Exemption for Certain Investment Advisers Operating Through the Internet, 24693-24713 [2024-06865]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 69 (Tuesday, April 9, 2024)]
[Rules and Regulations]
[Pages 24693-24713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06865]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

[Release No. IA-6578; File No. S7-13-23]
RIN 3235-AN31


Exemption for Certain Investment Advisers Operating Through the 
Internet

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is adopting amendments to the rule under the Investment 
Advisers Act of 1940 that exempts certain investment advisers that 
provide advisory services through the internet (``internet investment 
advisers'') from the prohibition on Commission registration, as well as 
related amendments to Form ADV. The amendments are designed to 
modernize the rule's conditions to account for the evolution in 
technology and the investment advisory industry since the initial 
adoption of the rule in 2002.

DATES: Effective date: This rule is effective July 8, 2024.
    Compliance dates: See section II.E of this release.

[[Page 24694]]


FOR FURTHER INFORMATION CONTACT: Blair B. Burnett, Branch Chief, 
Investment Company Regulation Office, Herman Brown, Senior Counsel, 
Sirimal R. Mukerjee, Senior Special Counsel, or Melissa Roverts Harke, 
Assistant Director, Investment Adviser Regulation Office, Division of 
Investment Management, at (202) 551-6787 or [email protected], Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to 17 
CFR 275.203A-2(e) (``rule 203A-2(e)'' or ``Internet Adviser 
Exemption'') under the Investment Advisers Act of 1940 (``Advisers 
Act'' or ``Act'') [15 U.S.C. 80b-1 et seq.] and corresponding 
amendments to 17 CFR 279.1 (``Form ADV'') under the Advisers Act.\1\
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the 
Advisers Act, or any section of the Advisers Act, we are referring 
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we 
refer to rules under the Advisers Act, or any section of these 
rules, we are referring to title 17, part 275 of the Code of Federal 
Regulations [17 CFR 275], in which these rules are published.
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Table of Contents

I. Introduction
    A. Overview
    B. Background
II. Discussion
    A. Operational Interactive website
    B. Digital Investment Advisory Service
    C. Elimination of De Minimis Non-Internet Client Exception
    D. Form ADV
    E. Compliance Dates
III. Other Matters
IV. Economic Analysis
    A. Introduction
    B. Baseline and Affected Parties
    1. Regulatory Baseline
    2. Current Use of the Internet Adviser Exemption
    3. Increased Reliance on the Internet Adviser Exemption
    C. Benefits, Costs and Effects on Efficiency, Competition, and 
Capital Formation
    1. Benefits
    2. Costs
    3. Effects on Efficiency, Competition, and Capital Formation
    D. Reasonable Alternatives
    1. Allowing Non-Internet Clients
    2. Alternative Definitions of ``Interactive website''
    3. Eliminating the Internet Adviser Exemption
V. Paperwork Reduction Act
    A. Introduction
    B. Rule 203A-2(e) Recordkeeping Requirement
    C. Form ADV
    D. Total Hour Burden Associated With Amendments to Rule 203A-
2(e) and Form ADV
VI. Final Regulatory Flexibility Analysis
    A. Need for and Objectives of the Rule and Form Amendments
    1. Amendments to Rule 203A-2(e)
    2. Amendments to Form ADV
    B. Significant Issues Raised by Public Comments
    C. Legal Basis
    D. Small Entities Subject to the Rule and Rule Amendments
    1. Small Entities Subject to Amendments to the Internet Adviser 
Rule
    E. Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    1. Amendments to Rule 203A-2(e)
    2. Amendments to Form ADV
    F. Agency Action To Minimize Effect on Small Entities

I. Introduction

A. Overview

    We are adopting amendments to rule 203A-2(e) under the Advisers 
Act. The Internet Adviser Exemption provides an exemption from the 
prohibition on registration with the Commission that may otherwise 
affect certain advisers seeking to register with us. The amendments are 
designed to modernize the Internet Adviser Exemption's conditions to 
account for the evolution in technology and the investment advisory 
industry since the adoption of the rule over 20 years ago. 
Specifically, the amendments will require an internet investment 
adviser to provide investment advice to all of its clients exclusively 
through an ``operational'' interactive website at all times during 
which it relies on the Internet Adviser Exemption. The amendments also 
will eliminate the de minimis exception in the current rule that 
permits internet investment advisers to have fewer than 15 non-internet 
clients in the preceding 12-month period. In addition, we are adopting 
amendments to Form ADV to conform certain instructions and definitions 
to the amended Internet Adviser Exemption and to require additional 
representations regarding an internet investment adviser's reliance on 
the rule.
    In July 2023, the Commission proposed amendments to the Internet 
Adviser Exemption with certain corresponding amendments to Form ADV.\2\ 
The Commission received eight comments on the proposed amendments.\3\ 
Most commenters expressed broad support for the proposal while a few 
commenters suggested modifications.\4\ One commenter disagreed with the 
proposal in its entirety.\5\ After consideration of the comments 
received and as discussed in more detail below, we are adopting the 
amendments to the Internet Adviser Exemption, as proposed.
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    \2\ See Exemption for Certain Investment Advisers Operating 
Through the Internet, Investment Advisers Act Release No. 6354 (July 
26, 2023) [88 FR 50076 (Aug. 1, 2023)] (``Proposing Release''). See 
also Request for Information and Comments on Broker-Dealer and 
Investment Adviser Digital Engagement Practices, Related Tools and 
Methods, and Regulatory Considerations and Potential Approaches, 
Exchange Act Release No. 92766 (Aug. 27, 2021) [86 FR 49067 (Sept. 
1, 2021)] (a request for information and comments issued by the 
Commission in 2021 on the Internet Adviser Exemption, among other 
areas).
    \3\ The comment letters on the Proposing Release are available 
at https://www.sec.gov/comments/s7-13-23/s71323.htm.
    \4\ See e.g., Comment Letter of Better Markets, Inc. (Oct. 2, 
2023) (``Better Markets Comment Letter'') (stating that the proposal 
was an ``important reform to implement the framework Congress 
envisioned for dividing responsibility for regulating investment 
advisers between the Commission and the States''); Comment Letter of 
North American Securities Administrators Association Inc. (Sept. 29, 
2023) (``NASAA Comment Letter'') (stating that it was an opportune 
time to revise the exemption's requirements because it shared the 
Commission's concern that the exemption has been misused by advisers 
that do not meet its requirements); Comment Letter of Andres Giraldo 
Suarez (Sept. 28, 2023) (``Suarez Comment Letter'') (stating that 
the proposal would modernize the exemption and that it will help 
investors get the best service in the digital age). See also infra 
section II.
    \5\ See Comment Letter of Estelle Brunk (July 29, 2023). This 
commenter, however, did not provide a rationale for their 
disagreement with the proposal.
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B. Background

    The National Securities Markets Improvement Act of 1996 (``NSMIA'') 
amended the Advisers Act to divide the responsibility for regulating 
investment advisers between the Commission and State securities 
authorities.\6\ Congress allocated to State securities authorities the 
primary responsibility for regulating smaller advisory firms and 
allocated to the Commission the primary responsibility for regulating 
larger advisory firms.\7\ Section 303 of NSMIA amended the Advisers Act 
to include section 203A \8\ to effect this division of responsibility 
by generally prohibiting advisers from registering with the Commission 
unless they either have assets under management of not less than $25 
million or advise a registered investment company,\9\ and preempt State 
adviser statutes regarding registration, licensing, or qualification as 
to advisers registered with the Commission.\10\ The ``$25 million 
assets

[[Page 24695]]

under management'' test was designed by Congress to distinguish 
investment advisers with a national presence from those that are 
essentially local businesses.\11\ Congress expressed that its goal in 
enacting the statute was more efficiently to allocate the Commission's 
limited resources by allowing the Commission to concentrate its 
regulatory responsibilities on larger advisers with national 
businesses, and to reduce the burden on investment advisers of the 
overlapping and duplicative regulation between Federal and State 
regulators.\12\ In 2010, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'') amended certain provisions of the 
Advisers Act, including section 203A, to, among other things, 
reallocate primary responsibility for oversight of investment advisers 
by delegating generally to the States responsibility over certain 
``mid-sized'' advisers--i.e., subject to certain exceptions, advisers 
with between $25 million and $100 million of assets under 
management.\13\
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    \6\ National Securities Markets Improvement Act of 1996, Public 
Law 104-290, 110 Stat. 3416 (1996) (codified in various sections of 
15 U.S.C.). See also Proposing Release at section I.A.
    \7\ See S. Rep. No. 293, 104th Cong., 2d Sess. 3-4 (1996) 
(``Senate Report''), at 4.
    \8\ Public Law 104-290, Sec. 303. See also section 203A of the 
Advisers Act [15 U.S.C. 80b-3a].
    \9\ Section 203A(a)(1) of the Advisers Act [15 U.S.C. 80b-
3a(a)(1)].
    \10\ Section 203A(b) of the Advisers Act [15 U.S.C. 80b-3a(b)]. 
Advisers prohibited from registering with the Commission remain 
subject to the regulation of State securities authorities. Section 
222 of the Advisers Act [15 U.S.C. 80b-18a]. The prohibition in 
section 203A against registration with the Commission applies to 
advisers whose principal office and place of business is in a United 
States jurisdiction that has enacted an investment adviser statute. 
See Rules Implementing Amendments to the Investment Advisers Act of 
1940, Investment Advisers Act Release No. 1633 (May 15, 1997) [62 FR 
28112 (May 22, 1997)], at text accompanying note 83.
    \11\ See Senate Report at 4-5 (``The states should play an 
important and logical role in regulating small investment advisers 
whose activities are likely to be concentrated in their home 
state.'').
    \12\ See Senate Report at 2-4 (stating ``[r]ecognizing the 
limited resources of both the Commission and the states, the 
Committee believes that eliminating overlapping regulatory 
responsibilities will allow the regulators to make the best use of 
their scarce resources to protect clients of investment 
advisers.'').
    \13\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
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    Congress has recognized, however, that it is more efficient to 
regulate some advisers at the Federal level despite managing less than 
the minimum thresholds in assets under management and gave the 
Commission authority to enable advisers to register with the Commission 
if the prohibition would be ``unfair, a burden on interstate commerce, 
or otherwise inconsistent with the purposes of [section 203A].'' \14\ 
In exercising this authority, the Commission in 2002 adopted the 
Internet Adviser Exemption, which relieves certain advisers that 
provide investment advisory services primarily through the Internet 
from the burdens of multiple State regulation and allows them to 
register with the Commission.\15\
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    \14\ Section 203A(c) of the Advisers Act [15 U.S.C. 80b-3a(c)]. 
See also Senate Report at 5 and 15.
    \15\ See Exemption for Certain Investment Advisers Operating 
Through the Internet, Investment Advisers Act Release No. 2028 (Dec. 
12, 2002) [67 FR 77619 (Dec. 18, 2002)], at section I (``2002 
Adopting Release''). The exercise of our exemptive authority enables 
registration with the Commission and preempts most State law with 
respect to the exempted advisers that register with us. See also 
rule 203A-2.
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    The Internet Adviser Exemption was designed to create a narrow 
exemption from the prohibition on registration for certain Internet 
investment advisers that otherwise are not eligible for registration 
with the Commission, because they do not meet the statutory thresholds 
for registration.\16\ These advisers, 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.'' \17\ An adviser 
could rely on the Internet Adviser Exemption (as originally adopted) 
if, among other obligations, it provided investment advice to all of 
its clients exclusively through an interactive website, except it was 
permitted to provide investment advice to fewer than 15 clients through 
other means during the preceding 12 months.\18\
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    \16\ See Proposing Release at section I.A (discussing the 
Commission's rationale for providing the Internet Adviser Exemption 
in 2002, including, for instance, the recognition that because 
Internet investment advisers provide investment advice to their 
clients through an interactive website, the adviser's clients can 
come from any state, at any time, which, absent the Internet Adviser 
Exemption, may result in an Internet investment adviser incurring 
the burden of temporarily registering in multiple states and later 
withdrawing). See also 2002 Adopting Release.
    \17\ 2002 Adopting Release at section II (citing Section 
203A(c)).
    \18\ See 17 CFR 275.203A-2(e)(1)(i) (``rule 203A-2(e)(1)(i)'').
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    The asset management industry has experienced substantial growth 
and change since the rule was adopted over 20 years ago. Assets under 
management have more than quadrupled since the adoption of the 
rule.\19\ Similarly, since the adoption of the rule, advisers are 
increasingly using technology to interact with clients, including 
through email, websites, mobile applications, investor portals, text 
messages, chatbots, and other similar digital platforms.\20\ The use of 
technology is now central to how many investment advisers provide their 
products and services to clients. For example, the growth of services 
available on digital platforms, such as those offered by online 
brokerage firms and robo-advisers, has multiplied the opportunities for 
investors to invest in and trade securities. This increased 
accessibility has been one of the many factors associated with the 
increase of retail investor participation in U.S. securities markets in 
recent years.\21\ Concomitant with the growth in assets under 
management and the broader evolution and adoption of technology in the 
investment advisory industry, we have seen an increase in the number of 
advisers seeking to rely on the Internet Adviser Exemption.\22\ We 
recognize that investment advisers are increasingly using a wide range 
of technologies in their businesses. The Internet Adviser Exemption, 
however, was intended as a narrow exemption for entities that 
exclusively provide investment advice through an interactive 
website.\23\
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    \19\ There were approximately $23.6 trillion regulatory assets 
under management among registered investment advisers as of Dec. 
2003 and approximately $114.4 trillion assets under management as of 
June 2023. Based on analysis of Form ADV data.
    \20\ See Bilal Majbour, Embracing A Digital-Human Model: The 
Future of Financial Advisory (June 20, 2023), https://www.forbes.com/sites/forbesbusinesscouncil/2023/06/20/embracing-a-digital-human-model-the-future-of-financial-advisory/?sh=6b27dd457291. See also Andrew Osterland, Technology is 
redefining that client-financial advisor relationship (Oct. 14, 
2019), https://www.cnbc.com/2019/10/14/technology-is-redefining-that-client-financial-advisor-relationship.html (``Easy-to-use 
client portals have become essential to provide investors with the 
ability to see their accounts, exchange secure emails with their 
advisor and share documents.'').
    \21\ See, e.g., Maggie Fitzgerald, Retail Investors Continue to 
Jump Into the Stock Market After GameStop Mania, CNBC (Mar. 10, 
2021), https://www.cnbc.com/2021/03/10/retail-investor-ranks-in-the-stock-market-continue-to-surge.html (providing year-over-year app 
download statistics for Robinhood, Webull, Sofi, Coinbase, TD 
Ameritrade, Charles Schwab, E-Trade, and Fidelity from 2018-2020, 
and monthly figures for Jan. and Feb. 2021); John Gittelsohn, Schwab 
Boosts New Trading Accounts 31% After Fees Go to Zero, Bloomberg 
(Nov. 14, 2019), https://www.bloomberg.com/news/articles/2019-11-14/schwab-boosts-brokerage-accounts-by-31-after-fees-cut-to-zero 
(noting that Charles Schwab opened 142,000 new trading accounts in 
October, a 31% increase over September's pace).
    \22\ Based on Form ADV data, the number of advisers relying 
exclusively on the exemption has grown from approximately 107 
advisers as of Dec. 2015 to 261 advisers as of June 2023. From the 
initial adoption of the Internet Adviser Exemption through June 
2023, approximately 937 advisers have relied on the exemption as a 
basis for registration with the Commission. Of these advisers, 772 
initially registered exclusively in reliance on the Internet Adviser 
Exemption. The exemption has been used with increasing frequency 
recently, with 154 of the 261 advisers relying exclusively on the 
exemption registering after 2015.
    \23\ See Proposing Release at section I.B. See also 2002 
Adopting Release at section II.A.
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    While some advisers have used the exemption as intended, others 
have used the exemption to register with the Commission while failing 
to satisfy the conditions of the exemption.\24\ The

