Rule 211h-1 Supporting Statement updated (7-16)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Proposed Rule 211h-1
A.

Justification
1.

Necessity for the Information Collection

On April 18, 2018, the Securities and Exchange Commission ( the “Commission” or
“SEC”) proposed rule 211h-1 under the Investment Advisers Act of 1940 (the “Advisers Act”). 1
This proposed rule would require an investment adviser, registered under section 203 of the
Advisers Act, to prominently disclose that it is registered as an investment adviser with the
Commission in print or electronic retail investor communications. The proposed rule also
requires a supervised person of an investment adviser registered under section 203 of the
Advisers Act to prominently disclose that he or she is a supervised person of an investment
adviser registered with the Commission in print or electronic retail investor communications.
For print communications, the proposed rule requires that such registration status be
displayed in a type size at least as large as and of a font style different from, but at least as
prominent as, that used in the majority of the communication. In addition, the disclosure must be
presented in the body of the communication and not in a footnote. For electronic
communications, or in any publication by radio or television, our proposed rule requires that
such disclosure be presented in a manner reasonably calculated to draw retail investor attention
to it.
Proposed rule 211h-1 contains a collection of information requirement. The title of this
collection of information is: “Rule 211h-1 under the Investment Advisers Act of 1940.” The
Commission submits this collection to the Office of Management and Budget (“OMB”) for
review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. If adopted, this collection of
information would be codified as 17 CFR 275.211h-1 and would be mandatory. The respondents
are investment advisers registered with the Commission or applying for registration with the
Commission and their supervised persons and future supervised persons.
2.

Purpose and Use of the Information Collection

We believe that this collection of information is necessary to provide retail investors and
the Commission with information to better determine whether a communication is from a brokerdealer or investment adviser, and, for retail investors specifically, to allow them to better identify
which type of firm is more appropriate for their specific investment needs. Additionally, by
requiring an affirmative identification, retail investors would also be better informed whether a
financial professional is a supervised person of an investment adviser rather than an associated
person of a broker-dealer, allowing them to make a more informed choice as to which type of
1

See Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail
Communications and Restrictions on the use of Certain Names or Titles, Release No. 34-83063, IA-4888
(Apr. 18, 2018).

2
professional is appropriate for their financial goals. We believe that because retail investors
interact with a firm primarily through financial professionals, it is important that financial
professionals disclose the firm type with which they are associated.
3.

Consideration Given to Information Technology

Proposed rule 211h-1 does not require the reporting of any information or the filing of
any documents with the Commission. To the extent investment advisers or their supervised
persons provide any information by electronic delivery, they should do so in accordance with
Commission guidance. 2
4.

Duplication

The Commission evaluates rule-based disclosure obligation requirements for duplication,
and reevaluates them whenever it proposes a rule or a change in a rule. No other rule requires
investment advisers and their financial professionals to provide the same information that would be
required by rule 211h-1.
5.

Effect on Small Entities

The requirements for rule 211h-1 are the same for all investment advisers, including
small entities. The Commission believes that establishing different compliance or reporting
requirements for small entity investment advisers would be inappropriate under these
circumstances. Because the protections of the Advisers Act are intended to apply equally to
retail investors of both large and small firms, we believe it would be inconsistent with the
purposes of the Advisers Act to specify differences for small entities under the proposed rule.
We estimate that the costs associated with complying with the proposed rule’s disclosure
requirements would be smaller for small firms than for large firms. We estimate that the costs
would increase with the size of the investment adviser, such as costs associated with revisions to
each individual supervised person’s communication and advertising materials. Specifically,
large investment advisers would have to review, identify and change more print and electronic
communications and in turn have their compliance staff verify more communications as being
compliant with our proposed rule as compared to small investment advisers which would have
fewer communications. Therefore, we anticipate that small entity investment advisers would
require fewer resources to oversee their employees’ compliance with the proposed rule.
6.

