Since the move frees advisors from the expense of having to register with every state, low-cost Internet advisory services should be more accessible to those who can’t afford a traditional advisor, outgoing SEC chairman Harvey Pitt said, according to a Dow Jones report.
While Internet advisory services previously had to have at least $25 million or more in assets under management to qualify for federal oversight, the newly approved rule simply requires the advisory services of any size to agree to be SEC regulated, according to Dow Jones.
The final version of the rule includes some language tightening, according to Dow Jones. The rule applies only to advisors who primarily provide services online.
The SEC originally would have allowed advisors to conduct 10% of their business through face-to-face conduct, but it cut that back, allowing federally registered online advisers to offer traditional services to no more than 15 clients.
Also, states won’t lose their ability to crack down on online advisers who commit fraud, so investor protections won’t be compromised by the new rule, the SEC said.
Only about 20 Internet advisory firms are up and running now, but some industry experts predict the market could eventually reach 40 million clients.
Given the number of Americans investing through work-based 401(k) retirement savings plans, and the prospect of changes to permit individual investments of Social Security funds, SEC Commissioner Roel Campos said it is crucial that investors have access to affordable investment advice, Dow Jones said.