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recent increase in the number of advisers seeking to rely on the 
Internet Adviser Exemption coincides with an increase in registration 
withdrawals and cancellations of Internet investment advisers, which 
has affected the cumulative growth in the number of advisers relying on 
the Internet Adviser Exemption.\25\ For example, approximately 67% of 
the advisers withdrawing their registration under the rule have done so 
since 2017, while only approximately 33% of the withdrawing advisers 
did so from the rule's adoption in 2002 through 2016.\26\
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    \24\ See Proposing Release at note 26 (stating that the SEC 
examination staff observed that ``[n]early half of the [examined] 
advisers claiming reliance on the Internet Adviser Exemption were 
ineligible to rely on the exemption, and many were not otherwise 
eligible for SEC-registration''). See also Observations from 
Examinations of Advisers that Provide Electronic Investment Advice 
(Nov. 9, 2021), https://www.sec.gov/files/exams-eia-risk-alert.pdf 
(``Risk Alert''). Staff documents (including those cited herein) 
represent the views of Commission staff and are not a rule, 
regulation, or statement of the Commission. The Commission has 
neither approved nor disapproved the content of these documents and, 
like all staff statements, they have no legal force or effect, do 
not alter or amend applicable law, and create no new or additional 
obligations for any person.
    \25\ The Commission has cancelled the registration of Internet 
investment advisers after finding the firms are no longer in 
existence, not engaged in business as an investment adviser, or 
prohibited from registering as an investment adviser under section 
203A of the Advisers Act (and related rules). The Commission also 
has revoked the registration of an Internet investment adviser on 
the basis that it was ineligible to rely on the exemption. See In 
re. Boveda Asset Management, Inc., Investment Advisers Act Release 
No. 6016 (May 6, 2022) (referencing SEC v. Boveda Asset Management, 
Inc. and George Kenneth Witherspoon, Jr., 1:21-cv-05321-SCJ (N. D. 
GA) (Apr. 27, 2022)). See also Ajenifuja Investments, LLC; Order 
Cancelling Registration Pursuant to Section 203(h) of the Investment 
Advisers Act of 1940, Investment Advisers Act Release No. 5110 (Feb. 
12, 2019) (finding that the adviser was registered as an Internet 
investment adviser for over three years and in that time period did 
not have an interactive website and did not demonstrate any other 
basis for registration eligibility); Strategic Options, LLC; Order 
Denying a Request for Hearing and Cancelling Registration Pursuant 
to Section 203(h) of the Investment Advisers Act of 1940, Investment 
Advisers Act Release No. 5689 (Feb. 24, 2021) (finding that since 
its registration in 2015, the registrant has not had, and does not 
have, any clients for which it provides investment advice through an 
interactive website); In re. RetireHub, Inc., Investment Advisers 
Act Release No. 3337 (Dec. 15, 2011) (settled) (alleging that the 
adviser was never an Internet investment adviser because, over the 
course of its registration, it did not provide investment advice 
exclusively through an interactive website, advised more clients 
than permitted through personal contact, or both).
    \26\ Based on analysis of Form ADV data.
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    Our examination staff has observed numerous compliance deficiencies 
by advisers relying on the rule.\27\ For example, the staff observed 
advisers relying on this exemption that did not have an interactive 
website. In addition, the staff observed advisers relying on this 
exemption that provided advisory personnel who could expand upon the 
investment advice provided by the adviser's interactive website or 
otherwise provide investment advice to clients, such as financial 
planning, outside of the adviser's interactive website.\28\
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    \27\ See Risk Alert.
    \28\ Risk Alert at 8 (also finding that some advisers' 
affiliates were operating as unregistered investment advisers, 
because the affiliates were operationally integrated with the 
registered advisers, and the Internet Adviser Exemption prohibited 
those affiliates from relying on the Internet investment adviser's 
registration as a basis for their own registration).
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    As discussed above, the Commission intended the Internet Adviser 
Exemption to be a narrow exemption for certain investment advisers that 
did not fall neatly within the framework established by Congress to 
divide regulatory authority between State regulators and the 
Commission.\29\ The amended Internet Adviser Exemption will better 
align current practices in the investment adviser industry with this 
narrow exemption and will adapt the rule to the broader evolution in 
technology and the marketplace that has occurred since the rule was 
adopted. In addition, the amendments will enhance investor protection 
through more efficient use of the Commission's limited oversight and 
examination resources by more appropriately allocating Commission 
resources to advisers with a national presence and allowing smaller 
advisers with a sufficiently local presence to be regulated by the 
States. The amendments also will minimize opportunities for advisers to 
rely on the exemption to register with the Commission without meeting 
the rule's conditions.
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    \29\ See supra notes 16-17.
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II. Discussion

A. Operational Interactive Website

    Largely as proposed, we are renaming the defined term ``interactive 
website'' as ``operational interactive website,'' and defining it as a 
website or mobile application through which the investment adviser 
provides digital investment advisory services on an ongoing basis to 
more than one client (except during temporary technological outages of 
a de minimis duration).\30\ In a change from the proposal, to keep the 
rule evergreen as technology changes, we are also including in the 
definition any ``similar digital platform'' through which the 
investment adviser provides digital investment advisory services on an 
ongoing basis to more than one client.\31\ The current rule defines 
``interactive website'' to mean a website in which computer software-
based models or applications provide investment advice to clients based 
on personal information each client supplies through the website.\32\
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    \30\ See amended 17 CFR 275.203A-2(e)(2) (``rule 203A-
2(e)(2)'').
    \31\ See infra note 46 and accompanying text.
    \32\ See rule 203A-2(e)(2). Personal information provided by the 
internet client generally should consist of information relevant to 
the client's financial situation, level of financial sophistication, 
investment experience, and financial goals and objectives. See also 
Commission Interpretation Regarding Standard of Conduct for 
Investment Advisers, Advisers Act Release No. 5248 (June 5, 2019) 
[84 FR 33669 (July 12, 2019)] (``Fiduciary Interpretation''), at 12-
14 (discussing an adviser's duty of care, which includes a duty to 
provide advice that is in the best interest of the client).
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    Most commenters supported the proposed definition of ``operational 
interactive website.'' \33\ Another commenter stated that the 
definition was ``entirely appropriate'' to protect against clients 
being misled by an investment adviser touting itself as Commission-
registered.\34\ Further, a commenter suggested that requiring 
investment advisers to maintain an operational website at all times 
ensures that ``clients can access the advice and information they need 
whenever they want, which is essential in the digital era.'' \35\
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    \33\ See, e.g., Better Markets Comment Letter; Suarez Comment 
Letter.
    \34\ Better Markets Comment Letter.
    \35\ Suarez Comment Letter.
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    Two commenters did not support this element of the proposal. One 
asserted that the requirement that investment advisers have operational 
interactive websites would make it harder for smaller entities, because 
they tend to have fewer clients.\36\ We carefully considered the 
potential impact this change would have on smaller advisers. However, 
we are requiring an adviser to have a minimum of only two internet 
clients to qualify for the exemption, as proposed.\37\
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    \36\ Comment Letter of Robert Martin Comment Letter (Aug. 22, 
2023) (``Robert Martin Comment Letter).
    \37\ See infra section IV.D.2 (stating that a larger minimum 
number of clients may put advisers with a small clientele or 
advisers that are at the early stages of starting their advisory 
business at a disadvantage). See also infra section VI.B (stating 
that advisers with zero or one client are more akin to local 
businesses that can be effectively regulated by a State).
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    The other commenter stated that the Commission does not need to add 
the word ``operational'' to the term ``interactive website'' if the 
Commission eliminates the de minimis exception for non-internet clients 
and defines ``digital investment advisory service'' as proposed.\38\ 
This commenter explained that the defined term ``interactive website'' 
should be sufficient, because a website cannot be interactive if it is 
not already operational. As discussed above, EXAMS staff has observed 
advisers relying on the exemption without having an operational 
interactive

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website.\39\ Therefore, it is important to include the term 
``operational'' in the definition of ``operational interactive 
website,'' because this addition reinforces the rule's requirement that 
an adviser must, at all times during which the adviser relies on the 
Internet Adviser Exemption (i.e., at the time of the adviser's 
registration and at all times an adviser is registered in reliance on 
the amended Internet Adviser Exemption), have an operational 
interactive website through which it provides investment advice to more 
than one client.
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    \38\ NASAA Comment Letter.
    \39\ See supra notes 24, 27-28 and accompanying text. See also 
notes 25-26 and accompanying text.
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    Some commenters suggested modifications to the proposed definition 
of ``operational interactive website.'' \40\ In this regard, one 
commenter stated that the Commission should modify it by requiring an 
investment adviser to provide digital investment advisory services to 
at least 15 clients.\41\ This commenter expressed that, in its view, 15 
or more clients, rather than the proposed ``more than one,'' is a 
better indicator of an adviser's national presence. Although there 
could be various ways of demonstrating national presence, in the 
context of the Internet Adviser Exemption, the existence of an 
operational interactive website that can be accessed by persons located 
in multiple States better reflects that the adviser has a national 
presence. Requiring a larger minimum number of clients to qualify for 
the exemption, such as 15 clients, would be inconsistent with the 
general policy objective that underpins the Internet Adviser Exemption. 
It would burden advisers that do not fall neatly within the State and 
Federal regulatory framework established by Congress with the 
obligation of registering in several States before the adviser would be 
eligible for Commission registration.\42\
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    \40\ See, e.g., NASAA Comment Letter; Robert Martin Comment 
Letter.
    \41\ Better Markets Comment Letter.
    \42\ See infra section IV.D.2.
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    Another commenter urged the Commission to provide more clarity 
around the meaning of the phrase ``ongoing basis'' within the 
definition of ``operational interactive website.'' \43\ An Internet 
investment adviser generally is providing investment advice on an 
ongoing basis through its website to a client if the advice is within 
the scope of the adviser-client relationship.\44\ For example, an 
internet investment adviser and a client may come to an express 
agreement where the adviser-client relationship is of limited duration, 
such as for the provision of a one-time financial plan for a one-time 
fee. Following the termination of this adviser-client relationship by 
way of the expiration of the agreed duration of the agreement, the 
investment adviser generally would not be providing advice to the 
former client on an ``ongoing basis'' (absent some other arrangement or 
circumstance). Alternatively, an adviser providing comprehensive 
discretionary and continual advice to a retail client (e.g., monitoring 
and periodically adjusting a portfolio of equity and fixed income 
investments with limited restrictions on allocation) generally would be 
providing advice to a client on an ``ongoing basis.''
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    \43\ Comment Letter of Maksym Puzin (July 28, 2023) (``Maksym 
Puzin Comment Letter'').
    \44\ See Fiduciary Interpretation at section II.A. (describing 
the scope of the adviser-client relationship). Internet investment 
advisers, like all registered investment advisers, should consider 
the clarity of the descriptions of the investment advisory services 
they offer and use reasonable care to avoid creating a false 
implication or sense about the scope of those services which may 
materially mislead clients. For example, internet investment 
advisers should be careful to not imply that their operational 
interactive website will provide a comprehensive financial plan for 
a client if it will not do so.
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    Further, the Proposing Release requested comment on whether to 
include ``digital platform'' in the definition of operational 
interactive website.\45\ The one commenter addressing this request for 
comment specifically did not take a position, expressing, on the one 
hand, that more generic terminology could stand up better against 
rapidly advancing technology and remain evergreen and, on the other 
hand, that a ``whole new medium of investment advice'' would be 
significant enough to require refreshing rules.\46\ After further 
consideration, the Commission is adding ``similar digital platform'' to 
the definition of operational interactive website to recognize that 
different types of technologies may develop in the future but to also 
reinforce that qualifying technologies must be ones through which an 
adviser can provide digital advisory services consistent with the rule.
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    \45\ See Proposing Release at section II.A.1.
    \46\ NASAA Comment Letter.
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    We understand that unforeseen technological issues outside of the 
control of an adviser occur at times. We also understand that websites 
may be temporarily inoperable due to periodic maintenance to ensure 
that the website performs optimally. Accordingly, as proposed, we have 
incorporated into the definition of ``operational interactive website'' 
a hardship clause that allows an internet investment adviser to satisfy 
the rule despite temporary technological outages of the operational 
interactive website of a de minimis duration.\47\ The amended rule 
otherwise specifies that the requirement to provide an operational 
interactive website will apply at all times during which the adviser 
relies on the Internet Adviser Exemption (i.e., at the time of the 
adviser's registration and at all times an adviser is registered in 
reliance on the amended Internet Adviser Exemption).\48\ An adviser 
intending to rely on the Internet Adviser Exemption may, however, rely 
on current rule 203A-2(c) (``120-day rule'') as an initial basis for 
registration with the Commission. The 120-day rule allows an adviser 
that is not registered with the Commission but has a reasonable 
expectation that it will be eligible for registration within 120 days 
to register in anticipation of its separate eligibility.\49\ With 
advances in technology since the initial adoption of the rule more than 
20 years ago, advisers seeking to rely on the Internet Adviser 
Exemption may use the 120-day rule to develop, test, and launch an 
operational interactive website and obtain initial clients by the time 
the 120-day temporary registration expires. Accordingly, like the 
current rule, the amended rule has no grace period of its own for 
meeting its conditions, including providing an operational interactive 
website.\50\
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    \47\ internet investment advisers may seek exemptive relief from 
the Commission for technological outages of the operational 
interactive website that last longer than a de minimis duration. Any 
request for an exemptive order will be evaluated based on its 
particular facts and circumstances and must meet the standard under 
section 206A of the Advisers Act, including that the exemption is 
necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Advisers Act.
    \48\ In the case of an existing registered investment adviser 
seeking to change its registration to rely on the Internet Adviser 
Exemption, the adviser will be required to have an operational 
interactive website at the time in which it begins relying on the 
rule.
    \49\ An adviser relying on the 120-day rule must file an 
amendment to its Form ADV at the end of the 120 days indicating it 
has become eligible for registration or must withdraw its 
registration. See Form ADV Part 1A, Item 2.A.(9).
    \50\ In order to rely on the Internet Adviser Exemption, a 
person must first meet the definition of investment adviser under 
the Advisers Act. See section 202(a)(11) of the Advisers Act. Also, 
as discussed above, an adviser relying on the Internet Adviser 
Exemption must meet the conditions of the rule, which includes 
providing investment advice to all of its clients exclusively 
through an operational interactive website at all times. See supra 
notes 30 and 48 and accompanying text.
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    The definition of ``operational interactive website'' is designed 
to specify the rule's application to advisers' use of technology, 
including their use of mobile applications or similar digital 
platforms, in connection