Consequences of Not Conducting Collection

The collection of information required by the proposed rule is necessary to protect retail
investors by providing them with the information necessary to determine whether the firm they
are engaging or seeking to engage is a broker-dealer or investment adviser. The consequences of
not collecting this information would be that retail investors may not have the information they
2

Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of
Information; Additional Examples Under the Securities Act of 1933, Securities Exchange Act of 1934, and
Investment Company Act of 1940, Investment Advisers Act Release No. 1562 (May 9, 1996).

3
need in order to evaluate which type of firm they are engaging or seeking to engage. This result
would continue to leave investors confused and potentially lead to an inappropriate selection of
firm type for an investor’s financial goals. Similarly, if the information is either not collected or
is a required collection on fewer retail investor communications, the investor protections would
be reduced.
7.

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

Not applicable.
8.

Consultations Outside the Agency

In the release proposing, among other things, rule 211h-1, the Commission requested
public comment on the effect of information collection under the proposed rule. 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

The information collection under the proposed rule would be disclosed prominently in all
print and electronic retail investor communications. These disclosures are not kept confidential.
11.

Sensitive Questions

Not applicable.
12.

Estimate of Hour Burden of Information Collection

We estimate that the total burden hours for rule 211h-1 would be approximately 521,400
hours, as explained in the discussion below.
We estimate that the total aggregate initial burden for existing investment advisers under
rule 211h-1 would be approximately 270,441 hours, which would translate into a monetized cost
of approximately $73,650,210. This would be an annual average burden of 35 hours per
investment adviser (as monetized, an annual average cost of $9,659 per investment adviser). In
addition, we estimate that rule 211h-1 would impose an initial burden on new investment
advisers of approximately 238.50 hours, which translates into a monetized cost of approximately
$34,105.50. This would be an initial average burden of 0.5 hours per new investment adviser (as
monetized, is an initial average cost of $71.50 per new investment adviser). Furthermore,

4
investment advisers would incur ongoing burdens associated with the proposed rule, which we
preliminarily estimate would be 3,812.50 hours, or approximately $545,187.50 on a monetized
basis. This would be an annual average burden of 0.5 hours per investment adviser (as
monetized, is an annual average cost of $71.50 per investment adviser).
Under proposed rule 211h-1, supervised persons also would incur an initial burden,
which we preliminarily estimate at approximately 122,704 hours, or approximately $17,546,672
on a monetized basis. This would be an annual average burden of 0.5 hours per supervised
person (as monetized, is an annual average cost of $71.50 per supervised person). Similarly, we
anticipate a burden of 1,500 hours for new supervised persons of an investment adviser, or
approximately $214,500 on a monetized basis. This would be an initial average burden of 0.5
hours per new supervised person (as monetized, is an initial average cost of $71.50 per
supervised person).
Like investment advisers, supervised persons also would incur ongoing annual burdens.
We preliminarily estimate that the total ongoing annual aggregate burden for supervised persons
is 122,704 hours. We preliminarily estimate a total ongoing monetized cost of approximately
$17,546,672 for supervised persons. This would be an annual average burden of 0.5 hours per
supervised person (as monetized, is an annual average cost of $71.50 per supervised person).
a. Initial Costs for Existing Investment Advisers and Supervised Persons
We estimate that approximately 7,625 of the 12,721 investment advisers distribute print
or electronic retail investor communications. 3 Of these investment advisers 2,738 are large
advisers and 4,887 are small advisers. 4 Finally, we estimate that approximately 245,408
supervised persons distribute print or electronic retail investor communications at standalone
investment advisers or dually registered firms. 5 There are also 477 new SEC registered
investment advisers per year on average and 3,000 new supervised persons per year. 6
3

The investment adviser and supervised person numbers are as of December 31, 2017.

4

For purposes of this estimate, we categorize small advisers as advisers with 10 or fewer employees and
large advisers as those with 10 or more employees. See cf. Rules Implementing Amendments to the
Investment Advisers Act of 1940, Investment Advisers Act Release No. 3221 (Jun. 22, 2011), at n.727.

