Supporting Statement 204-2 (12-16-13) - Clean

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 204-2
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 204 of the Investment Advisers Act of 1940 (“Advisers Act”) 1 provides that
investment advisers required to register with the Securities and Exchange Commission (the
“Commission” or the “SEC”) must make and keep certain records for prescribed periods, and
make and disseminate certain reports. Advisers Act rule 204-2 (or the “Rule”) sets forth
mandatory requirements for maintaining and preserving specified books and records. 2 The
records that an adviser must keep in accordance with rule 204-2 must generally be retained for
not less than five years. 3 These requirements constitute a mandatory “collection of information,”
within the meaning of the Paperwork Reduction Act. The collection of information under rule
204-2 is necessary for the Commission staff to use in its examination and oversight program.
The collection has been previously approved and subsequently extended under Office of
Management and Budget (“OMB”) control number 3235-0278, and it is found at 17 CFR
275.204-2. 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 number.
2. Purpose and Use of the Information Collection

1

15 U.S.C 80b-4.

2

17 CFR 275.204-2.

3

See rule 204-2(e) (17 CFR 275.204-2(e)). The standard retention period required for books and
records under rule 204-2 is five years, in an easily accessible place, the first two years in an
appropriate office of the investment adviser.

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The purpose of the information collection in rule 204-2 is to assist the Commission’s
examination and oversight program in determining compliance with the Advisers Act and
corresponding rules. The respondents are investment advisers registered with the Commission.
Responses provided to the Commission in the context of its examination and oversight program
are generally kept confidential. 4
3.

Consideration Given to Information Technology

The Commission’s use of computer technology in connection with this information
collection, which has been previously approved by OMB, would not change. The Commission
currently permits advisers to maintain records required by the rule through electronic media. 5
4.

Duplication

The collection of information requirements of the Rule are not duplicated elsewhere.
5.

Effect on Small Entities

The requirements of the Rule are the same for all investment advisers registered with the
Commission, including those that are small entities. OMB has previously approved the effect of
this collection on all investment advisers in general, including advisers that are small entities.
Moreover, it would defeat the purpose of the rule to exempt small entities from these
requirements.

4

5

See section 210(b) of the Advisers Act [15 U.S.C. 80b-10(b)].

See Electronic Recordkeeping by Investment Companies and Investment Advisers, Investment
Advisers Act Release No. 1945 (May 24, 2001) 66 FR 29224 (May 30, 2001)

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6.

Consequences of Not Conducting Collection

Less frequent information collection would be incompatible with the objectives of the rule
and could hinder the Commission’s oversight and examination program for investment advisers and
thereby reduce the protection to investors.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

The collection requirements under Rule 204-2 generally require advisers to maintain
documents for five years, and in some cases longer. 6 Although this period exceeds the three-year
guideline for most kinds of records under 5 CFR 1320.5(d)(2)(iv), OMB has previously approved
the collection with this retention period. The retention periods in Rule 204-2 are warranted
because the recordkeeping requirements in rule 204-2 of the Advisers Act are designed to
contribute to the effectiveness of the Commission’s examination and inspection program.
Because the period between examinations may be as long as five years, it is important that the
Commission have access to records that cover the entire period between examinations.
8.

Consultations Outside the Agency

The Commission and the staff of the Division of Investment Management continue to
participate in an ongoing dialogue with representatives of the investment adviser industry
through public conferences, meetings and informal exchanges. These various forums provide the
Commission and the staff with a means of ascertaining and acting upon paperwork burdens
facing the industry. The Commission requested public comment on these collections of
information requirements before it submitted this request for extension and approval to OMB.
6

See supra note 3.

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The Commission received no comments in response to its request.
9.

Payment or Gift

None.
10.

Confidentiality

Responses provided to the Commission pursuant to Rule 204-2 in the context of the
Commission’s examination and oversight program are generally kept confidential. 7
11.

Sensitive Questions

None/ No PII collected.
12.

Burden of Information Collection

The total annual collection of information burden currently approved by OMB for rule
204-2 is 1,769,138 hours. This currently approved annual aggregate burden is based on an
estimate of 9,750 registered advisers, or approximately 181.45 hours per registered adviser. 8
As of December 2, 2013, there were 10,946 SEC registered advisers required to maintain
copies of certain books and records relating to their advisory business. This is an increase of
1,196 SEC registered advisers over the previously approved burden. Therefore we estimate that
the total burden under rule 204-2 will increase by 217,014 hours 9 for a total of 1,986,152 hours. 10
An adviser will likely use a combination of compliance clerks and general clerks to make
and keep the information and records required under the rule. The Commission staff estimates

7

See supra note 4.

8

9,750 registered advisers x 181.45 hours per adviser = 1,769,138 hours.

9

1,196 registered advisers x 181.45 hours per adviser = 217,014 hours.

10

10,946 registered advisers x 181.45 hours per adviser = 1,986,152 hours.

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the hourly wage for compliance clerks to be $63 per hour, including benefits, and the hourly
wage for general clerks to be $53 per hour, including benefits. 11 For each adviser, 181.45
burden hours will be required to make and keep the information and records required under the
rule. We anticipate that compliance clerks will perform an estimated 31.45 hours of this work,
and clerical staff will perform the remaining 150.0 hours. The total cost per respondent therefore
will be an estimated $9,931.35, 12 for a total burden cost of $108,708,557.10. 13
13.

Costs to Respondents

There is no cost burden other than the cost of the hour burden described above.
14.

Costs to Federal Government

There are no additional costs to the federal government directly attributable to rule 204-2.
15.

Changes in Burden

We estimate that the total burden hour associated with rule 204-2 will increase from
1,769,138 hours per year to 1,986,152 hours per year because we have increased our estimate of
the number of respondents subject to the rule. The number of hours per response has not
changed since the last estimate. We find that the non-hour burden associated with rule 204-2
will decrease as we currently estimate it to be $0.
16.

Information Collection Planned for Statistical Purposes

11

Our hourly wage rate estimate for a compliance manager and compliance clerk is based on data
from the Securities Industry Financial Markets Association’s Office Salaries in the Securities
Industry 2012, modified by Commission staff to account for an 1800-hour work-year and
multiplied by 2.93, for compliance clerks to account for bonuses, firm size, employee benefits
and overhead.

12

(31.45 hours per compliance clerk x $63) + (150.0 hours per clerical staff x $53) ($1,981.35 +
$7,950.00) = $9,931.35.

13

$9,931.35 per adviser x 10,946 advisers = $108,708,557.10.

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None.
17.

Approval to Omit OMB Expiration Date

Not Applicable.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

Not Applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.