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The Internet Adviser Exemption offers a path for certain digital-only investment advisors to register with the SEC, even if they do not meet the usual asset thresholds. For fintech founders building algorithm-based advisory services, this exemption provides a narrowly defined registration path for firms that meet its strict criteria.
However, following a wave of non-compliance and misuse, the SEC amended the exemption in 2024 to make it narrower, stricter, and more aligned with modern technology. Firms that once qualified may now fall outside the new criteria. For those wanting to rely on this exemption moving forward, the bar is higher than before.
This article outlines the current rules, eligibility requirements, and compliance expectations for advisors seeking to register under the Internet Adviser Exemption. It also covers recent SEC amendments, common misconceptions, and what fintech firms should consider before relying on this path to registration.
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013. If you need assistance with compliance or fintech regulations, click here.
What Is the Internet Adviser Exemption?
The Internet Adviser Exemption is a carve-out under SEC rules that allows certain investment advisors to register at the federal level, even if they do not meet the usual asset threshold for SEC registration. Specifically, it is designed for advisors who provide investment advice exclusively through a digital platform, not in person, over the phone, or by email.
This exemption was initially adopted in 2002 to accommodate early-stage, internet-only firms that would otherwise have to register in dozens of states just to operate (Rule 203A-2(e)). In practice, it provided a means to establish a national presence without violating regulations.
It is important to note that the Internet Adviser Exemption is not a shortcut or a workaround. The SEC has always intended the exemption to be narrow and specific. It applies only to firms that operate entirely online, use software to generate client-specific advice, and avoid traditional advisory relationships.
Why the Internet Adviser Exemption Exists
The Internet Adviser Exemption was introduced to solve a very specific regulatory gap. At the time, advisors aiming to serve clients exclusively online ran into outdated rules that did not account for internet-native business models.
Barriers to State-By-State Registration
Before the Internet Adviser Exemption existed, online advisors faced a logistical problem. If a firm wanted to serve clients nationwide, but did not meet the SEC’s asset threshold, it had to register separately in every state where it had more than a handful of clients.
Each state has its own rules, forms, fees, and timelines. For a startup or early-stage fintech, that meant real regulatory overhead before launching. Building a digital-first advisory platform often came with a national reach by default, but the regulatory structure did not align with that.
The SEC recognized that this created unnecessary friction for firms using technology to scale. Rather than wait until a firm had $100 million AUM to qualify for SEC registration, the exemption offered a narrower but more relevant pathway.
The SEC’s Original Intent in 2002
The original intention of the internet advisor examination was to target advisors delivering investment advice solely through interactive websites, with no human customization.
It was meant to accommodate a new generation of firms built on algorithms, software, and national accessibility.
The exemption was intentionally narrow from the start. However, in the years since, as robo-advisors expanded and business models became more complex, some firms pushed the rule too far. That led to SEC scrutiny and, eventually, to the 2024 amendments that now define what qualifies in 2025.
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Who Qualifies for the Internet Adviser Exemption in 2025?
Not every online investment firm qualifies for SEC registration under the Internet Adviser Exemption.
To rely on the Internet Adviser Exemption today, a firm must meet all of the following conditions:
Exclusively digital advice delivery: All investment advice must be delivered through an operational interactive website or digital platform. Phone calls, Zoom sessions, or email-based advice disqualify the firm.
No human-delivered or customized advice: Advice must be generated solely by software-based models, algorithms, or applications. Humans cannot tailor or adjust the recommendations, even if the delivery method is digital.
All client data is collected through the platform: Suitability or risk-tolerance questionnaires must be built into the platform. No PDFs, manual intake, or email-based data gathering are allowed.
Advice must be ongoing: The advisory relationship must be continuous, even if client interactions are infrequent.
At least two clients at all times: The advisor must be serving at least two clients through its platform on an ongoing basis. Dropping below that threshold disqualifies the exemption, unless the 120-day exemption is used.
The platform must be operational and accessible: It must be live and functional, with only minimal, temporary outages permitted.
In addition to the requirements outlined above, the 2024 amendment eliminated the 15-client de minimis rule, which permitted firms to advise up to 14 clients outside the digital platform and still qualify for the exemption.
These requirements reflect the SEC’s effort to bring clarity and discipline to what has always been a narrow exemption. The changes also respond to past misuse, particularly by firms offering hybrid services under a digital-first brand.
What Counts as an “Operational Interactive Website?”
To qualify for the Internet Adviser Exemption, a platform must meet the SEC’s updated definition of an operational interactive website.
Despite the term, the SEC no longer limits the definition to websites. A qualifying platform can be:
A browser-based website
A mobile application
Another digital interface, such as an embedded service in a financial planning tool
Whether it is a website, app, or embedded tool, the key is that the advice flows through the platform without exception.
