ADV-H Supporting Statement Extension 2014

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Form ADV-H
A.

JUSTIFICATION
1.

Necessity for the Information Collection

On September 12, 2000, the Securities and Exchange Commission (the “Commission”)
approved final rules that required all SEC-registered investment advisers to file Part 1 of Form ADV
electronically through the Investment Adviser Registration Depository (“IARD”). 1 The IARD is an
Internet-based system that investment advisers access through computers in their offices, without
the need for specialized software or hardware. The information investment advisers submit to the
IARD is stored in a database, and the general public has Internet-access to the data. The IARD also
permits investment advisers to meet Commission and state notice filing requirements electronically.
Recognizing that technological glitches occur and certain advisers may not be able to
meet the electronic filing requirements, the Commission adopted rule 203-3 (17 CFR 275.203-3),
which is entitled “Hardship exemptions,” along with Form ADV-H (17 CFR 279.3), under the
Investment Advisers Act of 1940 (15 U.S.C. 80b) (“Advisers Act”). Rule 203-3 permits
registered advisers to request either a temporary or continuing hardship exemption on a hard
copy filing of Form ADV-H. An adviser requesting a temporary hardship is required to file
Form ADV-H and provide a brief explanation of the nature and extent of the temporary technical
difficulties. 2 Form ADV-H requires an adviser requesting a continuing hardship exemption to

1

Electronic Filing by Investment Advisers; Amendments to Form ADV, Investment Advisers Act
Release No. 1897 (Sept. 12, 2000) [65 FR 57438 (Sept. 22, 2000)].

2

Similarly, issuers that submit electronic filings on EDGAR apply for a temporary hardship
exemption on Form TH. 17 CFR 232.201. Form ADV-H is based on Form TH, which is filed by
issuers relying on the temporary hardship exemption. The adviser applying for a temporary

2
indicate the reasons the adviser is unable to submit electronic filings without undue burden and
expense. 3 A continuing hardship exemption is available only to a registered adviser that is a
small entity. 4
As part of a broader rulemaking to implement provisions of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”), the Commission adopted rule 204-4. 5

Rule 204-4 requires certain advisers exempt from registration with the Commission to file
reports on Form ADV electronically through the IARD. 6 Like rule 203-3, rule 204-4 permits
these exempt reporting advisers to request a temporary hardship exemption; although unlike rule
203-3, it does not provide for a continuing hardship exemption. Under rule 204-4, exempt
hardship exemption also is required to describe the extent to which the adviser previously
submitted documents in electronic format with the same hardware and software, the burden and
expense of using alternative means to submit the filing in electronic format, and any other reasons
why a temporary hardship exemption is warranted.
3

See Form ADV-H. The adviser applying for a continuing hardship exemption is required to
indicate the reasons that the necessary hardware and software are unavailable, describe the burden
and expense of using alternative means to submit the filing in electronic format, propose a time
period for which the exemption would be in effect, and provide any other reasons why a
continuing hardship exemption is warranted.

4

For purposes of the Advisers Act, an investment adviser generally is a small entity if (a) it
manages assets of less than $25 million reported on its most recent Form ADV, (b) it does not
have total assets of $5 million or more on the last day of the most recent fiscal year end, and (c) it
is not in a control relationship with another investment adviser that is not a small entity. 17 CFR
275.0-7.

5

See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment
Advisers Act Release No. 3221 (June 22, 2011) (“Implementing Release”).

6

See rule 204-4(a),(b). Both section 203(l) of the Advisers Act [15 U.S.C. 80b-3(l)] (which
provides an exemption for an adviser that advises solely one or more “venture capital funds”) and
section 203(m) of the Advisers Act [15 U.S.C. 80b-3(m) (which instructs the Commission to
exempt any adviser that acts solely as an adviser to private funds and has assets under
management in the United States of less than $150 million) provide that the Commission shall
require such advisers to maintain such records, which we have the authority to examine, and to
submit reports “as the Commission determines necessary or appropriate in the public interest.”
We adopted rule 204-4 to require these “exempt reporting advisers” to file reports with the
Commission on Form ADV and to submit these reports through the IARD using the same process
as registered advisers.

3
reporting advisers requesting a temporary hardship exemption are required to complete and file
Form ADV-H.
Form ADV-H contains “collection of information” requirements within the meaning of
the Paperwork Reduction Act of 1995. 7 The title of this collection is “Form ADV-H under the
Investment Advisers Act of 1940.” This collection of information has been approved and
subsequently extended by the Office of Management and Budget (“OMB”) under control number
3235-0538. This collection of information is found at 17 CFR 279.3 and is mandatory. Reponses
are not kept confidential. 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 control number.
2.

Purpose and Use of the Information Collection

The purpose of this collection of information is to permit advisers to obtain a hardship
exemption to not complete an electronic filing. The temporary hardship exemption that is
available to registered advisers under rule 203-3 and exempt reporting advisers under rule 204-4
permits these advisers to make late filings due to unforeseen computer or software problems.
The continuing hardship exemption available to registered advisers under rule 203-3 permits
these advisers to submit all required electronic filings on hard copy for data entry by the operator
of the IARD.
3.

Consideration Given to Information Technology

All SEC-registered investment advisers and exempt reporting advisers are required to file
Part 1 of Form ADV electronically through the IARD. 8 The IARD is an Internet-based system that

7

44 U.S.C. 3501 to 3520.

8

See Electronic Filing by Investment Advisers; Amendments to Form ADV, Investment Advisers
Act Release No. 1897 (Sept. 12, 2000) [65 FR 57438 (Sept. 22, 2000)] and Implementing

4
investment advisers access through computers in their offices, without the need for specialized
software or hardware. The information investment advisers submit to the IARD is stored in a
database, and the general public has Internet-access to the data. The IARD also permits investment
advisers to meet Commission and state notice filing requirements electronically.
The information collection pursuant to the rule is for the purpose of not submitting
information through the IARD or other electronic means. Accordingly, the Commission’s use of
computer technology is inappropriate for Form ADV-H.
4.

