similar digital platform
• Maintain its website in an operational and interactive state at all times and make it available to all clients
• Generate investment advice to clients using the website’s software-based models, algorithms, or applications, not the adviser’s personnel
• Make certain changes to its Form ADV, including a representation on Schedule D that the robo-adviser has an operational website

The amendments are intended to stop smaller advisers that do not operate exclusively as robo-advisers from using the exemption as a way around state registration. In justifying the amendments, the SEC called out the Division of Exams staff experience with claims to rely on the exemption without having an operational interactive website.

Deadlines

These changes to the exemption go into effect on July 8, 2024.

New Robo-Advisers: Firms seeking to register as robo-advisers for the first time on or after July 8, 2024 must comply with the new requirements from inception.

Currently Registered Robo-Advisers: Currently registered advisers relying on the internet adviser exemption must comply with the amended rule, including the requirement to amend the adviser’s Form ADV to include a representation that the adviser is eligible to register with the SEC under the internet adviser exemption, by March 31, 2025.

Advisers No Longer Eligible for the Exemption: An adviser that is no longer eligible to rely on the amended exemption and does not otherwise have a basis 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.

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