[[Page 24698]]

with their eligibility to rely on the rule. We are adopting this aspect 
of the definition largely as proposed with the addition of ``similar 
digital platform'' to the definition.\51\ Thus, the definition will 
expressly permit an internet investment adviser to use mobile 
applications or similar digital platforms to provide investment advice 
to clients.\52\ It is appropriate to allow internet investment advisers 
using these platforms to interact with advisory clients to rely on the 
Internet Adviser Exemption, because clients increasingly access 
services, including investment advisory services, through these 
platforms,\53\ which can provide interactive functionality similar to 
the functionality of websites.\54\ By including mobile applications or 
similar digital platforms in the definition of ``operational 
interactive website,'' internet investment advisers will have broad 
flexibility to design the interactive website in a manner that best 
suits their needs and their clients' needs. In addition, the definition 
will allow for the evolution of advisers' use of technologies 
consistent with the Internet Adviser Exemption. We understand that 
these platforms use various methods of communication, including, but 
not limited to, push notifications, in-app messages, online client 
portal communications, and similar forms of electronic communication. 
The amended rule will permit an investment adviser relying on the 
Internet Adviser Exemption to provide digital investment advisory 
services through any form of mobile application technology or similar 
digital platform.
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    \51\ See supra note 31 and accompanying text.
    \52\ The term ``mobile application'' generally, refers to a 
software application developed primarily for use on wireless 
computing devices, such as smartphones and tablets. See, e.g., 
techopedia, Mobile Application (Mobile App) (Aug. 7, 2020), https://www.techopedia.com/definition/2953/mobile-application-mobile-app 
(``techopedia'').
    \53\ See Sarah Perez, Majority of Digital Media Consumption Now 
Takes Place in Mobile Apps, TechCrunch (Aug. 21, 2014) (``[M]obile 
apps [. . .] eat up more of our time than desktop usage or mobile 
web surfing, accounting for 52% of the time spent using digital 
media. Combined with mobile web, mobile usage as a whole accounts 
for 60% of time spent, while desktop-based digital media consumption 
makes up the remaining 40%.''). See generally, Hannah Glover, 
`Healthy Paranoia' Drives Innovation at Vanguard (June 17, 2016), 
https://www.ignites.com/c/1385943/158263?referrer_module=searchSubFromFF&highlight=%22mobile%20applications%22 (``Next on the horizon is mobile applications. When you 
travel [outside of the United States], you see how PC-centric 
technology does not exist anywhere else[.] In the future, [. . . 
[i]t's going to be all about the phone. Companies without easy-to-
use, yet powerful, apps will be left behind [. . . .]'') (internal 
quotations omitted).
    \54\ See, e.g., techopedia (``Mobile applications frequently 
serve to provide users with similar services to those accessed on 
PCs.''); Fundfire, What Are Major IT Trends in Wealth Mgmt? (Oct. 
15, 2012), https://www.fundfire.com/c/422571/47531?referrer_module=searchSubFromFF&highlight=%22mobile%20applications%22(``Dedicated mobile applications for smartphones and tablets 
can enable unified digital communication between advisors and their 
clients--a combination of email, chat, voice and video.'').
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B. Digital Investment Advisory Service

    We are adopting the definition of ``digital investment advisory 
service,'' as proposed. The amendments will define ``digital investment 
advisory service'' to mean 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 operational interactive website. The 
definition is designed to require that, as under the current rule, an 
adviser must provide investment advice exclusively through an 
interactive website.
    Most commenters generally supported the defined term ``digital 
investment advisory service.'' \55\ One commenter asserted that it was 
appropriate to define the exemption narrowly to apply to firms whose 
investment advice is technologically rendered.\56\ The same commenter 
requested that the Commission provide clarity, within the rule text 
itself, that personnel of the adviser cannot expand upon 
technologically generated advice but can answer other questions and 
help clients navigate the website or application.
---------------------------------------------------------------------------

    \55\ See, e.g., Better Markets Comment Letter; NASAA Comment 
Letter.
    \56\ NASAA Comment Letter.
---------------------------------------------------------------------------

    Advisers are increasingly using algorithms to generate investment 
advice in order to provide clients with cost-effective and tailored 
advice and the definition encompasses this use.\57\ The amendments will 
specify that, to qualify for the exemption, the investment advice to 
clients must be ``generated by'' the website's software-based models, 
algorithms, or applications.\58\ Like the current rule, this definition 
is designed so that an adviser's personnel do not generate, modify, or 
otherwise provide client-specific investment advice through the 
operational interactive website or otherwise.\59\ Human-directed 
client-specific investment advice, even if delivered through electronic 
means, would not be eligible activity under the Internet Adviser 
Exemption.
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    \57\ See, e.g., Investment Adviser Association, 2020 Evolution 
Revolution (2020), at 8 (noting that by 2020, ``two of the top five 
advisers as measured by number of non-high net worth individual 
clients served [were] digital advice platforms, representing 7.5 
million clients, an increase of 2.7 million clients from [the prior 
year].''); Akin Ajayi, The Rise of the Robo-Advisers (July 16, 2015) 
(``Robo-advisers--to use the suitably futuristic moniker adopted as 
a description for these services--are investment services driven by 
automated customer service and an investment strategy governed by 
computer algorithms. A clutch of start-ups, largely located in the 
United States but spreading to Europe and Asia, have emerged over 
the last few years.'').
    \58\ As a fiduciary, investment advisers have a duty to make 
full and fair disclosure of all material facts and conflicts of 
interest to, and to employ reasonable care to avoid misleading, 
clients. Given the unique aspects of internet investment advisers' 
business models and because client relationships may occur with 
limited, if any, human interaction, internet investment advisers 
generally should consider the most effective way to communicate to 
their clients the limitations, risks, and operational aspects of 
their advisory services. For example, internet investment advisers 
generally should effectively disclose to clients, among other 
matters, that an algorithm is used to manage individual client 
accounts with a description of the particular risks inherent in the 
use of an algorithm to manage client accounts. In addition, internet 
investment advisers generally should consider whether such 
disclosures are presented prior to client sign-up so that 
information necessary to make an informed investment decision is 
available to clients before they engage. Finally, an adviser should 
carefully consider whether its disclosure is sufficiently specific 
so that a client is able to understand the material facts or 
conflicts of interest and make an informed decision whether to 
provide consent. See Fiduciary Interpretation.
    \59\ See 2002 Adopting Release at section II.A.1 (stating that 
the exemption is for advisers that provide investment advice to all 
of their clients `exclusively' through their interactive websites 
and that these advisers may not use their advisory personnel to 
elaborate or expand upon the investment advice provided by its 
interactive website, except as permitted by the de minimis 
exception).
---------------------------------------------------------------------------

    The amendments will not prohibit advisory personnel from all 
interactions with advisory clients, however. Consistent with the 
current rule, advisory personnel generally can continue to assist 
clients with technical issues or collect feedback in connection with 
the use of the website (e.g., accessing the website), including by 
assisting clients with explanations of how the algorithm generating the 
investment advice was developed or operates. Advisory personnel 
generally should be able to perform those services telephonically, 
through email, live electronic chats, and similar forms of electronic 
communication. Continuing to provide this guidance, rather than 
changing the rule as suggested by a commenter,\60\ is appropriate in 
light of the breadth of services offered to investors through advisers' 
interactive websites and our administration of the current rule. This 
approach also is consistent with the Commission's approach in the 2002 
Proposing Release and the 2002 Adopting Release.\61\
---------------------------------------------------------------------------

    \60\ NASAA Comment Letter.
    \61\ See Exemption for Certain Investment Advisers Operating 
Through the Internet, Investment Advisers Act Release No.2028 (Apr. 
12, 2002) [67 FR 19500 (Apr. 19, 2002)] (``2002 Proposing 
Release''), at section II; 2002 Adopting Release at section II.A.1.

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[[Page 24699]]

C. Elimination of De Minimis Non-Internet Client Exception

    We are eliminating the de minimis exception that permits an 
Internet investment adviser to provide investment advice to fewer than 
15 non-internet clients during the preceding 12 months, as 
proposed.\62\ As a result, an Internet investment adviser must provide 
advice to all of its clients exclusively through an operational 
interactive website.
---------------------------------------------------------------------------

    \62\ See amended rule 203A-2(e)(1)(i).
---------------------------------------------------------------------------

    Most commenters broadly supported the elimination of the de minimis 
exception.\63\ One commenter stated that eliminating the de minimis 
exception for non-internet clients would remove the possibility that 
some advisers are servicing clients directly and personally, while 
ignoring their obligation to provide advice through an interactive 
website.\64\ One commenter, however, expressed concern that the 
elimination of the de minimis exception would constrain the growth 
potential, quality, and usefulness of internet-based services, because 
the rule would no longer permit human interaction to enhance the 
quality and reliability of fully automated, internet-based 
services.\65\
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    \63\ See, e.g., NASAA Comment Letter; Suarez Comment Letter; 
Better Markets Comment Letter.
    \64\ See NASAA Comment Letter.
    \65\ Comment Letter of Anonymous (Oct. 2, 2023) (``Anonymous 
Comment Letter'').
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    In considering whether to retain the de minimis exception, we took 
into account the basis for it as well as the Commission's experience 
administering the rule. The Internet Adviser Exemption was adopted for 
advisers that provide investment advice to their internet clients 
``exclusively'' through their interactive website, but it was adopted 
at a time when providing advice in this manner was still in a fairly 
nascent stage.\66\ Accordingly, the Commission initially adopted the de 
minimis exception so that internet investment advisers would not lose 
their ability to rely on the Internet Adviser Exemption as a result of 
providing advice to a small number of clients through means other than 
an interactive website. The Internet Adviser Exemption was not designed 
\67\ to permit human interaction more broadly, however.\68\ In 
addition, the de minimis exception is no longer needed in light of the 
widespread use of the internet, the relative ease of building and 
maintaining a website and applications, and other technological 
advances that better allow advisers to monitor to whom their advice is 
being provided. Accordingly, the elimination of the de minimis 
exception better reflects the allocation of regulatory responsibility 
between the Commission and the States. Eliminating the de minimis 
exception also will allow the Commission more effectively to identify 
advisers claiming reliance without meeting the requisite conditions of 
the rule (i.e., providing investment advice to all clients exclusively 
through an operational interactive website). To the extent advisers 
have non-internet clients, these advisers may register with the States 
or rely on another basis for registration with the Commission, as 
appropriate.
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    \66\ 2002 Adopting Release at section II.A.1.
    \67\ 2002 Adopting Release at section I. When the Commission 
initially adopted the fewer than 15 client de minimis exception, the 
Commission stated that it was similar to the (since repealed) 
``private adviser exemption'' which, subject to certain additional 
conditions, exempted from the requirement to register with the 
Commission any adviser that during the course of the preceding 12 
months, had fewer than 15 clients. That exemption was repealed by 
section 403 of Dodd-Frank. See Rules Implementing Amendments to the 
Investment Advisers Act of 1940, Investment Advisers Act Release No. 
3221 (June 22, 2011) [76 FR 42949 (July 19, 2011)]. See also 2002 
Proposing Release, at section II. In the 2002 Proposing Release, the 
Commission proposed permitting an adviser to rely on the exemption 
so long as at least 90% of the adviser's clients obtained their 
investment advice exclusively through the interactive website (``90% 
test''). In light of comments stating that the 90% test would permit 
more than a de minimis number of non-internet clients, the 
Commission replaced the 90% test with a provision permitting an 
adviser relying on the rule to have fewer than 15 non-internet 
clients during the course of the preceding 12 months.
    \68\ See supra section II.B (stating that advisory personnel can 
continue to assist clients with technical issues in connection with 
the use of the website, including by assisting clients with 
explanations of how the algorithm generating the investment advice 
was developed or operates). Accordingly, the elimination of the de 
minimis exception should not decrease quality and reliability of 
fully automated, internet-based services and, in turn, should not 
constrain the growth potential, quality, and usefulness of internet-
based services, as suggested by a commenter.
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D. Form ADV

    We are amending Form ADV, as proposed. The amendments to Form ADV 
will require an investment adviser relying on the exemption as a basis 
for registration to represent on Schedule D of its Form ADV that, among 
other things, it has an operational interactive website.\69\ As noted 
above, there has been an increase in the number of registration 
withdrawals and cancellations of Internet investment advisers.\70\ Many 
of these withdrawals and cancellations were a result of the adviser not 
having an operational interactive website.
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    \69\ Consistent with the definition of operational interactive 
website, the amendments will also require an adviser that is relying 
on the rule to represent that it will provide investment advice on 
an ongoing basis to more than one client exclusively through an 
operational interactive website.
    \70\ See supra notes 25-26 and accompanying text.
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    Most commenters broadly supported the amendments to Form ADV.\71\ 
One commenter, however, suggested that the Commission remove the 
proposed representation on Form ADV generally, because Form ADV Part 1A 
Item 2.A(11) already asks an investment adviser to indicate whether it 
is relying on the exemption, and an adviser that mistakenly or falsely 
selects ADV Part 1A Item 2.A(11) is already susceptible to an 
examination deficiency finding or an enforcement action.\72\ The same 
commenter stated that ``singling out one of the [e]xemption 
requirements could give the impression that it is somehow more 
important, which could unintentionally cause advisers to neglect the 
[e]xemption's other requirements.'' \73\ Another commenter expressed 
concern that Form ADV may become too lengthy as a result of the 
proposed amendments.\74\
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    \71\ See, e.g., Better Markets Comment Letter; Suarez Comment 
Letter.
    \72\ NASAA Comment Letter.
    \73\ Id.
    \74\ See Robert Martin Comment Letter.
---------------------------------------------------------------------------

    The amendments to Form ADV will help ensure that registrants are 
aware of the new ``operational interactive website'' requirement and 
avoid erroneous registrations. The amendments also will require 
Internet investment advisers, as an initial matter and periodically 
thereafter, to provide an additional representation on Form ADV that 
more clearly notes the requirements of the exemption. In addition, the 
existing form has not reduced the number of advisers erroneously 
relying on the exemption. While we appreciate commenters' concerns 
regarding the existing form and adding length to the form, it is 
important to aid registrants with understanding and reinforcing the 
conditions of the Internet Adviser Exemption.\75\ The amendments to 
Form ADV will also aid Commission staff in administering the adviser 
registration process.
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    \75\ In our experience, registrants generally seek to follow 
registration requirements. Therefore, we disagree that the proposed 
representation on Form ADV would cause advisers to neglect the 
rule's other requirements, as suggested by the commenter. See NASAA 
Comment Letter. In addition, the benefits of aiding registrants with 
understanding and reinforcing the conditions of the Internet Adviser 
Exemption justify any costs in this regard.