5

We estimate the number of supervised persons who distribute print or electronic retail investor
communications using several data points. First, we analyzed those supervised persons who only hold a
series 65 at a dual registrant or an investment adviser firm, totaling 27,879. Next we analyzed those
supervised persons at dual registrants or investment advisers holding a combination of either a series 6 and
65 or a series 7 and 65, totaling 15,381 and 172,304 respectively. Finally, we analyzed those supervised
persons at dual registrants or investment advisers holding a series 6, 7, and 65, totaling 29,944. (27,879 +
15,281 + 172,304 + 29,944) = 245,408 total supervised persons who engage retail investors through print or
electronic communications. We note that our estimate does not reflect supervised persons who hold
various designations (e.g. Chartered Financial Analyst) in lieu of the licenses we used to identify
supervised persons of investment advisers who distribute print or electronic retail investor communications.
Finally, our estimate does not employ rounding as compared to estimates discussed in the Economic
Analysis of the proposed rules. These numbers are as of December 31, 2017.

6

The number of new investment advisers is calculated by looking at the number of new advisers in 2016 and
2017 and then isolating the number each year that services retail investors. (455 for 2016 + 499 for 2017) /
2) = 477.

5

We estimate that the initial one-time burden for complying with the disclosure
requirements would be 72 hours per large investment adviser 7 and 15 hours per small investment
adviser. 8 We note that we are staging the compliance date to ensure that firms can phase out
certain older communications from circulation through the regular business lifecycle rather than
having to retroactively change them. 9 As a result of this staged compliance, our burden
estimates do not reflect the burdens that would have been imposed had these firms had to replace
all outstanding communications.
Aside from certain anticipated outside legal costs, as discussed below, we preliminary
estimate that to comply with our proposed rule with respect to print communications,10
investment advisers would need to review their communications, identify which would need to
be amended, make the changes, and verify that all firm communications comply with the rule’s
requirements including its technical specifications such as the type size, font, and prominence.
Our preliminary estimates differ for large and small investment advisers. We drew these
distinctions because we assume that the larger an adviser is the more communications it would
need to review, identify and change and in turn have its compliance staff verify that such
communications are compliant with our proposed rule.
For existing print communications for large investment advisers we preliminarily
estimate that the total burden for investment advisers would be 8 hours for compliance and
business operations personnel to review, identify, and make changes across all print
communications. 11 For small investment advisers, we preliminarily estimate that the total burden

The number of new supervised persons is calculated by looking at the difference in the number of
supervised persons in 2017 as compared to 2016 at firms which service retail investors.
7

(8 hours for print communications per investment adviser + 64 hours for electronic communications per
investment adviser).

8

(5 hours for print communications per investment adviser + 10 hours for electronic communications per
investment adviser).

9

Similarly, we are not requiring firms to send new communications to replace all older print
communications as this would be overly burdensome and costly for firms.

10

Such communications could include business cards, letterheads, newspaper advertisements, and article
reprints from an unaffiliated magazines or newspaper.

11

See e.g. Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a
Proposed Rule Change to Amend FINRA Rule 2210, Exchange Act Release No. 34-75377 (Jul. 7, 2015), at
Economic Impact Assessment (“FINRA 2015-22 Notice”) (stating with reference to adding BrokerCheck
links to mid-size and smaller firm communications, which we believe is analogous to the manual changes
made to print communications, that “mid-size and small members typically have less complex websites,
which they manage and maintain with nontechnical staff. These members would use personnel in nontechnical roles to accomplish the required updates to their websites…. [I]t would take mid-size or small
members approximately eight hours of non-technical staffs’ time to make the required updates….”).
To compute the 8 hours internal initial burden we assume 2 hours by compliance personnel and 6 hours by
business operations personnel of the investment adviser.

