SEC Floats New Rules on Digital Nudges, Robos

Further, Bernstein continued, “it also doesn’t seem to seriously consider operational difficulties or accurately describe the likely costs advisors will bear, particularly smaller advisors. These operational difficulties and costs will be on top of the many other new requirements coming at advisors at an unprecedented speed and scale.”

The proposal “is also another example of the commission’s moving away from the principles-based regulatory framework for advisors — which includes their overarching fiduciary duty — towards more prescriptive and rigid requirements that will likely result in advisors’ judgments being second-guessed in hindsight,” Bernstein added.

‘Internet’ Advisors

The SEC’s plan regarding when investment advisors providing advisory services over the internet can register with the SEC “would modernize the Internet Advisers Exemption in two ways,” Gensler explained.

First, the SEC’s plan would require advisors seeking to rely on the Internet Advisers Exemption “to have at all times an operational, interactive website through which the advisor provides digital investment advisory services on an ongoing basis to more than one client,” Gensler explained.

“That means, if the proposal is adopted, firms that rely on the Internet Advisers Exemption — thus being regulated by the SEC rather than state securities regulators — would actually need to advise clients through the internet and do so from the moment the firms rely on this exception. The website cannot be used as a prop, akin to how a man behind the curtain used props to pretend to be the Wizard of Oz,” Gensler said.

Second, the proposal would require advisors seeking to rely on the Internet Advisers Exemption to provide advice to clients “exclusively through this operational, interactive website,” Gensler continued. “Currently, the rule allows advisors to qualify as internet advisors while, for instance, also serving a small number of investors in person, over the phone or by other means.”

These changes, Gensler stated, “would better reflect what it means in 2023 truly to provide an exclusively internet-based service.”

The plan requires that internet advisors “have an operational, interactive website at the time of registration,” William Birdthistle, director of the SEC’s Division of Investment Management, said during the open meeting.

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