UPDATED Form ADV Supporting Statement (9-11)

SUPPORTING STATEMENT
FOR PAPERWORK REDUCTION ACT SUBMISSION
FOR AMENDMENTS TO FORM ADV
UNDER THE INVESTMENT ADVISERS ACT OF 1940
(17 CFR 279.1)
A.

JUSTIFICATION
1.

Necessity for the Information Collection

On June 5, 2019, the Securities and Exchange Commission (the “Commission” or
“SEC”) adopted amendments to Form ADV 1, and related rules under the Investment
Advisers Act of 1940 (the “Advisers Act” or “Act”), adding new Form ADV Part 3:
Form CRS (the relationship summary) requiring certain registered investment advisers to
prepare and file a relationship summary for retail investors. 2 Form ADV is now a threepart investment adviser registration form. Part 1 of Form ADV contains information used
primarily by Commission staff and Part 2 is the client brochure. New Part 3 will require
registered investment advisers that offer services to retail investors to prepare and file
with the Commission, post to the adviser’s website (if it has one), and deliver to retail
investors a relationship summary. The Commission uses the information on Form ADV

1

17 CFR 279.1.

2

Form CRS Relationship Summary; Amendments to Form ADV, Release Nos. IA-5247;
34-86032 (June 5, 2019) [84 FR 33492 (Jul. 12, 2019]. The amendments to Form ADV
were proposed in Form CRS Relationship Summary; Amendments to Form ADV;
Required Disclosures in Retail Communications and Restrictions on use of Certain
Names or Titles, Investment Advisers Act Release No. 4888. Exchange Act Release No.
83063 (Apr. 18, 2018) [83 FR 23848 (May 23, 2018)] (“Proposing Release”).

to determine eligibility for registration with us and to manage our regulatory and
examination programs. Clients would use the information required in Form ADV
(including new Part 3) to determine whether to hire or retain an investment adviser, as
well as what types of accounts and services are appropriate for their needs.
The Commission did not propose amendments to Part 1 or 2. 3 Rule 203-1 4
under the Advisers Act requires every person applying for investment adviser registration
with the Commission to file Form ADV. Rule 204-4 5 under the Advisers Act requires
certain investment advisers exempt from registration with the Commission (“exempt
reporting advisers”) to file reports with the Commission by completing a limited number
of items on Form ADV. Rule 204-1 6 under the Advisers Act requires any adviser that is
required to complete Form ADV to update the form at least annually, including exempt
reporting advisers that report to the Commission pursuant to rule 204-4 and requires
advisers to submit electronic filings through the Investment Adviser Registration
Depository (“IARD”). The paperwork burdens associated with rules 203-1 and 204-1 are
included in the approved annual burden associated with Form ADV and thus do not entail
a separate collection of information. The paperwork burdens associated with rule 204-4

3

The Commission adopted conforming technical amendments to the General Instructions
of Form ADV to add references to the Part 3, but these amendments will not affect the
burden of Part 1 or Part 2.

4

17 CFR 275.203-1.

5

17 CFR 275.204-4.

6

17 CFR 275.204-1.

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are also included in the approved annual burden associated with Form ADV and likewise
do not entail a separate collection of information.
Form ADV contains “collection of information” requirements within the meaning
of the Paperwork Reduction Act of 1995. 7 New Part 3 of Form ADV contains collections
of information. The collections are necessary to provide advisory clients, prospective
clients, and the Commission with information about the relationships and services the
firm offers to retail investors, fees and costs that the retail investor will pay, specific
conflicts of interest and standards of conduct, legal or disciplinary history, and how to
obtain additional information about the firm. Responses are not kept confidential.
The title of this collection of information is: “Form ADV under the Investment
Advisers Act of 1940” and the Commission previously submitted 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. OMB approved, and subsequently extended, this collection
under control number 3235-0049 (expiring on August 31, 2020). 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 control number. This collection of information
is codified at 17 CFR 279.1, 17 CFR 275.203-1, 17 CFR 275.204-1 and 17 CFR 275.2044 and is mandatory. The respondents are investment advisers registered with the
Commission or applying for registration with the Commission or exempt reporting
advisers.