6
for investment advisers would be 5 hours for compliance and business operations personnel to
review, identify, and make changes across all print communications. 12
With respect to electronic communications 13 we preliminarily anticipate that it would
take large investment advisers approximately 64 hours 14 to review, identify and make the
required updates coupled with verifying that such communications (present and future) would be
compliant with the proposed rule. Our estimates take into account that larger firms likely have
full-featured websites that generate other webpages based on complex system code and logic. 15
In order to make changes to comply with our proposed rule, we assume that business operations
and information technology personnel would likely be required to update the underlying code
and logic to automate the implementation of the required language to populate across all
associated electronic media. Additionally, we assume that these teams would need to test to
ensure that such changes were implemented correctly.
With respect to small investment advisers, we preliminarily anticipate that it would take
approximately 10 hours 16 to review, identify and make the required updates coupled with
verifying that such communications (present and future) would be compliant with the proposed
rule. Our estimate for small investment advisers assumes that small investment advisers have
fewer electronic communications that would be subject to our proposed rule as compared to
larger firms, resulting in a lower burden preliminary estimate.
We preliminarily estimate that the total initial burden for investment advisers is 270,441
hours. We preliminarily estimate a cost of approximately $73,650,210 for investment
17

12

This estimate is based upon staff experience and industry materials more generally. See e.g. FINRA 201522 Notice, supra note 11. To compute the 5 hours internal initial burden we assume 1 hour by compliance
personnel and 4 hours by business operations personnel of the investment adviser.

13

We believe such communications could include websites, smart phone apps, social media, emails, and
blogs.

14

This estimate is based upon staff experience and industry materials more generally. See e.g. FINRA 201522 Notice, supra note 11. To compute the 64 hours internal initial burden we assume 4 hours by
compliance personnel and 60 hours by business operations and information technology personnel of the
investment adviser.

15

This is based upon staff experience and industry materials more generally. See e.g. FINRA 2015-22
Notice, supra note 11 (discussing the burdens associated with the inclusion of a BrokerCheck reference and
hyperlink across all firm communications for certain firms).

16

This estimate is based upon staff experience and industry materials more generally. See e.g. FINRA 201522 Notice, supra note 11.
To compute the 10 hours internal initial burden, we assume 2 hours by compliance personnel and 8 hours
by business operations and information technology personnel of the investment adviser.

17

(8 hours for print communications per large investment adviser + 64 hours for electronic communications
per large investment adviser) = 72 hours per large investment adviser.
(72 hours x 2,738 large investment advisers) = 197,136 total initial burden for large investment advisers.
(5 hours for print communications per small investment adviser + 10 hours for electronic communications
per small investment adviser) = 15 hours per small investment adviser. (15 hours x 4887 small investment
advisers) = 73,305 total initial burden for small investment advisers.

7
advisers. 18 This would be an annual average burden of 35 hours per investment adviser 19 (as
monetized, an annual average cost of $9,659 per investment adviser). 20
We further preliminarily anticipate that supervised persons would have an initial burden
of 0.5 hours for each supervised person respondent to review, identify, and make changes to their
individual communications, both print and electronic. 21 Based on staff experience, we anticipate
(197,136 total burden large investment advisers + 73,305 total burden small investment advisers) = 270,441
hours.
18

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services in the securities industry is $298, for business
services is $268, and for technology services is $270. The average technology and business rate is ($270
technology rate + $268 business rate) / 2 = $269 average rate.
This figure was calculated as follows: ((6 compliance hours x $298 compliance rate) + (66
technology/business hours x $269 averaged technology/business rate)) x 2,738 large investment advisers =
$53,505,996 total initial costs for large investment advisers.
((3 compliance hours x $298 compliance rate) + (12 technology/business hours x $269 averaged
technology/business rate)) x 4,887 small investment advisers = $20,144,214 total initial costs for small
investment advisers.
($53,505,996 total initial costs for large investment advisers + $20,144,214 total initial costs for small
investment advisers) = $73,650,210 total initial costs for investment advisers.