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[[Page 24700]]

E. Compliance Dates

    The compliance date for the amended rule is March 31, 2025. An 
adviser relying on the amended Internet Adviser Exemption must comply 
with the rule's conditions, including the condition to maintain the 
filing of a Form ADV that includes a representation that the adviser is 
eligible to register with the Commission under the Internet Adviser 
Exemption (the ``Form ADV representation''), by the rule's compliance 
date. The compliance date reflects the date for which most investment 
advisers will have filed their annual updating amendments to Form ADV 
(i.e., 90 days after the December 31, 2024 fiscal year end).\76\
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    \76\ Our staff is working closely with FINRA, our Investment 
Adviser Registration Depository (``IARD'') contractor, to re-program 
IARD and we understand that the system is expected to be able to 
accept filings of Form ADV reflecting the Form ADV representation by 
Sept. 30, 2024. Advisers not filing an annual updating amendment 
between Sept. 30, 2024, and Mar. 31, 2025, must file an other than 
annual amendment updating Form ADV by Mar. 31, 2025. See also infra 
notes 158-162.
---------------------------------------------------------------------------

    An adviser that is no longer eligible to rely on the amended 
Internet Adviser Exemption and does not otherwise have a basis for 
registration with the Commission, must register in one or more States 
and withdraw its registration with the Commission by filing a Form ADV-
W \77\ by June 29, 2025, 90 days after the rule's compliance date. 
After the end of this period, the Commission expects to cancel the 
registration of advisers no longer eligible to register with the 
Commission that fail to withdraw their registrations.\78\
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    \77\ 17 CFR 279.2.
    \78\ See section 203(h) of the Advisers Act. As provided in the 
Advisers Act, an adviser would be given appropriate notice and 
opportunity for hearing to show why its registration should not be 
cancelled. Section 211(c) of the Advisers Act.
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III. Other Matters

    Pursuant to the Congressional Review Act, the Office of Information 
and Regulatory Affairs has designated the final amendments as not a 
``major rule'' as defined by 5 U.S.C. 804(2). If any of the provisions 
of these rules, or the application thereof to any person or 
circumstance, is held to be invalid, such invalidity shall not affect 
other provisions or application of such provisions to other persons or 
circumstances that can be given effect without the invalid provision or 
application.

IV. Economic Analysis

A. Introduction

    We are mindful of the costs imposed by, and the benefits obtained 
from, our rules. Section 202(c) of the Advisers Act provides that when 
the Commission is engaging in rulemaking under the Act and is required 
to consider or determine whether an action is necessary or appropriate 
in the public interest, the Commission shall also consider whether the 
action will promote efficiency, competition, and capital formation, in 
addition to the protection of investors.\79\ The following analysis 
considers the likely significant economic effects that may result from 
the amended rule to rules and forms, including the benefits and costs 
to clients and investors and other market participants as well as the 
broader implications of the amended rule for efficiency, competition, 
and capital formation.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 80b-2(c).
---------------------------------------------------------------------------

    Where possible, the Commission quantifies the likely economic 
effects of its amended rules. However, the Commission is unable to 
quantify certain economic effects because it lacks the information 
necessary to provide estimates or ranges of costs. For instance, data 
that separately captures the number of non-internet clients or the 
types of internet clients an adviser has is generally unavailable.\80\ 
The Proposing Release requested any of such available data, but 
received no data or estimates from the commenters. Further, in some 
cases, quantification would require numerous assumptions to forecast 
how investment advisers and other affected parties would respond to the 
amended rule, and how those responses would in turn affect the broader 
markets in which they operate. In addition, many factors determining 
the economic effects of the amended rule would be investment adviser-
specific. Investment advisers vary in size and sophistication, as well 
as in the products and services they offer. Even if it were possible to 
calculate a range of potential quantitative estimates, that range would 
be so wide as to not be informative about the magnitude of the benefits 
or costs associated with the amended rule. Many parts of the discussion 
below are, therefore, qualitative in nature. As described more fully 
below, the Commission is providing a qualitative assessment and, where 
practicable, a quantified estimate of the economic effects.
---------------------------------------------------------------------------

    \80\ Information on number of clients, such as that described 
supra section I.B., is generally developed during adviser 
examinations.
---------------------------------------------------------------------------

B. Baseline and Affected Parties

    The final rule will amend the definitions used in the existing 
Internet Adviser Exemption, which allows internet investment advisers 
to register with the Commission. The application of this exemption, 
along with other applicable rules, determines which advisers the 
Commission regulates and which advisers may fall under State 
regulation. The entities potentially affected by the amended rule 
include all advisers that are currently relying on the Internet Adviser 
Exemption, or are contemplating relying on the Internet Adviser 
Exemption; their clients and affiliated parties; and users of Form ADV 
data.
1. Regulatory Baseline
    NSMIA divided regulatory responsibility for advisers between the 
Commission and the States, where larger advisers with national presence 
are regulated by the Commission and smaller advisers with sufficient 
local presence are regulated by the States.\81\ Subject to certain 
exemptions, only advisers that advise a registered investment company 
or have assets under management above $100 million are allowed to 
register with the Commission.\82\ All other advisers may be subject to 
State regulation and may be required to register with one or multiple 
States.\83\
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    \81\ See supra section II.
    \82\ Section 203A(a)(2)(A) and (B) of the Advisers Act provides 
that an adviser is required to register with the Commission if the 
adviser has $25 million or more in assets under management and is 
not subject to examination as an adviser by the State where it 
maintains its principal office and place of business.
    \83\ See supra note 16 and accompanying text.
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    However, section 222(d) of the Advisers Act [15 U.S.C. 80b-18a(d)] 
establishes a ``national de minimis standard'' before a State can 
require an adviser to register with its securities commissioner. Under 
section 222(d) of the Advisers Act, States are preempted from requiring 
an adviser to register with its securities commissioner, if the adviser 
(1) does not have a place of business located within the State and (2) 
has had fewer than six clients who are residents of that State during 
the preceding 12-month period. State law varies, and States may choose 
to exempt from State regulation certain advisers with a place of 
business in that State if the adviser has a sufficiently low number of 
clients.\84\ Depending on the

[[Page 24701]]

location of the adviser and the number and location of its clients, an 
adviser not eligible for Commission registration might need to register 
with no State, or with up to 14 States.\85\ States may also require 
advisers to file copies of their Commission filings with the State 
(notice filings) even if State registration is not required.\86\
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    \84\ See, e.g., N.Y. Gen. Bus. Law sec 359-eee(a)(5) (excluding 
from the definition of ``investment adviser'' a person that has sold 
investment advisory services to fewer than 6 persons in the State, 
in the preceding 12 months); N.J. Stat. Ann. sec 49:3-56.9(g)(1) 
(exempting from registration as an investment adviser a person that 
does not have more than 5 clients in the State, in a 12-month 
period); Ill. Admin. Code tit. 14 sec 130.805(b) (exempting from 
registration as an investment adviser any investment adviser that 
had no more than 5 clients in the State, in the preceding 12 
months); Ga. Comp. R. & Regs. R. 590-4-4-.13(1)(b) (exempting from 
registration an investment adviser that had fewer than 6 clients in 
the State, in the preceding 12 months).
    \85\ Advisers that would otherwise have to register with 15 or 
more states may register with the Commission using an existing 
exemption under 17 CFR 275.203A-2(d) (``multi-state exemption''). An 
investment adviser relying on the multi-state exemption would not be 
eligible for that exemption until the adviser had obtained the 
requisite number of clients in 15 states to trigger its registration 
obligations in those states. Under the rule, an investment adviser 
relying on this exemption must represent that it has reviewed its 
obligations under State and Federal law and has concluded that it is 
required to register as an investment adviser with the securities 
authorities of at least 15 states. For information on the number of 
State-registered investment advisers, see, e.g., NASAA, NASAA 2023 
Investment Adviser Section Annual Report, https://www.nasaa.org/wp-content/uploads/2023/09/2023-IA-Section-Report-FINAL.pdf.
    \86\ 15 U.S.C. 80b-3a note [Pub. L. 104-290, section 307, 
``Continued State Authority'']. See, e.g., Neb. Rev. St. sec. 8-
1103(2)(b); N.H. Rev. Stat. sec. 421-B:4-405; 7 TX Admin. Code sec 
116.1.(b)(2).
---------------------------------------------------------------------------

    Certain exemptions allow advisers to register with the Commission 
if State registration becomes unfair, a burden on interstate commerce, 
or otherwise inconsistent with the purposes of section 203A of the 
Act.\87\ The multistate exemption is one such exemption: it allows 
advisers that would otherwise have to register with 15 or more States 
to register with the Commission instead.\88\ The current Internet 
Adviser Exemption similarly allows Commission registration for advisers 
that conduct their business predominantly over the internet and by the 
nature of their business have national presence. That is, their clients 
may come from multiple States, but they may not advise a registered 
investment company or have sufficient assets under management to be 
able to register with the Commission. To alleviate the burden of 
potentially registering with numerous States for business conducted 
over the internet, the Commission created in 2002 the exemption found 
in rule 203A-2(e).\89\ Under current 17 CFR 275.203A-2(e)(1), 
Commission registration is allowed for an investment adviser that 
provides advice to all of its clients exclusively through an 
interactive website, except that the investment adviser may provide 
investment advice to fewer than 15 clients through other means during 
the preceding 12 months. Current rule 203A-2(e) also requires the 
internet investment adviser to maintain records demonstrating that it 
meets the conditions of rule 203A-2(e)(1)(i).\90\
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    \87\ 15 U.S.C. 80b-3a(c).
    \88\ See 17 CFR 275.203A-2(d). See also 2002 Adopting Release 
and supra note 85.
    \89\ See 2002 Adopting Release and the relevant discussion in 
section I.A of this release. The 2002 Adopting Release described the 
exemption as ``providing relief to certain investment advisers who, 
unlike State-registered advisers, have no local presence and whose 
advisory activities are not limited to one or a few states.'' At 
that time, the threshold for the multi-state exemption was 
registration in 30 states rather than 15.
    \90\ See 17 CFR 275.203A-2(e)(1)(ii) (``rule 203A-
2(e)(1)(ii)''); relevant discussion supra section II.
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2. Current Use of the Internet Adviser Exemption
    As of June 2023, there were 15,391 registered investment advisers 
with $114,430 billion regulatory assets under management. Of these, 261 
(1.70%) with a combined total of $1.09 billion in regulatory assets 
under management (0.001%) exclusively relied on the Internet Adviser 
Exemption. An additional 10 advisers were dually registered with the 
Commission under both the Internet Adviser Exemption and another basis 
for registration. The total number of advisers claiming use of the 
Internet Adviser Exemption was 271, of which 197 were investment 
advisers with less than $25 million in regulatory assets under 
management.\91\
---------------------------------------------------------------------------

    \91\ The data is based on the analysis of Form ADV data for the 
reporting period ending June 2023.
---------------------------------------------------------------------------

    As of June 2023, registered internet investment advisers had on 
average 5,347 clients, with a minimum of 0 clients, reported by 107 
advisers, and a maximum of 522,345 clients.\92\ The median number of 
clients for all advisers using the exemption was 5, indicating that the 
distribution is highly skewed. As of June 2023, 107 advisers (39% of 
271) reported advising 0 clients, 5 advisers (2% of 271) reported 
advising 1 client, and 38% of internet investment advisers (102 of 271) 
advised 2 to 100 clients. Only 17 advisers (6% of 271) reported 
advising more than 5,000 clients. Figure 1 demonstrates that 41% of 
internet advisers have fewer than 2 clients.
---------------------------------------------------------------------------

    \92\ The data is based on the analysis of Form ADV data for the 
reporting period ending June 2023.

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[[Page 24702]]

Figure 1: Number of Clients Reported by Internet Advisers
[GRAPHIC] [TIFF OMITTED] TR09AP24.002

    The largest categories of clients that internet investment advisers 
currently have are: non-high net worth individuals, pension plans, and 
high net worth individuals.\93\ The distribution of these client types 
among all internet advisers is as follows:
---------------------------------------------------------------------------

    \93\ The instructions of Form ADV specify that the category 
``individuals'' includes trusts, estates, and 401(k) plans and IRAs 
of individuals and their family members but does not include 
businesses organized as sole proprietorships. ``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.

Table 1--Largest Categories of Clients: Distribution Across All Internet
                                Advisers
------------------------------------------------------------------------
                                                                 Mean
                                                                clients
                       Type of client                             per
                                                                adviser
------------------------------------------------------------------------
Non-high net worth individuals..............................       4,955
Pension plans...............................................         256
High net worth individuals..................................           1
------------------------------------------------------------------------
Data source: Form ADV data for the reporting period ending June 2023.

    The low median, relative to the average, is an indication of skewed 
distribution within the population of internet advisers. If the dataset 
is reduced to only those 214 advisers with 100 or fewer clients, the 
distribution of clients in these categories is as follows:

Table 2--Largest Categories of Clients for Internet Advisers With 100 or
                              Fewer Clients
------------------------------------------------------------------------
                                                                 Mean
                                                                clients
                       Type of client                             per
                                                                adviser
------------------------------------------------------------------------
Non-high net worth individuals..............................         6.1
Pension plans...............................................         0.1
High net worth individuals..................................         0.8
------------------------------------------------------------------------
Data source: Form ADV data for the reporting period ending June 2023.

    The data indicate that the majority of clients using internet 
advisers are non-high net worth individuals.
    We do not have information on the States in which these clients are 
located. Advisers using the internet Adviser Exemption might also be 
eligible for the multistate exemption if they have clients in 15 or 
more States.\94\ But, we

[[Page 24703]]

would expect that relatively few advisers with the option to use either 
exemption would choose the Internet Adviser Exemption instead of the 
multi-state exemption, because the multi-state exemption is less 
restrictive: it does not limit advice provided through non-internet 
means, as the Internet Adviser Exemption does. This suggests that 
advisers using the Internet Adviser Exemption most likely do not have 
the option of using the multi-state exemption instead. The Proposing 
Release invited public comment on this topic but received no comments 
on the matter.
---------------------------------------------------------------------------

    \94\ The multistate exemption became more widely available after 
the creation of the current Internet Adviser Exemption, because of 
the change from a minimum of 30 states to a minimum of 15. Thus, the 
burden of registering in numerous states has lessened, compared to 
what it had been when the current exemption was developed.
---------------------------------------------------------------------------

    Similarly, we cannot estimate how many advisers currently using the 
Internet Adviser Exemption would potentially be subject to regulation 
by multiple States if they did not elect to use the exemption. State 
law varies, and regulation would depend on the location of the 
adviser's place of business and the location of their clients.\95\ In 
light of the substantial number of internet investment advisers with 
only a few clients, however, it is likely that many of the advisers 
currently relying on the exemption would, if not registered using the 
exemption, be subject to registration in at most one State.\96\ 
Additionally, advisers now may be able to use technology and targeted 
advertisement in such a way as to better control in which States they 
may be required to register, thereby reducing the State regulation 
burden.\97\
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    \95\ For example, the Uniform Securities Act would, if adopted 
by the relevant State, require an investment adviser to register 
with the State unless the adviser has no place of business in the 
State and no more than five clients in the State other than certain 
types of clients described in the Uniform Securities Act. Unif. Sec. 
Act of 2002 (rev. 2005), sec. 403(b). As of Feb. 2024, 21 states and 
territories had adopted the 2002 version of the Uniform Securities 
Act and 5 states had adopted an earlier version. 2002 Securities Act 
Enactment History, Unif. Law Comm'n, https://www.uniformlaws.org/committees/community-home?CommunityKey=8c3c2581-0fea-4e91-8a50-27eee58da1cf, last visited Feb. 21, 2024.
    \96\ 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. 2002 Adopting Release at 77622. However, 
the significant number of currently registered internet investment 
advisers with one or fewer clients would not face that risk. 
Additionally, as noted in the Proposing Release at note 69, today's 
investment advisers are better able to control in which states they 
may be required to register.
    \97\ See Proposing Release at II.A.2.
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    In the instances where State law does not require the adviser to 
register with a State, for example because the adviser has fewer than 
the de minimis number of clients in the State, registration with the 
Commission represents an additional compliance burden that some 
internet investment advisers appear to be voluntarily assuming. 
Moreover, where State law would require a Commission-registered adviser 
to make notice filings with one or more States, the combination of 
Commission registration and State notice filings may also represent an 
additional, voluntarily assumed compliance burden as compared to 
registering directly with those States.\98\ Because some advisers 
choose to register with the Commission despite the potential additional 
compliance burden, we assume that some advisers perceive value in 
Commission registration as compared to State registration. We received 
no comments about this assumption.
---------------------------------------------------------------------------