The platform must be operational, meaning it’s actively delivering advice at all times. The SEC expects:
Continuous availability, except for brief outages
A working interface that allows clients to receive advice without delay
Live systems, not “coming soon” pages or static dashboards
An advisor that takes its platform offline for weeks or limits access to certain users may fall out of compliance.
Handling Temporary Outages
The SEC allows for temporary technological outages of a de minimis duration. However, it does not define what 'de minimis' means in terms of hours or days.
What is reasonable depends on context. A day-long outage for a long-term rebalancing service may be acceptable. That same outage for a real-time trading platform could be problematic.
Firms should log outages, document fixes, and avoid repeated disruptions. If more extended downtime is expected, the SEC notes that firms can apply for exemptive relief, but this is a high bar and should not be relied upon as part of normal operations.
How To Register as an Internet Investment Advisor with the SEC
Registering under the Internet Adviser Exemption follows the same core process as any SEC investment advisor registration, with added conditions specific to this exemption.
Most investment advisors must register with the SEC only after meeting one of the following thresholds:
$100 million or more in regulatory AUM
Serving as an advisor to a registered investment company or BDC
Operating in 15 or more states (multi-state exemption)
Affiliation with another SEC-registered advisor (related advisor exemption)
Serving large pension plans
Principal office outside the U.S.
Without one of those qualifications, advisors must usually register at the state level. The Internet Adviser Exemption creates a narrow path to bypass that rule, as long as the firm qualifies under its strict criteria.
For a fintech company building an algorithm-based product, this exemption enables nationwide access without requiring state-by-state registration.
Early-stage firms that have not fully launched yet may rely on the 120-day exemption (Rule 203A-2(c)) to register with the SEC before meeting the internet advisor criteria.
This allows the advisor to:
Register with the SEC
Build and deploy their operational platform
Onboard at least two clients
Transition into full compliance within 120 days
After that window closes, the advisor must meet allconditions of the Internet Adviser Exemption or withdraw their registration.
Compliance Requirements for Internet Advisors
Registering under the Internet Adviser Exemption does not reduce compliance obligations. Once registered, a firm is subject to the same core rules that apply to all SEC-registered investment advisors.
This section outlines the most relevant compliance areas for internet-only models.
Form ADV Part 1 and 2A Expectations
Firms relying on the exemption must make specific attestations in Form ADV Part 1. These include confirming that:
Advice is delivered exclusively through an operational interactive website
The firm serves more than one client
The service is provided on an ongoing basis
In Form ADV Part 2A, the brochure delivered to clients, advisors should clearly explain how the algorithm works, its limitations, and how client data is used to generate recommendations.
See also:
Ongoing Fiduciary Duty and Disclosures
The fiduciary standard applies regardless of whether advice comes from a human or a machine. That means:
Full and fair disclosure of all material facts and conflicts
Acting in the client’s best interest
Maintaining proper supervision of any technology involved in portfolio construction or management
Firms should also consider whether clients understand what they are agreeing to. The more automated the system, the more critical the onboarding flow and disclaimers become.
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Marketing, Client Onboarding, and Algorithm Oversight
Internet advisors often market directly through their platforms. That puts Regulation 206(4)-1, the SEC's marketing rule, in the spotlight.
Key considerations:
Avoid misleading performance claims
Disclose any paid testimonials or third-party reviews
Be cautious when using hypothetical returns or model portfolios
From a compliance perspective, client onboarding and algorithm governance should be integrated. That includes how client profiles are built, how advice is generated, and how changes are tested or documented.
Learn more about SEC marketing rules in our article.
Documentation and Recordkeeping
Under Rule 204-2, advisors must maintain:
Records of advice generated
Client communications and agreements
Marketing materials
Logs of any platform updates that affect investment decisions
For internet advisors, that may also include data showing how the platform handled specific client inputs, especially if the SEC ever questions the suitability of a recommendation.
Common Pitfalls and Misconceptions
Even well-intentioned firms can misapply the Internet Adviser Exemption. Some misunderstand the rules entirely, while others may stretch the definition and invite regulatory risk.
Thinking That an App or Chatbot Is Enough
A client-facing interface does not make a company an internet advisor. The exemption applies only if the advice itself is generated by software based on client input.
If the app serves only as a communication layer and the advice is manually crafted behind the scenes, the firm does not qualify.
Offering Hybrid Human + Robo Advice
This is one of the most common mistakes. A firm might offer automated portfolios, but also allow human advisors to adjust allocations, make exceptions, or provide personalized planning.
That disqualifies the firm. The exemption requires zero human-generated investment advice, regardless of delivery method.
Some firms try to separate human and digital services under the same brand. If the same legal entity delivers both services, it presents a compliance issue.