19

(8 hours for print communications per large investment adviser + 64 hours for electronic communications
per large investment adviser) = 72 hours per large investment adviser.
(72 hours x 2,738 large investment advisers) = 197,136 total initial burden for large investment advisers.
(5 hours for print communications per small investment advisers + 10 hours for electronic communications
per small investment adviser) = 15 hours per small investment adviser. (15 hours x 4887 small investment
advisers) = 73,305 total initial burden for small investment advisers.
197,136 total burden large investment advisers + 73,305 total burden small investment advisers = 270,441
hours / 7,625 total investment advisers = 35 hours average initial burden per investment adviser.

20

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270. The average technology and business rate is ($268
business rate + $270 technology rate) / 2 = $269 average rate.
This figure was calculated as follows: ((6 compliance hours x $298 compliance rate) + (66
technology/business hours x $269 averaged technology/business rate)) x 2,738 large investment advisers =
$53,505,996 total initial costs for large investment advisers.
((3 compliance hours x $298 compliance rate) + (12 technology/business hours x $269 averaged
technology/business rate)) x 4,887 small investment advisers = $20,144,214 total initial costs for small
investment advisers.
$53,505,996 total initial cost large investment advisers + $20,144,214 total initial costs small investment
advisers = $73,650,210 total initial cost investment advisers / 7,625 total number of investment advisers =
$9,659 average initial cost per investment adviser.

21

This estimate is based upon staff experience. See e.g. Custody of Funds or Securities of Clients by
Investment Advisers, Investment Advisers Act Release No. 2968 (Dec. 30, 2009) (“Release 2968”) (“We
further estimate that the adviser will spend 10 minutes per client drafting and sending the notice.”);
Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management
Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26,
2009)] (“Enhanced Mutual Fund Disclosure Adopting Release”) (“we estimate, as we did in the proposing

8
that many firms will make many communication changes for their supervised persons, including
their business cards and letterheads, leaving only certain responsibilities to the individual such as
changes to their individual social media profile(s) and email signatures. Therefore, we
preliminarily estimate that the total initial one-time burden for supervised persons is 122,704
hours. 22 We preliminarily estimate a monetized cost of approximately $17,546,672 for
supervised persons. 23 This would be an annual average burden of 0.5 hours per supervised
person 24 (as monetized, is an annual average cost of $71.50 per supervised person). 25

release, that rule 498 will impose a ½ hour burden per portfolio annually associated with the compilation of
the additional information required on a cover page or at the beginning of the Summary Prospectus. Rule
498 also imposes annual hour burdens associated with the posting of a fund’s Summary Prospectus,
statutory prospectus, SAI, and most recent report to shareholders on an Internet website. We estimate that
the average hour burden for one portfolio to comply with the Internet website posting requirements will be
approximately one hour annually.”).
22

(0.5 hours x 245,408 supervised persons) = 122,704 total initial burden for supervised persons.

23

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per supervised person.
(0.5 hours x $143 total cost per supervised person x 245,408 supervised persons) = $17,546,672 total initial
cost for supervised persons.

24

(0.5 hours x 245,408 supervised persons) = 122,704 total initial burden for supervised persons.
(122,704 total initial burden for supervised persons / 245,408 total supervised persons) = 0.5 hours average
initial burden per investment adviser.

25

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per supervised person.
(0.5 hours x $143 total cost per supervised person x 245,408 supervised persons) = $17,546,672 total initial
cost for supervised persons / 245,408 total number of supervised persons) = $71.50 average initial cost per
supervised person.

9
b. Ongoing Annual Burdens for Investment Advisers and Supervised
Persons
For the ongoing burden of new communications for investment advisers, we preliminarily
estimate that the burden for compliance, business operations, and technology services for adding
a registration status statement would be 0.5 hours annual hours per investment adviser. 26 We
anticipate that investment advisers will need to add the registration disclosure to each new
communication which they create, however we anticipate the burdens associated with this task to
be minimal and therefore we do not believe there is a material difference between large and
small investment advisers. 27 We preliminarily estimate that the total ongoing annual aggregate
burden for investment advisers is 3,812.50 hours. 28 We preliminarily estimate a total ongoing
monetized cost of approximately $545,187.50 for investment advisers. 29 This would be an
annual average burden of 0.5 hours per investment advisers 30 (as monetized, is an annual average
cost of $71.50 per investment adviser). 31
26

This estimate is based upon staff experience. See e.g. Release 2968, supra note 21; Enhanced Mutual Fund
Disclosure Adopting Release, supra note 21.
In this estimate we are not calculating the print and technological associated burdens of updating
communications which we analyzed earlier as we are assuming those burdens to be a one-time initial
burden for a firm seeking compliance with the proposed rule.