    \98\ The cost of notice filing is often the same as the cost of 
registering with the State. See Investment Adviser Registration 
Depository, IA Firm State Registration/Notice Filing Fee Schedule 
(Jan. 1, 2024), https://www.iard.com, under the tab ``Fees & 
Accounting.'' We invited public comment on the cost of State 
registration and notice filing fees, but did not receive comment on 
this topic.
---------------------------------------------------------------------------

    Based on observations of Commission staff conducting examinations, 
we think some investors may believe that registration with the 
Commission confers a reputational advantage or appeals to potential 
clients. Other possibilities include the intent to obtain clients in 
multiple States in the future, or avoidance of individual State 
registration requirements such as bond and invoicing requirements. We 
did not receive comment letters regarding the matters discussed above.
3. Increased Reliance on the Internet Adviser Exemption
    Use of the Internet Adviser Exemption has increased since its 
adoption, especially in recent years.\99\ The number of investment 
advisers using the exemption as of June 2023 (that is, 271 advisers) 
was almost 18 times larger than it was in December 2003, one year after 
the exemption was put in place, when there were 15 such advisers.\100\ 
The value of regulatory assets under management for advisers 
exclusively relying on the Internet Adviser Exemption as of June 2023 
was $1.09 billion,\101\ or 0.001% of total adviser registered assets 
under management. The average regulatory assets under management per 
adviser for internet investment advisers (about $56.09 million) was 144 
times larger than it was in December 2003 when advisers using the 
exemption had on average about $0.39 million of registered assets under 
management per adviser. Further, from 2003 to 2023, 474 unique 
registered investment advisers that had indicated in their prior ADV 
filing they were utilizing the internet adviser registration basis 
withdrew and filed a total of 514 Forms ADV-W.\102\ Note that the 
number of withdrawals has increased, for example, there were 69 Form 
ADV-W filings by internet investment advisers between 2003 and 2012 and 
445 ADV-W filings between 2013 and June 2023.\103\ This increase could 
suggest erroneous registration, as discussed later in this analysis.
---------------------------------------------------------------------------

    \99\ See supra note 22 (number of advisers relying exclusively 
on the exemption grew from 107 in 2015 to 261 in 2023).
    \100\ The 2002 Adopting Release used a figure of 20 eligible 
advisers in its analysis, acknowledging that the number of eligible 
firms would likely grow. 2002 Adopting Release at 77623.
    \101\ Accounting for inflation using the Bureau of Labor 
Statistics' Consumer Price Index inflation calculator (https://www.bls.gov/data/inflation_calculator.htm), this number is 0.68 
billion in Dec. 2003 dollars.
    \102\ The filing of 475 Forms ADV-W includes singular investment 
advisers that utilized the internet Adviser Exemption on a non-
continuous basis (e.g., investment advisers that registered, 
withdrew, registered again, and subsequently withdrew).
    \103\ Based on analysis of Form ADV data for the reporting 
period ending June 2023.
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    Technology use in the advisory industry has also changed. One 
commenter wrote that since the Commission adopted the Internet Adviser 
Exemption in 2002, there has been an increased use of technology by 
internet advisers to provide investment advice including through 
interactive websites, mobile applications, investor portals, text 
messages, chatbots, and robo-advisers.\104\ While the 2002 Adopting 
Release stated that internet investment advisers might not be fully 
operational within 120 days of registration,\105\ today websites and 
associated services are more common, more website development services 
are available on the market, and new technologies, such as mobile 
applications that can generate advice, have emerged as well.\106\ 
Currently, different options are available on the market to develop a 
website, from using website builder programs for an average upfront 
cost of about $200 and maintenance cost of about $50 per month, to 
hiring a website designer for an average upfront cost of about $6,000

[[Page 24704]]

and maintenance cost of about $1,000 per year.\107\
---------------------------------------------------------------------------

    \104\ See Better Markets Comment Letter.
    \105\ 2002 Adopting Release at 77622.
    \106\ See supra note 20 and surrounding text. See also Alex 
Padalka, RIAs Depend on Tech for Client Communications, Growth, Fin. 
Advisor IQ (Dec. 10, 2021), https://www.financialadvisoriq.com/c/3402044/435734/rias_depend_tech_client_communications_growth?preview=1.
    \107\ These estimates are available from Lucy Carney, How Much 
Does a Website Cost in 2024? (Full Breakdown), WebsiteBuilderExpert 
(updated Sept. 20, 2023), https://www.websitebuilderexpert.com/building-websites/how-much-should-a-website-cost/. None of the 
commenters expressed an opinion or provided an estimate on the costs 
of developing a website.
---------------------------------------------------------------------------

    As discussed in section I.B., the Commission adopted rule 203A-2(e) 
to alleviate, for a narrow set of advisers with national presence, the 
burden of having to register in multiple States as a result of 
providing advice primarily through the internet. The increase in its 
use, especially among advisers that would not be subject to 
registration in more than one State, or that appear to have advised no 
clients in several years, suggests the exemption may currently be used 
in ways that were not intended by the 2002 rule.
    In addition, the Commission's examination program has identified 
multiple instances of compliance issues relating to advisers relying on 
the exemption without an interactive website, or providing advisory 
personnel who could expand upon the investment advice provided by the 
adviser's interactive website or otherwise provide investment advice to 
clients, such as financial planning.\108\ Consistent with these 
observations, one commenter noted that some investment advisers were 
attempting to rely on the Internet Adviser Exemption to register with 
the Commission without having a national presence.\109\ The frequency 
of registration withdrawals has increased as well: as discussed 
previously in the baseline, the number of withdrawals by internet 
investment advisers between 2013 and 2023 (445) was over five times 
larger than the number of withdrawals between 2003 and 2012 (69).\110\
---------------------------------------------------------------------------

    \108\ See Risk Alert. See also supra note 25 and surrounding 
text.
    \109\ See Better Markets Comment Letter.
    \110\ Based on analysis of Form ADV data for the reporting 
period ending June 2023.
---------------------------------------------------------------------------

C. Benefits, Costs and Effects on Efficiency, Competition, and Capital 
Formation

1. Benefits
    The amendments to the Internet Adviser Exemption are designed to 
modernize the exemption and address technological and other industry 
developments that have occurred since 2002, and to respond to 
observations about the use of the exemption that were not available 
when the exemption was first put in place.\111\ Further, as discussed 
in more detail below, the final changes to the definitions in the rule 
are designed to better align regulatory authority between the 
Commission and the States and improve investor protection. The amended 
rule will:
---------------------------------------------------------------------------

    \111\ See supra section I.B for a relevant discussion.
---------------------------------------------------------------------------

    1. Specify that the exemption is available to an investment adviser 
that provides investment advice to all of its clients exclusively 
through an operational interactive website at all times during which 
the investment adviser relies on the exemption found in section 
275.203A-2(e).
    2. Modernize the meaning of ``interactive website'' by:
     Adding the word ``operational,'' thus changing the term to 
``operational interactive website;''
     Adding the term ``digital investment advisory service,'' 
defined to mean investment advice to clients that is generated by the 
website's algorithms as well as the software-based models and 
applications covered by the existing rule;
     Adding a reference to mobile applications or similar 
digital platforms;
     Requiring more than one client to which the adviser 
provides digital investment advisory services on an ongoing basis; and
     Adding an exception to the operational interactive website 
requirement for ``temporary technological outages of a de minimis 
duration.''
    3. Eliminate the de minimis exception allowing fewer than 15 non-
internet clients;
    4. Require advisers to make a representation of eligibility on 
Schedule D of Form ADV (in addition to checking the appropriate box in 
Item 2.A.(11) of Form ADV).
    These changes are intended to modernize the Internet Adviser 
Exemption, retain its intended narrow scope, and minimize opportunities 
for advisers to misuse the exemption to register with the Commission 
without meeting its conditions. Most commenters generally expressed 
broad support for the proposed rule amendments. For example, one 
commenter mentioned that the amendments would reflect a better 
allocation of regulatory responsibility between State regulators and 
the Commission by allowing the Commission to focus on regulating 
internet investment advisers that have a national presence. The 
commenter noted further that these amendments would help accomplish the 
original purpose of the exemption.\112\
---------------------------------------------------------------------------

    \112\ See Better Markets Comment Letter.
---------------------------------------------------------------------------

    Amending the definition of ``interactive website'' to include the 
new defined term ``digital investment advisory service'' captures the 
increasing variety of technological methods by which internet 
investment advisers provide advice using the internet. Also, the 
addition of the terms ``mobile application, or similar digital 
platform'' and ``algorithms'' will better align with technological 
advances in the industry. Advisers increasingly make use of various 
mobile applications to interact with the clients and use algorithms to 
generate investment advice.\113\ The improved definition thus allows 
internet investment advisers that rely on mobile applications, or 
similar digital platforms, to generate advice to use the Internet 
Adviser Exemption, potentially reducing their burdens associated with 
multiple States' registrations and regulations. Further, internet 
investment adviser clients will benefit from being able to rely on 
mobile applications, or similar digital platforms, and algorithms, 
which offer a convenient means of interaction between the adviser and 
its clients. Additionally, including an exception for temporary 
technological outages of a de minimis duration should help accommodate 
occasional technological issues with the digital platform so the 
internet investment adviser is not required to frequently withdraw and 
re-register due to minor or temporary technical difficulties or planned 
maintenance.
---------------------------------------------------------------------------

    \113\ See supra section II.B.
---------------------------------------------------------------------------

    To the extent advisers may be registering with the Commission in 
order to market themselves to potential clients, the amended rule 
should help avoid misleading clients. For instance, advisers without an 
``operational'' website will be excluded from the pool of advisers 
eligible for the Internet Adviser Exemption. This will avoid clients 
contracting with an adviser that is relying on the Internet Adviser 
Exemption for registration whose website cannot be used to provide 
investment advice. To the extent any investors may be led to believe 
that an adviser relying on the Internet Adviser Exemption for 
registration has national presence and conducts its business via the 
internet, when this is not in fact the case, the amended rule could 
help avoid the possibility of investors using a type of adviser they 
did not intend to use.
    The amendments remove the de minimis exception for non-internet 
clients, preventing advisers with any non-internet clients from relying 
on the Internet Adviser Exemption. Removing the exception better serves 
the narrow-intended scope of the Internet Adviser Exemption.\114\ As 
explained in section

[[Page 24705]]

II.C., this amendment will assist Commission staff in identifying 
advisers claiming reliance on the exemption without meeting the 
requisite conditions. Additionally, the de minimis exception is no 
longer needed in light of the widespread use of the internet, the 
relative ease of building and maintaining a website and applications, 
and other technological advances that better allow advisers to monitor 
to whom their advice is being provided. Accordingly, the elimination of 
the de minimis exception better reflects the allocation of regulatory 
responsibility between the Commission and the States.
---------------------------------------------------------------------------

    \114\ See supra section II.C.
---------------------------------------------------------------------------

    Additionally, the amended rule requiring advisers to represent 
their Internet Adviser Exemption eligibility on Schedule D of Form ADV 
should reduce the number of erroneous registrations and subsequent 
withdrawals. Instead of only checking a box on Form ADV indicating they 
``are an internet adviser relying on rule 203A-2e,'' advisers will see 
a separate text description, on Form ADV, of the actions the adviser 
must have taken to become or remain eligible for the Internet Adviser 
Exemption.\115\ The separate text description will clearly state for 
registrants the requirements that they must meet in order to qualify, 
and which they are certifying that they have met when they file Form 
ADV.\116\ We also anticipate that by avoiding erroneous registration, 
ineligible registrants will avoid expending time and effort on dealing 
with withdrawals, and corresponding legal fees.
---------------------------------------------------------------------------

    \115\ Schedule D of Part 1A of Form ADV currently is submitted 
in a structured (i.e., machine-readable), XML-based data language 
specific to that Form, so the additional information that would be 
required on Schedule D under the proposed rule amendments would also 
be structured.
    \116\ This amendment would also assist Commission staff in 
connection with its review of existing registrations and 
registration applications for compliance with the rule and, as 
applicable, for possible deregistration for inability to meet the 
conditions of the rule.
---------------------------------------------------------------------------

    The amendments to Form ADV will help ensure that registrants are 
aware of the new ``operational interactive website'' requirement and 
avoid erroneous registration.\117\ In addition, the amendments will 
require internet investment advisers, as an initial matter and 
periodically thereafter, to provide an additional affirmative 
representation on Form ADV that more clearly notes the requirements of 
the exemption. As discussed in section II.D, the existing form, has not 
reduced the incidence of advisers erroneously relying on the exemption. 
The amendments to Form ADV will also aid Commission staff in 
administering the adviser registration process.\118\
---------------------------------------------------------------------------

    \117\ See supra section II.D.
    \118\ See supra section II.D.
---------------------------------------------------------------------------

    Prior to the amendments, the Internet Adviser Exemption did not 
require an adviser to have a minimum number of clients.\119\ Requiring 
that digital investment advisory services be provided on an ongoing 
basis to more than one client will better align with the original goal 
of the exemption, which was to provide relief from multiple State 
registration requirements for advisers with a national presence via the 
internet.\120\
---------------------------------------------------------------------------

    \119\ The rule required an adviser relying on the exemption to 
provide investment advice to all of its clients exclusively through 
an interactive website, except that the investment adviser may 
provide investment advice to fewer than 15 clients through other 
means during the preceding 12 months.
    \120\ See supra section II.
---------------------------------------------------------------------------

2. Costs
    The amended rule may adversely affect some advisers. The adopted 
amendments would specifically require that the website be 
``operational,'' and advisers may incur a cost of updating their 
website to become operational or withdrawing their Commission 
registration if their website is not operational. One commenter 
expressed concern that such a requirement may adversely affect small 
advisers with only a few clients.\121\ Advisers relying on the Internet 
Adviser Exemption, large or small, however, should already have an 
interactive website and the Commission does not currently recognize a 
grace period to develop a website, beyond the separate, rule 203A-2(c) 
exemption for an investment adviser expecting to be eligible for 
Commission registration within 120 days, so the amended rule is not 
expected to require new website development costs for advisers of any 
size.\122\ Therefore, this amendment would not produce significant 
incremental costs for small investment advisers.\123\
---------------------------------------------------------------------------

    \121\ See Robert Martin Comment Letter.
    \122\ See supra note 48 and accompanying text.
    \123\ See also infra section VI.
---------------------------------------------------------------------------

    Advisers that choose to withdraw their Commission registration must 
file Form ADV-W. The current burden estimate to file Form ADV-W is 0.75 
hour per respondent,\124\ implying a cost of withdrawal of $319 per 
adviser.\125\ The costs to file this form may vary between advisers and 
may be larger than this estimate for some. In addition, depending on 
their location and the scope and nature of their activities (if any), 
advisers that withdraw from Commission registration might need to 
register with one or more States. While these advisers would no longer 
be required to bear the costs associated with compliance with 
Commission rules, they would bear the cost associated with preparing 
State registration filings, paying State registration fees,\126\ and 
complying with the registration requirements of the States with which 
they register. Also, to the extent some clients value Commission 
registration and select advisers based on their Commission registration 
status, advisers could lose clients as a result of withdrawal; however, 
we do not have information that would allow us to predict the size or 
magnitude of this effect.\127\ The Commission received no comments or 
estimates pertaining to these costs.
---------------------------------------------------------------------------

