Rule 204-2 Supporting Statement Final

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

JUSTIFICATION
1.

Necessity for the Information Collection

On June 28, 2016, the Securities and Exchange Commission (the “Commission” or
“SEC”) proposed a new rule relating to business continuity and transition planning (“Proposed
Rule 206(4)-4”) as well as amendments to rule 204-2 (or the “Rule”) under the Investment
Advisers Act of 1940 (the “Advisers Act” or “Act”). 1 The proposed amendments to the Rule
would require investment advisers to make and keep records of all business continuity and
transition plans that are currently in effect or at any time within the past five years were in
effect. 2
Section 204 of the Advisers Act provides that investment advisers required to register
with the Securities and Exchange Commission (the “Commission”) must make and keep certain
records for prescribed periods, and make and disseminate certain reports. The Rule also sets
forth mandatory requirements for maintaining and preserving specified books and records. 3 The
records that an adviser must keep in accordance with the Rule must generally be retained for not
less than five years. 4 These requirements constitute a mandatory “collection of information,”

1

See Adviser Business Continuity and Transition Plans, Advisers Act Rel. No. 4439 (June 28,
2016) [81 FR 43530 (July 5, 2016)] (“Proposing Release”).

2

The Proposing Release is attached as Appendix A.

3

17 CFR 275.204-2.

4

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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within the meaning of the Paperwork Reduction Act. The collection has been previously
approved and subsequently extended under Office of Management and Budget (“OMB”) control
number 3235-0278 (expiring March 31, 2020), 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

The proposed amendments to the Rule would require a registered investment adviser to
maintain copies of the written business continuity and transition plans drafted under Proposed
Rule 206(4)-4. In addition, the proposed amendments to the Rule would require a registered
investment adviser to retain copies of any records documenting the adviser's annual review of its
policies and procedures under Proposed Rule 206(4)-4.
The purpose of the information collection is to assist the Commission’s examination and
oversight program in determining compliance with the Advisers Act and 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 subject to
the provisions of applicable law. 5 This collection of information is found at 17 CFR 275.204-2
and is mandatory.
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

5

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

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currently permits advisers to maintain records required by the rule through electronic media. 6
4.

Duplication

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

Effect on Small Entities

The requirements of the proposed amendments to the Rule are the same for all investment
advisers registered with the Commission, including those that are small entities, so that
Commission staff is able to conduct its oversight of advisers, including examinations and
investigations. 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.
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 the Rule generally require advisers to maintain
documents for five years, and in some cases longer. 7 This retention period would not be affected
by the proposed amendments to the Rule. 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

6

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

7

See supra note 4.

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collection with this retention period. The retention periods in the Rule are warranted because the
recordkeeping requirements in the Rule 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.

Consultation Outside the Agency

In its release setting forth Proposed Rule 206(4)-4 and amendments to the Rule, the
Commission requested public comment on the effect of information collections under these
amendments. In addition, 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.
9.

Payment or Gift

None.
10.

Confidentiality

Responses provided to the Commission pursuant to the Rule in the context of the
Commission’s examination and oversight program are generally kept confidential. 8
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection does not collect personally

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identifiable information (PII). The agency has determined that a system of records notice
(SORN) and privacy impact assessment (PIA) are not required in connection with the collection
of information.
12.

Burden of Information Collection

The currently approved total annual burden for the Rule is based on an estimate of 12,024
registered advisers 9 subject to the Rule and an estimated average burden of 182.95 burden hours
each year per adviser, for a total annual aggregate burden estimate of 2,199,791 hours. 10
Based on staff experience, we estimate that the proposed amendments to the Rule would
increase each registered investment adviser's average annual collection burden under the Rule by
2 hours, from 182.95 hours to 184.95 hours, for a total annual aggregate increase of 24,048
hours. 11
The revised annual aggregate burden estimate would be 2,223,839 hours. 12 The revised
average burden estimate of the recordkeeping requirements under the Rule per SEC-registered
adviser would be approximately 185 hours per year. 13 Advisers will likely use a combination of
compliance clerks and general clerks to make and keep the information and records required
under the Rule. The currently approved total annual aggregate cost burden is $130,316,112. We

8

See supra note 5.

9

IARD system data as of May 16, 2016

10

12,024 advisers x 182.95 hours = 2,199,791 hours.

11

12,024 advisers x 2 hours = 24,048 hours.

12

2,199,791 (current approved burden) + 24,048 (burden for proposed amendments) = 2,223,839
hours.

13

2,223,839 hours/12,024 advisers = 185 hours.

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estimate the hourly wage for compliance clerks to be $65 per hour, including benefits, and the
hourly wage for general clerks to be $58 per hour, including benefits. 14 For each adviser, 185
annual 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 34 hours of this
work, and general clerks will perform the remaining 151 hours. The total annual cost per
respondent therefore will be an estimated $10,968, 15 for a total annual aggregate burden cost
estimate of approximately $131,879,232, 16 an increase of $1,563,120 from the currently
approved total annual aggregate cost per respondent. 17 The increase in cost is attributable to the
proposed amendments to the Rule.
13.

Cost to Respondents

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

Cost to the Federal Government

There are no costs to the federal government directly attributable to the Rule.
15.

Change in Burden

We estimate that the total burden hour associated with the Rule would increase from
2,199,791 hours per year to 2,223,839 hours per year because of the proposed amendments to the
Rule. The number of hours per response has changed since the last estimate from 183 to 185

14

Our hourly wage rate estimate for a compliance clerk and general clerk is based on data from the
SIFMA Office Salaries in the Securities Industry Report 2013 (“SIFMA Office Salaries
Report”), modified by Commission staff to account for an 1,800-hour work-year and inflation,
and multiplied by 2.93, to account for bonuses, firm size, employee benefits and overhead.

15

(34 hours per compliance clerk x $65) + (151 hours per general clerk x $58) = ($2,210 + $8,758)
= $10,968.

16

$10,968 per adviser x 12,024 advisers = approximately $131,879,232.

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average annual burden hours per respondent.
16.

Information Collection Planned for Statistical Purposes

None.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

17

$131,879,232 - $130,316,112 = $1,563,120.