Underestimating Compliance Oversight
Some founders incorrectly assume the exemption comes with lighter compliance obligations.
Internet advisors must still meet the SEC’s expectations for:
Fiduciary duty
Disclosure
Books and records
Algorithm governance
Firms that skip this foundational compliance work can encounter issues during exams or be forced to deregister altogether.
Failing to Monitor Client Count or Eligibility
To maintain registration under this exemption, a firm must:
Serve at least two clients at all times
Deliver advice only through an operational platform
Keep that platform active and functional
Allowing the client number to drop, turning off the app, or inadvertently giving advice outside the system can result in legal issues.
How the SEC Is Enforcing the Internet Adviser Exemption
The SEC does not treat the Internet Adviser Exemption as a low-risk category. In fact, when firms choose an “exemption” to a rule, regulator scrutiny intensifies to ensure compliance with the terms of the claimed exemption. The agency has taken steps to tighten oversight, reduce misuse, and raise the bar for compliance.
For companies relying on this exemption, or considering it, understanding how enforcement works is critical.
Risk Alerts and Rule Rationale
In 2021, the SEC’s Division of Examinations issued a risk alert after reviewing a wave of internet advisors. They found that many firms did not qualify for the exemption they were relying on.
That alert set the stage for the 2024 rule amendments. The SEC made it clear that they were not looking to expand this exemption, but rather to prevent its misuse.
Registration Cancellations and Exam Trends
The SEC has canceled registrations of firms using this exemption that:
Did not have an operational website
Were providing advice manually
Had inactive or no clients
Misrepresented how their platforms worked
In some cases, these cancellations happened after routine exams. In others, firms were forced to withdraw voluntarily once the SEC questioned their eligibility.
As such, companies relying on this exemption should anticipate heightened scrutiny and detailed examinations going forward. Examiners now have more explicit criteria and updated ADV forms to identify non-compliance quickly.
See also:
What Happens If You Fail to Comply
Failing to meet the exemption’s conditions can trigger several outcomes:
Forced withdrawal from SEC registration
Requirement to register in multiple states
Potential sanctions for inaccurate disclosures
Higher exam risk for related compliance violations
If the firm is found to have misrepresented its business model, whether intentionally or not, the consequences can extend beyond just its registration status.
For founders and compliance teams, that makes it essential to treat this exemption as a strict qualification, not a flexible category. Once you claim it, your operations and disclosures must consistently and defensibly support it.
Talk to InnReg’s regulatory experts to learn how we help fintech firms align with the Internet Adviser Exemption.
Strategic Considerations for Fintechs
The Internet Adviser Exemption may not be a fit for every business model. It offers speed and scaling adequate for some businesses, but also introduces constraints that may not work for others.
When This Exemption Makes Sense (and When It Doesn’t)
This exemption is best suited for:
Fully automated robo-advisors
Platforms with no human customization
Startups with national reach and low AUM
It is not adequate for firms that:
Offer personalized financial planning
Use human advisors to override platform recommendations
Want to deliver hybrid or tiered advisory models
Trying to force-fit the exemption onto a business model that depends on human touchpoints usually leads to operational complexity and compliance risk.
Planning for Compliance from Day 1
If you intend to register under the exemption, your platform must be built with compliance in mind from the outset, including:
Automated intake that captures all required client data
Advice that is entirely algorithm-driven
Audit trails that show how the system made decisions
Disclosures that align with the actual user experience
This is where a compliance partner can make a difference. At InnReg, we work with fintechs that need flexible compliance infrastructure, not boilerplate policy binding.
Transitioning to or from SEC/State Registration
Some firms use the exemption as a starting point, then transition to standard SEC registration as they grow beyond the model or add services that fall outside the rule.
Others may need to exit the exemption and transition to state registration if they change their advice model, reduce the number of clients below the threshold, or pivot to more personalized offerings.
Both transitions require planning, as you have to:
Amend your Form ADV
Update disclosures and compliance documents
Review your operational controls for consistency
In some cases, this may also involve hiring or outsourcing compliance resources to meet the expanded obligations.
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The Internet Adviser Exemption is designed for firms that are entirely automated and meet a precise set of conditions.
For the right fintech, this exemption can simplify national operations and remove the friction of multi-state registration.
If your firm is building an internet-only advisory model, this exemption may be the right path, but it needs to be approached strategically. That includes product design, platform functionality, compliance infrastructure, and disclosures.
How Can InnReg Help?
InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013.
We are especially effective at launching and scaling fintechs with innovative compliance strategies and delivering cost-effective managed services, assisted by proprietary regtech solutions.
If you need help with RIA compliance, reach out to our regulatory experts today:
Published on Aug 4, 2025
Last updated on Aug 4, 2025
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