    \124\ See, e.g., Submission for OMB Review; Comment request; 
Extension: Rule 203-2 and Form ADV-W, 88 FR 37913 (June 9, 2023) 
(describing the burden associated with the previously approved 
collection of information under OMB Control No. 3235-0313).
    \125\ 0.75 hour * $425 = $319. The maximum total cost of 
withdrawals assuming all 261 currently registered internet 
investment advisers relying exclusively on the Internet Adviser 
Exemption have to withdraw is 0.75 hour * $425 * 261 = $83,194. 
Assuming only 107 currently registered internet investment advisers 
with zero clients and 5 advisers with one client will have to 
withdraw, the total estimated cost is 0.75 hour * $425 *112 = 
$35,700. The $425 compensation rate used is the rate for a Sr. 
Operations Manager in the SIFMA Report on Management & Professional 
Earnings in the Securities Industry--2013 (Oct. 7, 2013), adjusted 
for inflation using the Bureau of Labor Statistics' Consumer Price 
Index inflation calculator, modified to account for a 1,800-hour 
work-year, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead.
    \126\ State registration fees are typically the same as State 
notice filing fees, so to the extent the adviser is already paying 
notice filing fees in the states where it would need to register, 
the difference in filing fees should be de minimis. See supra note 
98.
    \127\ See Proposing Release at note 65 and surrounding text 
(discussion of dual basis registration).
---------------------------------------------------------------------------

    Internet investment advisers that rely exclusively on the Internet 
Adviser Exemption and have non-internet clients, as is currently 
allowed, would be affected by the rule amendments because they could no 
longer rely on the exemption as a basis for registering with the 
Commission. Advisers that offer human-directed advice provided by 
electronic means would not be eligible for the exemption. These 
advisers may be required to register with one or more States if their 
total number of clients in any given State exceeds five and the State 
requires registration.\128\
---------------------------------------------------------------------------

    \128\ See section 222(d) of the Advisers Act. We are unable to 
quantify the costs of registering with the States, beyond State 
registration fees, because the registration requirements and forms, 
and the corresponding time spent by firms, vary by each State and 
there is no available data to make such estimates. The average of 
State registration fees is $224. See supra note 98.
---------------------------------------------------------------------------

    One commenter expressed a concern that disallowing human generated

[[Page 24706]]

advice could adversely affect adviser-client interactions due to a loss 
of valuable client feedback on, for example, new services or 
software.\129\ The Internet Adviser Exemption was adopted for advisers 
that provide investment advice to their internet clients 
``exclusively'' through their interactive website.\130\ The current de 
minimis exception was adopted when providing advice through the 
internet was still in a fairly nascent stage and the exception could 
prevent internet investment advisers from losing their ability to rely 
on the exemption while providing advice to a small number of clients 
other than using the internet.\131\ As discussed in section II.C., the 
Internet Adviser Exemption was not designed to permit human interaction 
more broadly.\132\ However, the rule amendment does not prohibit human 
interactions with clients unrelated to the provision of investment 
advice, such as human interactions to resolve technical issues or 
collect feedback related to with new services, software, computer 
models, or help clients navigate the website or application. The 
elimination of the de minimis exception is to respond to the widespread 
use of internet, relative ease of building and maintaining a website 
and applications and other technological advances. Thus, it will better 
reflect the allocation of regulatory responsibility between the 
Commission and the States.\133\ It will also help the Commission better 
identify advisers claiming reliance on the exemption without meeting 
the requirement that investment advice is provided to all clients 
exclusively through an operational interactive website.
---------------------------------------------------------------------------

    \129\ See Anonymous Comment Letter.
    \130\ See 2002 Adopting Release at section II.A.1. See also 
supra note 16 and accompanying text.
    \131\ See supra note 66 and accompanying text.
    \132\ See supra notes 66-67.
    \133\ See supra section I.B. (discussing the allocation of 
regulatory responsibility under NSMIA).
---------------------------------------------------------------------------

    The amended rule is designed to focus on advisers that provide 
advice exclusively through the internet. Advisers currently relying on 
the Internet Adviser Exemption may need to change the way they 
communicate with or deliver services to their clients or rely on a 
different basis for Commission registration, if available. For example, 
internet investment advisers that have been providing advice via means 
other than an interactive website or with some human input might have 
to change their communication with clients in order to continue to rely 
on the exemption. In some cases, such advisers may either have to 
withdraw their registration or lose clients that request and/or require 
human-directed client-specific investment advice. Depending on the 
clients' needs, they may have to switch to a different adviser. As 
discussed in section IV.B, internet investment advisers typically 
advise non-high net worth individual clients. In addition to the cost 
associated with finding a new adviser, switching to a different adviser 
may represent a cost increase for such clients if the new adviser has 
higher fees. If in some cases the new adviser has lower fees, the 
clients may still face some switching costs, which could be higher than 
the savings from the lower fees.
    The additional representation of eligibility on Schedule D of Form 
ADV may increase the time and effort advisers expend when filing Form 
ADV. One commenter, for example, expressed concern that Form ADV may 
become too lengthy as a result.\134\ Nevertheless, such costs are 
expected to be minimal.\135\ In addition, some of the costs associated 
with advisers having to register with multiple States are alleviated by 
the fact that the State registration burdens assessed when the 
exemption was originally implemented have declined since 2002, as now 
the advisers may be able to rely on other available exemptions or more 
easily meet registration thresholds in order to register with the 
Commission. For example, as discussed in the baseline, the multi-state 
exemption threshold was decreased from 30 to 15, making it easier for 
advisers to qualify for this exemption. Further, as discussed in the 
baseline, advisers relying on the Internet Adviser Exemption now tend 
to have more registered assets under management on average per adviser 
and some may be able to reach the minimum threshold on the registered 
assets under management sooner in order to qualify for the Commission 
registration. Specifically, the average regulatory assets under 
management per adviser for internet investment advisers (about $56.09 
million) was 144 times larger than it was in December 2003 when 
advisers using the exemption had on average about $0.39 million of 
registered assets under management per adviser.
---------------------------------------------------------------------------

    \134\ See Robert Martin Comment Letter. See also supra note 74 
and accompanying text for a discussion of this commenter's concern.
    \135\ See supra section IV.C.
---------------------------------------------------------------------------

    The adopted change would render ineligible for the exemption all 
the currently registered internet investment advisers with one or zero 
clients. This would reduce the current population of exemption-eligible 
advisers by approximately 40%, unless those advisers obtained 
additional clients.\136\ While reducing the number of advisers relying 
on the exemption is not a goal of the rule, a reduction would reflect 
the narrow scope of the Commission's exemptive rule.\137\
---------------------------------------------------------------------------

    \136\ See previous discussion in baseline on the number of 
internet investment advisers with zero (107) and one (5) client out 
of 271 total internet investment advisers.
    \137\ 2002 Adopting Release at 77621; 15 U.S.C. 80b-3a(c) 
(allowing exemptions from the limits on Commission registration when 
those limits ``would be unfair, a burden on interstate commerce, or 
otherwise inconsistent with the purposes of this section'').
---------------------------------------------------------------------------

3. Effects on Efficiency, Competition, and Capital Formation
    We do not anticipate any significant effects on efficiency, 
competition, and capital formation, as the amended rule represents a 
minor change of the exemption parameters and is not intended to 
conceptually change the exemption or the original intended division of 
the regulatory authority over investment advisers between the 
Commission and the States. As discussed in the baseline, the number of 
advisers potentially affected by the amendments is small and does not 
represent a significant portion of the population of investment 
advisers or their clients.
    The amendments may have a positive effect on competition and 
capital formation as they are designed to modernize the rule to 
recognize advances in technology and digital services employed by the 
investment advisory industry. Specifying that internet investment 
advisers may use technology, such as mobile applications, or a similar 
digital platform, that can better fit their clients' needs should 
improve client-adviser interactions, and the quality of the services 
provided, and could encourage client participation. Increased client 
participation, in turn, may also encourage new entrants in the internet 
adviser space. The potential increase in client participation, and any 
associated increase in new entrants that provide internet adviser 
services, could lead to more investment in the capital markets, 
although this effect may not be significant given the small number and 
market share of internet advisers.
    Conversely, there could be opposing, negative effects on 
competition and capital formation, because certain rule amendments, 
such as the removal of the current de minimis exception, could 
adversely affect adviser-client interactions by preventing internet 
investment advisers from relying on the Internet Adviser Exemption when 
providing, to any client, advice beyond digital investment advisory 
services. In

[[Page 24707]]

some cases, advisers may need to choose between retaining their 
Commission registration (if they rely solely on the Internet Adviser 
Exemption) or continuing to provide human-directed advice as is allowed 
under the current wording of the exemption. This may lead to advisers 
losing some clients who value both Commission registration and human-
directed advice and thus affect competition in the investment adviser 
market.

D. Reasonable Alternatives

1. Allowing Non-Internet Clients
    As an alternative to removing the de minimis provision that allowed 
internet investment advisers to have 15 or fewer non-internet clients, 
the Commission considered reducing that number, for example, by setting 
a defined maximum of non-internet clients, such as five. Reducing the 
maximum to five could strengthen the link between the Internet Adviser 
Exemption and the internet advisory business, while retaining an 
adviser's flexibility to accommodate a small number of customers who 
seek advice beyond mere website output allowed under the final 
amendment to the exemption.
    However, as discussed in section II.C, if an internet investment 
adviser is advising non-internet clients, it should not be exempted 
from the registration rules that otherwise apply to all investment 
advisers and should more properly be regulated by a State (or States) 
or the Commission (using a different basis for registration), as 
applicable. This alternative may require advisers to keep additional 
records tracing instances in which clients received advice beyond the 
model generated output. Such cases may be hard to identify because, as 
discussed earlier in the Economic Analysis, it may not always be clear 
when some human input was involved and to what extent. This alternative 
may thus result in a greater number of erroneous registrations and 
subsequent withdrawals as compared to the current rule.
    The Commission also considered variations, such as defining a 
maximum number of non-internet clients as a percentage of the adviser's 
total number of clients. Under this variation, however, the maximum 
number of non-internet clients could be quite large for advisers with 
many clients, implying sufficient local presence to register with one 
or more States, while remaining quite small for investors with few 
clients and still limiting their interactions with clients. This may 
not be fair, efficient or reflect the originally intended allocation of 
adviser regulation responsibilities between the Commission and the 
States: for example, advisers with a large number of non-internet 
clients in a given State are more likely to have a local presence in 
the State as opposed to a national presence.
2. Alternative Definitions of ``Interactive Website''
    The Commission also considered adding a different minimum number of 
clients to the definition of ``operational interactive website.'' One 
commenter suggested 15 clients.\138\ This commenter expressed that, in 
its view, 15 or more clients, rather than the proposed ``more than 
one,'' is a better indicator of an adviser's national presence.\139\ 
Although there could be various ways of demonstrating national 
presence, in the context of the Internet Adviser Exemption, the 
existence of an operational interactive website that can be accessed by 
clients located in multiple States demonstrates a national presence, 
whereas the requirement to have a certain minimum number of clients is 
designed to ensure that the adviser meets the definition of investment 
adviser and has a basis for registration.
---------------------------------------------------------------------------

    \138\ Better Markets Comment Letter.
    \139\ Id.
---------------------------------------------------------------------------

    A larger number of clients would indeed help limit Commission 
registration to those advisers with a national presence. Requiring a 
larger minimum number of clients to qualify for the exemption would 
exclude advisers that are not otherwise eligible for Commission 
registration, but that obtain one or a few clients with the sole 
purpose of relying on the exemption. This would work against the 
originally intended division of regulatory authority between the 
Commission and the States. A larger minimum number of clients may, 
however, put advisers with a small clientele or advisers which are at 
the early stages of starting their advisory business at a disadvantage.
    Further, the definition of ``interactive website'' could use a term 
other than ``operational,'' such as ``functioning'' or ``working,'' to 
highlight the requirement that the website can be used by the clients 
or prospective clients to interact with adviser or obtain advising 
services. These alternative terms could simplify the rule text. 
However, such terms may be less technical and more prone to potentially 
inconsistent interpretations across advisers. As discussed in the 
Benefits section, adding the term ``operational'' helps prevent 
advisers from relying on the Internet Adviser Exemption if their 
website cannot be used to provide investment advice.
    Further, the definition of ``interactive website'' could use a more 
specific definition of the types of client interactions allowed, as 
suggested by one commenter.\140\ For example, the definition of the 
term could specify that while expanding on model-generated advice is 
not allowed, other human interactions are permissible. This alternative 
would help avoid situations when rule text risks giving advisers the 
impression that they cannot communicate directly with their clients 
without violating the Exemption's requirements. Such a misunderstanding 
could lead advisers to not respond to their clients.\141\ However, 
adding such language may result in non-internet advisers attempting to 
rely on the Internet Adviser Exemption by manipulating these 
definitions, for instance, by attempting to redefine certain human 
interactions as those permissible by the rule.
---------------------------------------------------------------------------

    \140\ See NASAA Comment Letter.
    \141\ See id.
---------------------------------------------------------------------------

    One commenter suggested further clarifying which clients are served 
on an ``ongoing basis.'' \142\ We considered adding a test or 
definition to classify clients who receive investment advice on an 
ongoing basis, but concluded that the meaning of ``ongoing basis'' as 
proposed and as adopted is sufficiently understood under an existing, 
broadly applicable framework. That is, as discussed in section II.A, an 
internet investment adviser generally is providing investment advice on 
an ongoing basis through its website to a client if the advice is 
within the scope of the adviser-client relationship.
---------------------------------------------------------------------------

    \142\ See Maksym Puzin Comment Letter.
---------------------------------------------------------------------------

3. Eliminating the Internet Adviser Exemption
    As another alternative, the Commission considered eliminating the 
Internet Adviser Exemption. With the proliferation of internet tools 
and their frequent use by all types of advisers, the distinction might 
no longer be valuable. In addition, specifically defining the bounds of 
the exemption may remain difficult, as evolving industry practices 
could quickly make rule definitions stale. New innovations and new ways 
of communication with the clients, which are not accounted for by the 
exemption definitions, could render the exemption unavailable to some 
internet investment advisers who adopt those new technologies. Further, 
as discussed in the section on costs, erroneous registrations 
associated with the rule

[[Page 24708]]

can create additional costs for advisers due to registration 
withdrawals. Eliminating the exemption would eliminate these issues.
    However, eliminating the exemption would result in certain costs. 
Advisers that currently rely on the exemption would no longer be able 
to use it, and therefore would not be eligible to register with the 
Commission unless they meet the criteria of another exemption. Losing 
Commission registration would impose costs: for example, the adviser 
may lose some clients or may need to comply with State regulation 
requirements, as discussed in the Costs section. Further, losing a 
basis for Commission registration would require the adviser to file 
Form ADV-W. We estimate the burden to file Form ADV-W to withdraw from 
registration as 0.75 hour per respondent,\143\ which can be expressed 
as a per-registrant cost of $319.\144\ Assuming 261 currently 
registered internet investment advisers relying exclusively on the 
Internet Adviser Exemption would have to withdraw from registration, 
the total cost of filing Form ADV-W is estimated as $83,194.\145\
---------------------------------------------------------------------------