27

Our assumption of no material difference between large and small investment advisers rests on the fact that
all major systems changes would already have been implemented as part of the initial burden. Therefore,
any new electronic communications would have the disclosure statement required by our proposed rule
built in at the outset which should take minimal time rather than having to retroactively insert it into the
systems logic which is a more onerous task. We note that such communications would likely be reviewed
by compliance staff for compliance with applicable securities laws including rule 206(4)-1 of the Advisers
Act. We anticipate that compliance with proposed rule 211h-1’s requirements would be reviewed as part of
this larger compliance check.

28

(0.5 hours x 7,625 investment advisers) = 3,812.50 total ongoing burden for investment advisers.

29

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per investment adviser.
(0.5 hours x $143 total cost per investment adviser x 7,625 investment advisers) = $545,187.50 total
ongoing cost for investment advisers.

30

(0.5 hours x 7,625 investment advisers) = 3,812.50 total ongoing burden for investment advisers.
(3,812.5 / 7,625 total investment advisers) = 0.5 hours average initial burden per investment adviser.

31

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.

10

For the ongoing burden of new communications for supervised persons of an investment
adviser, we preliminarily estimate that the burden for compliance, business operations, and
technology services for adding a registration status statement would be 0.5 hours. 32 Therefore,
we preliminarily estimate that the total ongoing annual aggregate burden for supervised persons
is 122,704 hours. 33 We preliminarily estimate a total ongoing monetized cost of approximately
$17,546,672 for supervised persons. 34 This would be an annual average burden of 0.5 hours per
supervised person 35 (as monetized, is an annual average cost of $71.50 per supervised person). 36
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per investment adviser.
(0.5 hours x $143 total cost per investment adviser x 7,625 investment advisers) = $545,187.50 total
ongoing cost for investment advisers / 7,625 total number of investment advisers = $71.50 average annual
ongoing cost per investment adviser.
32

This estimate is based upon staff experience. See e.g. Release 2968, supra note 21; Enhanced Mutual Fund
Disclosure Adopting Release, supra note 21.
In this estimate we are not calculating the print and technological associated burdens of updating
communications which we analyzed earlier as we are assuming those burdens to be a one-time initial
burden for a supervised person of an investment adviser seeking compliance with the proposed rule.

33

(0.5 hours x 245,408 supervised persons) = 122,704 total ongoing burden for supervised persons.

34

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per supervised person.
(0.5 hours x $143 total cost per supervised person x 245,408 supervised persons) = $17,546,672 total
ongoing cost for supervised persons.

35

(0.5 hours x 245,408 supervised persons) = 122,704 total ongoing annual burden for supervised persons.
(122,704 total initial burden for supervised persons / 245,408 total supervised persons) = 0.5 hours average
ongoing annual burden per supervised person.

36

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.

11

c. Burdens for New Investment Advisers and Supervised Persons
We believe that any new investment advisers and their supervised persons would likely
only incur the same ongoing annual burden estimate rather than the initial burden because they
would incorporate the proposed registration status in all communications at their inception and
not have to conduct a review and identification of outstanding communications nor make
changes to their already existing communications. We preliminarily estimate that the total
burden for new investment advisers is 238.50 hours,37 or approximately $34,105.50 on a
monetized basis. 38 This would be an initial average burden of 0.5 hours per new investment
adviser 39 (as monetized, is an initial average cost of $71.50 per new investment adviser). 40
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per supervised person.
(0.5 hours x $143 total cost per supervised person x 245,408 supervised persons) = $17,546,672 total
ongoing cost for supervised persons / 245,408 total number of supervised persons = $71.50 average
ongoing annual cost per supervised person.
37

(0.5 hours x 477 new investment advisers) = 238.50 total burden for new investment advisers.