Duplication

The collection of information requirements of the rule and form are not duplicated
elsewhere.
5.

Effect on Small Entities

Form ADV-H was specifically designed for small entities. With respect to the temporary
hardship exemption filing on Form ADV-H, all advisers are treated equally. However, the
continuing hardship exemption available under rule 203-3 is only available to registered advisers
that are small entities. Non small-entity advisers are not granted continuing hardship exemptions. It
would defeat the purpose of the rule to exempt small entities from these requirements.
6.

Consequences of Not Conducting Collection

The collection of information is necessary to notify the Commission when a filer is
unable to meet a filing deadline due to unforeseen technical problems. It is also necessary to
enable registered advisers that are small entities to request a continuing hardship exemption from
the electronic filing requirements under the Advisers Act.

Release.

5
7.

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

Not applicable.
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 profession 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. The
Commission received no comments in response to its request.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

The information collected pursuant to the rule and form will take the form of filings with the
Commission. These filings are not kept confidential.
11.

Sensitive Questions

Form ADV-H collects information on the investment adviser’s name, SEC file number,
CRD number (if applicable), and business address. Form ADV-H does not collect Social
Security Numbers. A System of Records Notice has been published in the Federal Register at
(SEC-50) 66 FR 7820

and can also be found at

http://www.sec.gov/about/privacy/secprivacyoffice.htm.

6
12.

Estimate of Hour Burden

Rule 203-3 requires that registered advisers requesting either a temporary or continuing
hardship exemption submit the request on Form ADV-H. Rule 204-4 requires that exempt
reporting advisers requesting a temporary hardship exemption submit the request on Form ADVH. The current approved burden for Form ADV-H is 12 hours, based on an estimated 10
responses per year by registered advisers and two responses per year by exempt reporting
advisers, each requiring one hour per response.
When calculating the current approved burden, we estimated that the Dodd-Frank Act
amendments to the registration provisions of the Advisers Act would result in a population of
9,750 registered advisers and 2,000 exempt reporting advisers. 9 As of December 2, 2013,
however, there are 10,950 registered advisers and 2,570 exempt reporting advisers. Based on our
experience, we estimate that advisers file hardship exemptions at a rate of one response per 1,000
advisers. Accordingly, we estimate that registered advisers will file approximately 11 responses
to Form ADV-H and exempt reporting advisers will file approximately three responses to Form
ADV-H. 10 We continue to estimate that Form ADV-H will require an average of one hour to

9

11,500 (then total SEC registered advisers) – 3,200 (estimated number of registered advisers
withdrawing) + 750 (estimated number of new private fund advisers registering with the SEC) +
700 (estimated number of new SEC advisers each year) = 9,750. Section 410 of the Dodd-Frank
Act amended section 203A of the Advisers Act [15 U.S.C. 80b-3A] to create a new group of
“mid-sized advisers” and shift primary responsibility for their regulatory oversight to the state
securities authorities. In addition, section 403 of the Dodd-Frank Act eliminated the “private
adviser” exemption in section 203(b)(3) of the Advisers Act.

10

10,950 registered advisers x 1 response per 1,000 advisers = 10.95 responses; 2,570 exempt
reporting x 1 response per 1,000 advisers = 2.57 responses.

7
complete by both registered advisers and exempt reporting advisers. As a result, we believe the
burden associated with Form ADV-H will increase by two hours to 14 hours. 11
Both professional staff time and clerical staff time is required to complete Form ADV-H.
It is estimated that for each hour required by the form, professional staff time will comprise
0.625 hours with the remaining 0.375 hours performed by clerical staff. The Commission staff
estimates the hourly wage for a compliance manager to be $269 per hour, 12 and the hourly wage
for general clerks to be $53 per hour. 13 Accordingly, we estimate the average cost per response
imposed on registered advisers and exempt reporting advisers by Form ADV-H will be $188, 14
for a total annual cost of $2,632. 15
13.

Estimate of Total Annual Cost Burden

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

Estimate of Cost to the Federal Government

There are no additional costs to the federal government.
15.

Explanation of Changes in Burden

We estimate that the burden associated with Form ADV-H will increase from 12 to 14
11

(11 responses by registered advisers x 1 hour) + (3 responses by exempt reporting advisers x 1
hour) = 14 hours. The current approved burden is 12 hours.

12

Data from the SIFMA Management and Professional Earnings in the Securities Industry 2013
Report, modified to account for an 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, suggest that the cost for a compliance
manager is approximately $269 per hour.

13

Data from the SIFMA Office Salaries in the Securities Industry 2013 Report, modified to account
for an 1,800-hour work-year and multiplied by 2.93 to account for bonuses, firm size, employee
benefits and overhead, suggest that the cost for a General Clerk is approximately $53 per hour.

14

(0.625 hours x $269) + (0.375 hours x $53) = approximately $188.

15

$188 per response x (11 responses annually by registered advisers + 3 responses annually by
exempt reporting advisers) = $2,632.

8
hours due to the difference between our previous estimate of the number of advisers that would
be affected by the Dodd-Frank Act amendments to the Advisers Act and the actual current
number of registered advisers and exempt reporting advisers. The number of hours per response
has not changed since the last estimate.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to not Display Expiration Date

Not applicable.
18.

Exception to Certification Statement

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.