    \143\ See supra note 124 and accompanying text.
    \144\ $425*0.75 hour per respondent. The $425 compensation rate 
is calculated as described in supra note 125.
    \145\ $425 * 0.75 hour per respondent * 261 advisers. The $425 
compensation rate is calculated as described in supra note 125.
---------------------------------------------------------------------------

    This alternative could also result in advisers losing some clients 
to the extent clients value Commission registration. Such clients would 
have to seek a different adviser and potentially face higher fees as 
well as switching costs as discussed above.\146\ Further, losing 
Commission registration may result in advisers having to register in 
multiple (up to 14) States and be subject to the appropriate State 
regulations until they become eligible under a different rule or 
exemption, which would create a burden, especially for small 
advisers.\147\ Nevertheless, in aggregate, such costs would likely be 
small as the advisers exclusively using the Internet Adviser Exemption 
comprise a very small portion of the relevant market (as discussed 
previously, 1.7% of the total number of advisers and 0.003% of the 
total assets under management).
---------------------------------------------------------------------------

    \146\ As discussed previously in the costs section, we are 
unable to quantify these costs due to a lack of data on such clients 
and the new advisers they may have selected. Commenters did not 
provide information on this topic.
    \147\ See relevant discussion in section IV.C.2. As stated 
previously in the costs discussion, we are unable to quantify the 
costs of registering with the states, beyond State registration fees 
($224 on average across states), because the registration 
requirements and forms, and the corresponding time spent by firms, 
vary by each State and there is no available data to make such 
estimates.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

A. Introduction

    The amendments will result in new ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\148\ The amendments will have an impact on the current 
collection of information burdens of rule 203A-2(e) and Form ADV under 
the Act. The titles for the collections of information are: (i) 
``Exemption for Certain Investment Advisers Operating Through the 
Internet (Rule 203A-2(e))'' (OMB control number 3235-0559); and (ii) 
``Form ADV'' (OMB control number 3235-0049). The Commission is 
submitting the final collections of information to the OMB for review 
and approval in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number. The Commission published notice soliciting 
comments on the collection of information requirements in the Proposing 
Release and submitted the proposed collections of information to OMB 
for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The 
Commission did not receive any comments that addressed the estimated 
PRA burdens and costs in the Proposing Release.
---------------------------------------------------------------------------

    \148\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

B. Rule 203A-2(e) Recordkeeping Requirement

    The amended rule will require an internet investment adviser to 
provide investment advice to all of its clients exclusively through an 
operational interactive website,\149\ and will require advisers 
registering with the Commission under the exemption to maintain a 
record demonstrating that the adviser's advisory business has been 
conducted through an operational interactive website in accordance with 
the rule.\150\ Although most advisers registering under the rule 
usually generate the necessary records in the ordinary conduct of their 
internet advisory business, the recordkeeping requirement of rule 203A-
2(e) nonetheless may impose a small additional burden on these 
advisers. We estimate this recordkeeping burden to amount to an average 
of four (4) hours annually per adviser.\151\
---------------------------------------------------------------------------

    \149\ See amended rule 203A-2(e)(1)(i).
    \150\ See amended rule 203A-2(e)(1)(ii). Under the amended rule, 
advisers will need to maintain records of their compliance with the 
rule. The elimination of the de minimis exception does not result in 
an increase in the burden under the amended rule but it has been 
accounted for in our estimated burden for the amended rule.
    \151\ The adviser will need to demonstrate that all of its 
clients obtain investment advice from the firm exclusively through 
an operational interactive website. Internet investment advisers 
that conduct their business exclusively through interactive websites 
and whose employees never directly communicate with clients will 
likely need to spend very little time documenting their compliance 
with the condition. An adviser that has personnel that assist 
clients directly (whether through email, chatbots, telephonically, 
or otherwise) with administrative functions like accessing the 
website may need to spend more time.
---------------------------------------------------------------------------

    We estimate the number of respondents to this information 
collection to be 271 advisers.\152\ Accordingly, we estimate the total 
recordkeeping burden hours for all rule 203A-2(e) advisers to be 1,084 
hours.\153\ We estimate that the total monetized cost to each internet 
adviser to comply with the recordkeeping provision of rule 203A-2(e) 
will be approximately $1,700,\154\ and that the total monetized cost 
for the 271 advisers relying on this exemption at this time will be 
$460,700.\155\
---------------------------------------------------------------------------

    \152\ This estimate is based on information reported by advisers 
through IARD. Based on IARD data as of June 30, 2023, of the 
approximately 15,391 SEC-registered advisers, 271 checked Item 
2.A(11) of Part 1A of Form ADV to indicate their basis for SEC 
registration under the Internet Adviser Exemption. This estimate may 
be overinclusive to the extent that advisers currently registered in 
reliance on the exemption, including, but not limited to, those that 
currently have one or fewer clients, are not able to satisfy the 
requirements of the amended rule. The estimate may be underinclusive 
to the extent that additional advisers seek to rely on the Internet 
Adviser Exemption, whether due to the industry's increased reliance 
on technology or otherwise.
    \153\ Four (4) hours x 271 advisers = 1,084 hours.
    \154\ We estimate the cost at a rate of $425 per hour. The 
compensation rate for the current approved information collection 
used is the rate for a Sr. Operations Manager in the Securities 
Industry and Financial Markets Association's Report on Management & 
Professional Earnings in the Securities Industry 2013 updated for 
2023, and is modified to account for an 1,800-hour work-year and 
inflation and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead. 4 hours x $425 per hour = $1,700.
    \155\ 1,084 hours x $425 per hour = $460,700. We do not expect 
advisers to incur any external cost burden in connection with this 
information collection because advisers registering under the rule 
will generate the necessary records in the ordinary course of their 
advisory businesses.
---------------------------------------------------------------------------

C. Form ADV

    We are amending Form ADV Part 1A to require advisers to indicate on 
Schedule D that, if applying for registration with the Commission, the 
adviser will provide--and if amending its existing registration and 
continuing to rely on the Internet Adviser Exemption, that it has 
provided--investment advice on an ongoing basis to more than one client 
exclusively

[[Page 24709]]

through an operational interactive website.\156\ These changes are 
designed to provide information to the Commission in connection with 
the registration and annual amendments to Form ADV filed by internet 
investment advisers and will assist Commission staff in connection with 
its review of existing registrations and registration applications for 
compliance with the rule and, as applicable, for possible 
deregistration of an adviser for an inability to meet the conditions of 
the rule.
---------------------------------------------------------------------------

    \156\ See supra section II.D.
---------------------------------------------------------------------------

    Based on Form ADV data as of June 30, 2023, the Commission 
estimates that approximately 261 of the 271 SEC-registered internet 
investment advisers (approximately 96%) will complete the final rule's 
Form ADV representation by submitting their annual updating amendment 
on or prior to the rule's compliance date.\157\ For these advisers, the 
ministerial amendments to Form ADV requiring advisers to check a box do 
not make any substantive modifications to any existing collection of 
information requirements or impose any new substantive recordkeeping or 
information collection requirements within the meaning of the PRA.
---------------------------------------------------------------------------

    \157\ See supra section II.E.
---------------------------------------------------------------------------

    In addition, based on Form ADV data as of June 30, 2023, the 
Commission estimates that approximately 10 of the 271 SEC-registered 
internet investment advisers (approximately 4%) will not file an annual 
updating amendment between September 30, 2024,\158\ and the compliance 
date, and will file an other than annual amendment in order to comply 
with the rule by the rule's compliance date.\159\ We estimate that the 
total burden hours attributable to such internet investment advisers 
completion of the other than annual amendment will be 10 hours.\160\ We 
estimate that the total monetized cost to each such adviser will be 
approximately $360,\161\ and that the total monetized cost for the 10 
advisers relying on this exemption at this time will be $3,600.\162\
---------------------------------------------------------------------------

    \158\ See supra note 76 (stating that we expect the IARD system 
to be able to accept Form ADV filings reflecting the Form ADV 
representation by Sept. 30, 2024).
    \159\ See supra section II.E.
    \160\ One (1) hour x 10 advisers = 10 hours.
    \161\ We estimate the cost at a rate of $360 per hour. The 
compensation rate for the current approved information collection 
used is the rate for a compliance manager in the Securities Industry 
and Financial Markets Association's Report on Management & 
Professional Earnings in the Securities Industry 2013 updated for 
2023, and is modified to account for an 1,800-hour work-year and 
inflation and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead. 1 hours x $360 per hour = $360.
    \162\ 10 hours x $360 per hour = $3,600.
---------------------------------------------------------------------------

D. Total Hour Burden Associated With Amendments to Rule 203A-2(e) and 
Form ADV

    We estimate investment advisers that will be subject to the amended 
rule will incur a total annual hour burden resulting from the 
collections of information discussed above of approximately 1,094 
hours, at a monetized cost of $464,300 or $1,713 per adviser.\163\ The 
total external burden costs will be $0. The table below summarizes our 
PRA annual burden estimates associated with the amendments to rule 
203A-2(e) and Form ADV.
---------------------------------------------------------------------------

    \163\ This estimate is based upon the following calculation: 
(1,084 hours x $425) + (10 hours x $360) = $464,300. $464,300 / 271 
advisers = $1,713.

----------------------------------------------------------------------------------------------------------------
                                                   Number of                                         External
Rule 203A-2(e) description of new requirements     responses          Internal burden hours        burden costs
----------------------------------------------------------------------------------------------------------------
               Final Estimates for Internet Investment Advisers under Rule 203A-2(e) and Form ADV
----------------------------------------------------------------------------------------------------------------
Annual burden for making records sufficient to             271  1,084 (4 hours per adviser).....               0
 demonstrate compliance with rule..
Annual burden for making representations on                 10  10 (1 hour per adviser).........               0
 Form ADV, Part 1A, Schedule D..
----------------------------------------------------------------------------------------------------------------

    We estimate the total burden under amended rule 203A-2(e) to amount 
to an average of four (4) hours annually per internet investment 
adviser. This estimate is identical to the estimate of the per-adviser 
burden under current 203A-2(e). The differences in total burden hours 
and internal monetized costs between current 203A-2(e) and amended 
203A-2(e) will be determined primarily by the number of advisers 
subject to the rule.

VI. Final Regulatory Flexibility Analysis

    The Commission has prepared the following Final Regulatory 
Flexibility Analysis (``FRFA'') in accordance with section 604 of the 
Regulatory Flexibility Act (``RFA'').\164\ It relates to amended rule 
203A-2(e) and Form ADV. An Initial Regulatory Flexibility Analysis 
(``IRFA'') was prepared in accordance with the RFA and is included in 
the Proposing Release.\165\
---------------------------------------------------------------------------

    \164\ 5 U.S.C. 604.
    \165\ See Proposing Release at section V.
---------------------------------------------------------------------------

A. Need for and Objectives of the Rule and Form Amendments

1. Amendments to Rule 203A-2(e)
    We are amending the Internet Adviser Exemption, which we initially 
adopted in 2002. The current Internet Adviser Exemption generally 
requires an adviser to:
     Provide investment advice to all of its clients 
exclusively through an interactive website, except that the investment 
adviser may provide investment advice to fewer than 15 clients through 
other means during the preceding 12 months; and
     Maintain records for a period of not less than five years 
demonstrating compliance with the conditions of the rule.
    The amended rule will require an Internet investment adviser to 
provide investment advice to all of its clients exclusively through an 
operational interactive website at all times during which the adviser 
relies on the Internet Adviser Exemption. The rule's definition of 
``interactive website'' will be renamed to ``operational interactive 
website'' and will be expanded to include mobile applications or 
similar digital platforms; the definition will also be amended to 
define operational interactive website as a website, mobile 
application, or similar digital platform through which the investment 
adviser provides digital investment advisory services on an ongoing 
basis to more than one client (except during temporary technological 
outages of a de minimis duration).\166\ In addition, the amended rule 
will remove the current rule's de minimis exception,\167\ which

[[Page 24710]]

allows advisers relying on the rule to provide advice to fewer than 15 
clients through means other than an interactive website during the 
preceding 12 months. The amended rule will also require advisers to 
comply with the requirement to maintain certain records in accordance 
with section 203A-2(e)(1)(ii) of the amended rule.
---------------------------------------------------------------------------

    \166\ See amended rule 203A-2(e)(2). For purposes of the rule, 
``digital investment advisory service'' will be defined as 
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 operational interactive website. See id.
    \167\ See amended rule 203A-2(e)(1)(i).
---------------------------------------------------------------------------

    The amendments to the Internet Adviser Exemption are designed to 
reflect the evolution in technology and advisory industry since the 
adoption of the rule. In addition, the amendments are designed to 
better reflect the allocation of authority between the Federal 
Government and States that Congress intended under NSMIA and the Dodd-
Frank Act and enhance investor protection through more efficient use of 
the Commission's limited oversight and examination resources by more 
appropriately allocating Commission resources to advisers with national 
presence and allowing smaller advisers with a sufficiently local 
presence to be regulated by the States. The reasons for, and objectives 
of, the amendments are discussed in more detail in sections I and II, 
above. The burdens of these requirements on small advisers are 
discussed below as well as above in sections IV and V, which discuss 
the burdens on all advisers. The professional skills required to meet 
these specific burdens are also discussed in section V.
2. Amendments to Form ADV
    The amended rule will also require an adviser to make 
representations on its Form ADV, Part 1A, Schedule D, indicating that 
it satisfies the requirements of the rule. This representation is 
similar to the representation that advisers relying on the multi-state 
exemption make on their Form ADV and will assist Commission staff in 
connection with its review of registration applications and 
deregistration of advisers that are not in compliance with the rule. 
The reasons for, and objectives of, the amendments are discussed in 
more detail in sections I and II, above. The burdens of these 
requirements on small advisers are discussed below as well as above in 
sections IV and V, which discuss the burdens on all advisers. The 
professional skills required to meet these specific burdens are also 
discussed in section V.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on every aspect of 
the IRFA, including the number of small entities that would be subject 
to the proposed amendments to rule 203A-2(e) and related amendments to 
Form ADV, the potential impacts discussed in the analysis of the IRFA, 
and whether the proposed amendments could have an effect on small 
entities that the Commission has not considered. Although we did not 
receive comments specifically addressing the IRFA, one commenter stated 
that the ``operational interactive website'' requirement will make it 
harder for ``smaller entities to conduct business solely based on the 
amount of clients they may have.'' \168\ We carefully considered the 
potential impact the amended rule would have on smaller advisers. We 
recognize that a larger minimum number of clients may require advisers 
with a small clientele or advisers that are at the early stages of 
starting their advisory business to register with one or more States, 
rather than the Commission, which may subject them to different 
regulations.\169\ The requirement that an adviser have a minimum of two 
clients is intended to ``reflect that advisers with zero or one client 
are more akin to local businesses that can be effectively regulated by 
a State, consistent with Congress' intent in NSMIA's amendments to the 
Advisers Act.'' \170\ After considering comments, we are adopting the 
amendments, as proposed.\171\
---------------------------------------------------------------------------

    \168\ See Robert Martin Comment Letter. See also supra section 
II.A
    \169\ See supra section IV.D.2.
    \170\ See Proposing Release at section II.A.1.
    \171\ See supra section II.
---------------------------------------------------------------------------

C. Legal Basis

    The Commission is amending rule 203A-2(e) and Form ADV under the 
authority set forth in sections 203A(c) and 211(a) of the Investment 
Advisers Act of 1940 [15 U.S.C. 80b-3a(c) and 80b-11(a)].