38

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per investment adviser.
(0.5 hours x $143 total cost per investment adviser x 477 new investment advisers) = $34,105.50 total
initial cost for new investment advisers.

39

(0.5 hours x 477 new investment advisers) = 238.50 total initial burden for new investment advisers.
(238.50 total initial burden for new investment advisers/ 477 total new investment advisers) = 0.5 hours
average initial burden per investment adviser.

40

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per investment adviser.

12
Additionally, we anticipate 1,500 hours 41 for new supervised persons of an investment
adviser, or approximately $214,500 on a monetized basis 42 resulting from these requirements.
This would be an initial average burden of 0.5 hours per new supervised person43 (as monetized,
is an initial average cost of $71.50 per supervised person). 44

(0.5 hours x $143 total cost per investment adviser x 477 new investment advisers) = $34,105.50 total cost
for new investment advisers / 477 total number of new investment advisers = $71.50 average initial cost per
new investment adviser.
41

(0.5 hours x 3,000 new supervised persons) = 1,500 total burden for new supervised persons.

42

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per supervised person.
(0.5 hours x $143 total cost per supervised person x 3,000 new supervised persons) = $214,500 total cost
for new supervised persons.

43

(0.5 hours x 3,000 new supervised persons) = 1,500 total initial burden for new supervised persons.
(1,500 total initial burden for new supervised persons / 3000 total new supervised persons) = 0.5 hours
average initial burden per new supervised person.

44

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category.
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per supervised person.
(0.5 hours x $143 total cost per supervised person x 3,000 new supervised persons) = $214,500 total cost
for new supervised persons / 3,000 total number of new supervised persons = $71.50 average initial cost
per new supervised person.

Table 1: Summary of Annual Responses, Burden Hours, and Burden Hour Costs Estimates for Rule 211h-1
IC

Rule 211h-1 under the Investment
Advisers Act of 1940
Description of Parts of IC

IC1

Initial Costs for Existing Investment
Advisers and Supervised Persons

Ongoing Annual Burdens for Investment
Advisers and Supervised Persons
Burdens for New Investment Advisers
IC1 and Supervised Persons
Total for IC
IC1

Annual No. of Responses
Requested
Previously Change Due
Total
to Agency
approved
Discretion

Annual Time Burden (Hrs.)
Requested
Previously Change Due
Total
approved to Agency
Discretion

Monetized Time Burden ($)
Requested
Previously Change Due to
Total
approved
Agency
Discretion

0.00

245,408.00

245,408.00

0.00

393,145.00

393,145.00

0.00

91,196,882.00

91,196,882.00

0.00

7,625.00

7,625.00

0.00

126,516.50

126,516.50

0.00

18,091,859.50

18,091,859.50

0.00
0.00

3,477.00
256,510.00

3,477.00
256,510.00

0.00
0.00

1,738.50
521,400.00

1,738.50
521,400.00

0.00
0.00

34,105.50
34,105.50
109,322,847.00 109,322,847.00

13.

Cost to Respondents

Aside from the internal initial burden, we anticipate that there would be certain associated
outside costs as well. We estimate that the total estimated external cost to respondents for rule
211h-1 would be approximately $366,352,531 hours, as explained in the discussion below.
We believe that investment advisers and their supervised persons may engage outside
counsel to assist them in understanding our proposed rule should it be adopted. 45 We assume
that the amount of outsourced legal assistance would vary among various sizes of investment
advisers and their number of supervised persons. As a result, we preliminarily estimate that
large investment advisers together with their supervised persons may initially outsource
approximately 8 hours of legal time in order to understand the implications of our proposed rule
and how best to comply with the technical specifications. 46 For small investment advisers, we
anticipate that such firms will outsource 4 hours of legal time. 47 The hour differences in our
preliminary estimates take into account that larger firms have more communications affected by
our proposed rule and more supervised persons to supervise than small firms. We estimate initial
outside legal costs associated with the proposed rule of $19,565,344 for investment advisers 48 (or
$2,566 on average per investment adviser). 49
45

We are assuming that supervised persons would not independently seek outside counsel and would instead
rely on the advice received from outside counsel to the firm. Therefore, we are not including a separate
estimate for supervised persons.

