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Internet Adviser Exemption: What Investors Should Know

The Internet Adviser Exemption is an important regulatory provision that affects how some financial advisers operate online. This article will explain what the exemption is, how it works, and what it means for investors.

What is the Internet Adviser Exemption?

The Internet Adviser Exemption, also known as the "Internet Investment Adviser Exemption," is a rule established by the U.S. Securities and Exchange Commission (SEC) in 2002. It allows certain investment advisers who provide advice exclusively through interactive websites to register with the SEC, rather than with individual state regulators.

Key Points:

  • Federal vs. State Registration: Normally, investment advisers managing less than $100 million in assets must register with state regulators. The Internet Adviser Exemption allows qualifying advisers to register with the SEC instead.

  • Online-Only Requirement: To qualify, advisers must provide investment advice solely through interactive websites.

  • Limited Personal Contact: The exemption restricts the amount of personal interaction advisers can have with clients.

How Does the Exemption Work?

To qualify for the Internet Adviser Exemption, an investment adviser must meet the following criteria:

  • Provide investment advice solely through interactive websites.

  • Provide advice based on personal information supplied by users.

  • Allow no more than 15 instances of personalized contact with a client in the preceding 12 months.


Robo-adviser XYZ uses algorithms to provide personalized investment recommendations based on user inputs like age, risk tolerance, and financial goals. Clients interact with XYZ primarily through its website and mobile app. XYZ qualifies for the Internet Adviser Exemption because it operates exclusively online and limits personal interactions with clients.

Implications for Investors

The Internet Adviser Exemption has several important implications for investors:

  • Access to Innovative Services: The exemption has facilitated the growth of robo-advisers and other online investment platforms, giving investors access to low-cost, automated investment advice. Example: Services like Betterment and Wealthfront have leveraged this exemption to offer algorithmic investment management to a broad audience.

  • Potential for Lower Fees: Online advisers often have lower overhead costs, which can translate to lower fees for investors.

  • Limited Personal Interaction: Investors should be aware that advisers operating under this exemption are restricted in their ability to provide personalized, one-on-one advice.

  • Regulatory Oversight: While these advisers are exempt from state registration, they are still subject to SEC oversight and regulations.

  • Transparency: SEC registration requires advisers to provide detailed information about their business practices, potential conflicts of interest, and disciplinary history through Form ADV. Example: An investor can research a robo-adviser's background and business practices by reviewing its Form ADV on the SEC's Investment Adviser Public Disclosure website.

Potential Drawbacks and Considerations

While the Internet Adviser Exemption has enabled innovative online investment services, investors should consider some potential drawbacks:

  • Limited Customization: Automated advice may not account for complex financial situations or unique circumstances.

  • Lack of Human Touch: Some investors may prefer more personal interactions with their financial advisers.

  • Potential for Technical Issues: Reliance on technology means service disruptions could affect access to your investments or advice.

The Internet Adviser Exemption has played a significant role in shaping the landscape of online investment advice. It has fostered innovation and increased access to low-cost investment services. However, investors should carefully consider their personal needs and preferences when deciding between a traditional adviser and an online platform operating under this exemption. As with any financial decision, it's crucial to do thorough research and understand the services, limitations, and regulatory status of any investment adviser you're considering.

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