D. Small Entities Subject to the Rule and Rule Amendments

    Under Commission rules, for the purposes of the Advisers Act and 
the RFA, an investment adviser generally is a small entity if it: (1) 
has assets under management having a total value of less than $25 
million; (2) did not have total assets of $5 million or more on the 
last day of the most recent fiscal year; and (3) does not control, is 
not controlled by, and is not under common control with another 
investment adviser that has assets under management of $25 million or 
more, or any person (other than a natural person) that had total assets 
of $5 million or more on the last day of its most recent fiscal year. 
Our amendments to rule 203A-2(e) will not affect most investment 
advisers that are small entities (``small advisers'') because they are 
generally registered with one or more State securities authorities and 
not with the Commission. Under section 203A of the Advisers Act, unless 
subject to an exemption such as the Internet Adviser Exemption, most 
small advisers are prohibited from registering with the Commission and 
are regulated by State regulators. Based on IARD data, we estimate that 
as of June 30, 2023, approximately 502 SEC-registered advisers are 
small entities under the RFA.
1. Small Entities Subject to Amendments to the Internet Adviser Rule
    As discussed above in section IV (the Economic Analysis), the 
Commission estimates that based on IARD data as of June 30, 2023, 
approximately 271 investment advisers will be subject to the amended 
rule and the related amendments to Form ADV. Of the approximately 502 
SEC-registered advisers that are small entities under the RFA, 197 will 
be subject to the amendments to rule 203A-2(e) and the corresponding 
amendments to Form ADV.

E. Projected Reporting, Recordkeeping and Other Compliance Requirements

1. Amendments to Rule 203A-2(e)
    Amended rule 203A-2(e) will impose certain reporting, 
recordkeeping, and compliance requirements on investment advisers 
relying on the exemption for registration with the Commission, 
including those that are small entities. We estimate that 271 advisers 
\172\ will be required to comply with the amended rule's requirement to 
maintain records in accordance with amended rule 203A-2(e)(1)(ii).\173\ 
The requirements and rule amendments, including compliance, reporting, 
and recordkeeping requirements, are summarized in this FRFA (section 
VI.A., above). All of these requirements are also discussed in detail, 
above, in section II, and these requirements and the burdens on 
respondents, including those that are small entities, are discussed 
above in sections IV and V (the Economic Analysis and Paperwork 
Reduction Act Analysis, respectively) and below. The professional 
skills required to meet these specific burdens are also discussed in 
section V.
---------------------------------------------------------------------------

    \172\ Based on IARD data as of June 30, 2023.
    \173\ Amended 203A-2(e)(1)(ii) is identical to current 203A-
2(e)(1)(ii) except for a conforming change to reflect the 
requirement that the interactive website be ``operational.''

---------------------------------------------------------------------------

[[Page 24711]]

    As discussed above, approximately 502 small advisers were 
registered with us as of June 30, 2023, and we estimate that 197 of 
those small advisers registered with us will be subject to the 
amendments (39.2% of all registered small advisers). As discussed above 
in our Paperwork Reduction Act Analysis in section V above, the 
amendments to rule 203A-2(e) under the Advisers Act will create an 
annual burden of approximately 4 hours per adviser, or 788 hours in 
aggregate for small advisers.\174\ We estimate that the total monetized 
cost to each small adviser to comply with the amendments to the 
Internet Adviser Exemption will be approximately $1,700.\175\ We expect 
the annual monetized aggregate cost to small advisers associated with 
our amendments to the Internet Adviser Exemption will be $334,900.\176\
---------------------------------------------------------------------------

    \174\ 197 small advisers x 4 hours.
    \175\ See supra note 154 and accompanying text.
    \176\ We estimate the cost at a rate of $425 per hour. The 
compensation rate for the current approved information collection 
used is the rate for a Sr. Operations Manager in the Securities 
Industry and Financial Markets Association's Report on Management & 
Professional Earnings in the Securities Industry 2013 updated for 
2023, and is modified to account for an 1,800-hour work-year and 
inflation and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead. 788 hours x $425= $334,900.
---------------------------------------------------------------------------

2. Amendments to Form ADV
    The amendments to Form ADV will impose certain reporting and 
compliance requirements on investment advisers relying on the rule to 
register and remain registered with the Commission, including those 
that are small entities. An adviser relying on the rule as a basis for 
registration will be required to represent on Schedule D of its Form 
ADV that it provides investment advice on an ongoing basis to more than 
one client exclusively through an operational interactive website.\177\ 
An adviser registered under the rule and continuing to rely on the rule 
as a basis for its registration will be required to make a 
representation that it has provided investment advice on an ongoing 
basis to more than one client exclusively through an operational 
interactive website.\178\ The requirements and rule amendments, 
including recordkeeping requirements, are summarized above in this FRFA 
(section VI.A). All of these requirements are also discussed in detail, 
above, in section II, and these requirements and the burdens on 
respondents, including those that are small entities, are discussed 
above in sections IV and V (the Economic Analysis and Paperwork 
Reduction Act Analysis) and below. The professional skills required to 
meet these specific burdens are also discussed in section V.
---------------------------------------------------------------------------

    \177\ See supra section II.D.
    \178\ See id.
---------------------------------------------------------------------------

    Our Economic Analysis (section IV above) discusses these costs and 
burdens for respondents, which include small advisers. As discussed 
above in our Paperwork Reduction Act Analysis in section V above, the 
amendments to Form ADV will not increase the annual burden for advisers 
and will have no annual monetized cost.

F. Agency Action To Minimize Effect on Small Entities

    The RFA directs the Commission to consider alternatives that would 
accomplish our stated objectives, while minimizing any significant 
adverse effect on small entities. Accordingly, we considered the 
following alternatives for small entities in relation to our amendments 
to rule 203A-2(e) and the corresponding amendments to Form ADV: (i) 
differing compliance or reporting requirements that take into account 
the resources available to small entities; (ii) the clarification, 
consolidation, or simplification of compliance and reporting 
requirements under the amended rule for such small entities; (iii) the 
use of performance rather than design standards; and (iv) an exemption 
from coverage of the proposals, or any part thereof, for such small 
entities.
    Regarding the first and fourth alternatives, the Commission 
believes that establishing different compliance or reporting 
requirements for small advisers, or exempting small advisers from the 
amended rule, or any part thereof, would be inappropriate under these 
circumstances. Because the protections of the Advisers Act are intended 
to apply equally to clients of both large and small firms, it would be 
inconsistent with the purposes of the Advisers Act to specify 
differences for small entities under the final amendments to rule 203A-
2(e) and Form ADV. As discussed above, the amended rule is intended to 
better reflect the allocation of authority between the Federal 
Government and States that Congress intended under NSMIA and the Dodd-
Frank Act and will enhance investor protection through more efficient 
use of the Commission's limited oversight and examination resources by 
more appropriately allocating Commission resources to advisers with a 
national presence and allowing smaller advisers with a sufficiently 
local presence to be regulated by the States. These benefits should 
apply to clients of smaller firms as well as larger firms. In addition, 
as discussed above, our staff will use the corresponding information 
that advisers will report on the amended Form ADV to help determine 
compliance with the rule and to help prepare for examinations of 
investment advisers. Establishing different compliance or reporting 
requirements for large and small advisers relying on the Internet 
Adviser Exemption would negate these benefits and would be inconsistent 
with our mandate to provide a system of public disclosure of investment 
adviser information. An Internet investment adviser that is a small 
entity, however, by the nature of its business, will likely spend fewer 
resources in maintaining records and completing Form ADV and amendments 
than a larger adviser. Regarding the fourth alternative, specifically, 
the Commission has considered exempting small advisers from the amended 
rule. Small advisers are one of the primary beneficiaries of this 
exemption. Such an exemption would be inconsistent with the intended 
purpose of the amended rule, which, in part, is to provide regulatory 
relief from multiple State regulatory requirements.
    Regarding the second alternative, the amended rule is clear and 
further clarification, consolidation, or simplification of the 
compliance requirements is not necessary. As discussed above, the 
amended rule will require an Internet investment adviser to (i) provide 
investment advice to all of its clients exclusively through an 
operational interactive website, (ii) maintain records demonstrating 
that it provides investment advice to its clients exclusively through 
an operational interactive website,\179\ and (iii) represent on 
Schedule D of its Form ADV that it provides investment advice on an 
ongoing basis to more than one client exclusively through an 
operational interactive website.\180\ These provisions will better 
reflect the allocation of authority between the Federal Government and 
States that Congress intended under NSMIA and the Dodd-Frank Act and 
will enhance investor protection through more efficient use of the 
Commission's limited oversight and examination resources by more 
appropriately allocating Commission resources to advisers with a 
national presence and allowing smaller advisers with a

[[Page 24712]]

sufficiently local presence to be regulated by the States. Further, our 
amendments requiring the representation on Schedule D of Form ADV will 
assist the Commission's examination and enforcement capabilities, 
including assessing compliance with rules, and therefore, it will 
provide important investor protections.
---------------------------------------------------------------------------

    \179\ See amended rules 203A-2(e)(1)(i) and (ii). As with the 
current rule, a person may not rely on the Internet Adviser 
Exemption under the amended rule if it controls, is controlled by, 
or is under common control with another investment adviser 
registered with the Commission solely in reliance on the adviser 
registered under the Internet Adviser Exemption. See 17 CFR 
275.203A-2(e)(1)(iii); amended 17 CFR 275.203A-2(e)(1)(iii).
    \180\ See supra section II.D.
---------------------------------------------------------------------------

    Regarding the third alternative, we are using design standards 
because we determined that removing the de minimis exception and 
requiring Internet investment advisers to exclusively advise internet 
clients to be a design standard necessary to better reflect Congress's 
intent under NSMIA and the Dodd-Frank Act.

Statutory Authority

    The Commission is amending rule 203A-2(e) and Form ADV under the 
authority set forth in sections 203A(c) and 211(a) of the Investment 
Advisers Act of 1940 [15 U.S.C. 80b-3a(c) and 80b-11(a)].

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements; Securities.

Text of Rules and Form Amendments

    For the reasons set out in the preamble, the Commission amends 
title 17, chapter II of the Code of Federal Regulations as follows:

PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940

0
1. The authority citation for part 275 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-
2(a)(17), 80b-3, 80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless 
otherwise noted.
* * * * *
    Section 275.203A-2 is also issued under 15 U.S.C. 80b-3a.
* * * * *

0
2. Amend Sec.  275.203A-2 by revising paragraph (e) to read as follows:


Sec.  275.203A-2  Exemptions from prohibition on Commission 
registration.

* * * * *
    (e) Internet investment advisers. (1) An investment adviser that:
    (i) Provides investment advice to all of its clients exclusively 
through an operational interactive website at all times during which 
the investment adviser relies on this paragraph (e);
    (ii) Maintains, in an easily accessible place, for a period of not 
less than five years from the filing of a Form ADV that includes a 
representation that the adviser is eligible to register with the 
Commission under this paragraph (e), a record demonstrating that it 
provides investment advice to its clients exclusively through an 
operational interactive website in accordance with the limits in 
paragraph (e)(1)(i) of this section; and
    (iii) Does not control, is not controlled by, and is not under 
common control with, another investment adviser that registers with the 
Commission under paragraph (b) of this section solely in reliance on 
the adviser registered under this paragraph (e) as its registered 
adviser.
    (2) For purposes of this paragraph (e), ``operational interactive 
website'' means a website, mobile application, or similar digital 
platform through which the investment adviser provides digital 
investment advisory services on an ongoing basis to more than one 
client (except during temporary technological outages of a de minimis 
duration). For purposes of this rule, ``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 operational interactive website.
    (3) An investment adviser may rely on the definition of client in 
Sec.  275.202(a)(30)-1 in determining whether it is eligible to rely on 
this paragraph (e).

PART 279--FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 
1940

0
3. The authority citation for part 279 continues to read as follows:

    Authority:  The Investment Advisers Act of 1940, 15 U.S.C. 80b-
1, et seq., Pub. L. 111-203, 124 Stat. 1376.


0
4. Amend Form ADV (referenced in Sec.  279.1) by:
0
a. In the instructions to the form, Form ADV: Instructions for Part 1A, 
by revising 2.i.;
0
b. In the Glossary of Terms by:
0
i. Redesignating paragraphs 13. through 42. as paragraphs 15. through 
43.; and paragraphs 43. through 65. as paragraphs 45. through 67.; and
0
ii. Adding new paragraphs 13. and 44.;
0
c. In Part 1A, revising Item 2.A.(11); and
0
d. In Part 1A, Schedule D, by adding Section 2.A.(11).

    Note: Form ADV is attached as Appendix A to this document. Form 
ADV will not appear in the Code of Federal Regulations.


    By the Commission.

    Dated: March 27, 2024.
J. Matthew DeLesDernier,
Deputy Secretary.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendix A--Form ADV

Form ADV (Paper Version)

* * * * *

Form ADV: Instructions for Part 1A

* * * * *

2. Item 2: SEC Registration and SEC Report by Exempt Reporting Advisers

* * * * *
    i. Item 2.A.(11): Internet Adviser. You may check box 11 only if 
you are eligible for the Internet adviser exemption from the 
prohibition on SEC registration. See SEC rule 203A-2(e). If you 
check box 11, you must complete Section 2.A.(11) of Schedule D. You 
are eligible for this exemption if:
     You provide investment advice to all of your clients 
exclusively through an operational interactive website at all times 
during which you rely on rule 203A-2(e). Other forms of online or 
internet investment advice do not qualify for this exemption;
     You maintain a record demonstrating that you provide 
investment advice to your clients exclusively through an operational 
interactive website in accordance with these limits.
* * * * *

Glossary of Terms

* * * * *
    13. Digital Investment Advisory Service: 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 operational interactive 
website.
* * * * *
    44. Operational Interactive Website: A website, mobile 
application, or similar digital platform through which the 
investment adviser provides digital investment advisory services on 
an ongoing basis to more than one client (except during temporary 
technological outages of a de minimis duration).
* * * * *

Part 1A

* * * * *
    Item 2. * * *
    A. * * *
* * * * *
    (11) are an internet adviser relying on rule 203A-2(e);
    If you check this box, complete Section 2.A.(11) of Schedule D.
* * * * *

Schedule D

* * * * *

Section 2.A.(11) Internet Adviser

    If you are relying on rule 203A-2(e), the internet adviser 
exemption from the

[[Page 24713]]

prohibition on registration, you are required to make a 
representation about your eligibility for SEC registration. By 
checking the appropriate box, you will be deemed to have made the 
required representation.
    If you are applying for registration as an investment adviser 
with the SEC or changing your existing Item 2 response regarding 
your eligibility for SEC registration, you must make this 
representation:
    [ballot] I will provide investment advice on an ongoing basis to 
more than one client exclusively through an operational interactive 
website.
    If you are filing an annual updating amendment to your existing 
registration and are continuing to rely on the internet adviser 
exemption for SEC registration, you must make this representation:
    [ballot] I have provided and will continue to provide investment 
advice on an ongoing basis to more than one client exclusively 
through an operational interactive website.
* * * * *
[FR Doc. 2024-06865 Filed 4-8-24; 8:45 am]
BILLING CODE 8011-01-P