46

This estimate is based upon staff experience. See e.g. See e.g. Disclosure of Order Handling Information
Proposed Rule, Securities Exchange Act Release No. 34-78309 (July 13, 2016) (“Release 34-78309”)
(estimating 4 hours for legal burden “to assign each order routing strategy for institutional orders into
passive, neutral, and aggressive categories and establish and document its specific methodologies for
assigning order routing strategies as required by Rule 606(b)(3)(v)”); Regulation of NMS Stock Alternative
Trading Systems Proposed Rule, Securities Exchange Act Release No. 34-76474 (Nov. 18, 2015) (“Release
34-76474”) (estimating 7 legal hours “to put in writing its safeguards and procedures to protect subscribers’
confidential trading information and the oversight procedures to ensure such safeguards and procedures are
followed….”).

47

This estimate is based upon staff experience. See supra note 46.

48

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for legal services is $472/hour.
($472 x 8 legal hours) = $3,776 x 2,738 large investment advisers = $10,338,688.
($472 x 4 legal hours) = $1,888 x 4,887 small investment advisers = $9,226,656.
($10,338,688 total large investment advisers costs + $9,226,656 total small investment advisers costs) =
$19,565,344.

49

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for legal services is $472/hour.
($472 x 8 legal hours) = $3,776 x 2,738 large investment advisers = $10,338,688.
($472 x 4 legal hours) = $1,888 x 4,887 small investment advisers = $9,226,656.
$10,338,688 total large investment advisers costs + $9,226,656 total small investment advisers costs =
$19,565,344 /7625 total investment advisers = $2,566 total cost per investment adviser.

Additionally, we anticipate that firms will also have one-time outside costs associated
with the cost of printing new communications including new business cards, envelopes, pitch
books, and letterheads. As part of these costs, we anticipate that both large and small investment
advisers will have to work with printers to set the disclosure on, for example, business cards. We
estimate initial costs to amend certain communications associated with the proposed rule of
$346,787,187 for investment advisers 50 (or $45,480 per investment adviser). 51 We assume that
because small investment advisers have fewer supervised persons there will be less
communications that will require printing.
We do anticipate that new investment advisers would also incur similar outside legal
costs, depending on their size, as discussed above. We do not believe that such new investment
advisers would incur outside printing costs as a result of our proposed rule because these new
firms would have their print communications produced with the appropriate disclosure initially
as part of other materials they seek to have printed.
14.
1.

Estimate of Cost to Federal Government

There are no costs to the federal government directly attributable to proposed rule 211h15.

Change in Burden

Not applicable. This is the first request for approval of the collection of information for
this rule.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

Not applicable.
50

Our estimates are based on staff experience and industry materials. In particular, staff factored in its cost
estimate the costs associated with printing envelopes, pitch books, letter heads, and business cards. For
large investment advisers, we assume printing costs of $65,973. For small investment advisers, we assume
printing costs of $33,999.
($65,973 x 2,738 large investment advisers = $180,634,074) + ($33,999 x 4,887 small investment advisers
= $166,153,113) = $346,787,187 total investment adviser outside costs.

51

($65,973 x 2,738 large investment advisers = $180,634,074) + ($33,999 x 4,887 small investment advisers
= $166,153,113) = $346,787,187 total investment adviser outside costs / 7,625 investment advisers
=$45,480 total cost per investment adviser.

16
B.

Collection of Information Employing Statistical Methods
Not applicable.