7

44 U.S.C. 3501 to 3520.

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2.

Purpose and Use of the Information Collection

The purpose of this collection of information is to provide advisory clients,
prospective clients, and the Commission with information about an adviser, and its
business, conflicts of interest and personnel. We use the information to determine
eligibility for registration with us and to manage our regulatory, examination, and
enforcement programs. Clients use certain of the information to determine whether to
hire an adviser and, if hired, how to manage that relationship.
This collection of information is found at 17 CFR 275.203-1, 275.204-1, 275.2044, and 275.279.1, and it is mandatory. Responses are not kept confidential. The majority
of the respondents to the Form ADV collection of information are investment advisers
registered with the Commission or applying for registration with the Commission while
the additional respondents to the Form ADV collection of information are exempt
reporting advisers. The information collected takes the form of disclosures to
respondents’ clients, potential clients, and the Commission.
3.

Consideration Given to Information Technology

The information collected pursuant to Form ADV takes the form of disclosures
made by investment advisers to their clients and potential clients and reporting to the
Commission. Investment advisers currently file their Form ADV electronically on the
IARD system. This method of collecting information reduces the regulatory burden upon
investment advisers by permitting them to file applications for registration, and

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amendments thereto, at one central location, rather than filing Form ADV separately with
the Commission and the states for notice filing purposes.
Exempt reporting advisers are subject to reporting, but not registration
requirements and must submit their reports through the IARD using the same process as
registered investment advisers. Because exempt reporting advisers may be required to
register on Form ADV with one or more state securities authorities, use of the existing
form and filing system permits these advisers to satisfy both state and Commission
requirements with a single electronic filing. Our approach permits an adviser to
transition from filing reports with us to applying for registration under the Act by simply
amending its Form ADV; the adviser would check the box to indicate it is filing an initial
application for registration, complete the items it did not have to answer as an exempt
reporting adviser, and update the pre-populated items that it already has on file.
4.

Duplication

The collection of information requirements of the form, including the
amendments to the form, are not duplicated elsewhere. While Form ADV Part 3 requires
firms to summarize topics also required to be discussed in Form ADV Part 1 or Part 2,
the Part 3 has a distinct purpose to help retail investors select or determine whether to
remain with a firm or financial professional by providing better transparency and
summarizing in one place selected information about a particular investment adviser.
The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates these requirements whenever it adopts
amendments to its rules.

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5.

Effect on Small Entities

The requirements of Form ADV, including the amendments, are the same for all
investment advisers registered with the Commission, and they are the same for all exempt
reporting advisers, including (in both cases) those advisers that are small entities.
Investment advisers with less than $100 million in assets under management generally
are not permitted to register with the Commission and must register with state securities
authorities. Because the protections of the Advisers Act are intended to apply equally to
retail investor clients of both large and small firms, it would be inconsistent with the
purposes of the Advisers Act to specify differences for small entities under the new
requirements. The Commission reviews all rules periodically, as required by the
Regulatory Flexibility Act, to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses.
6.

Consequences of Not Conducting Collection

The collection of information required by the form is necessary to protect
investors by providing clients and potential clients, as well as the Commission, with
information about the adviser, and its business, conflicts of interest and personnel. The
consequences of not collecting this information would be that clients and prospective clients
may not have the information they need in order to evaluate the adviser’s business practices
and to determine whether to hire an adviser and, if hired, how to manage that relationship.
In addition, if the information is either not collected or is collected less frequently, the
Commission’s ability to protect investors would be reduced.

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7.

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

Not applicable.
8.

Consultation With Persons Outside the Agency

In its release proposing amendments to Form ADV, the Commission requested
public comment on the effect of information collections under the proposed rule
amendments. The Commission received several comments on the collection of
information requirements that addressed whether the relationship summary is duplicative
of other disclosures and necessary for investment advisers, and whether we could further
minimize the burden of the proposed collections of information. Other commenters
suggested that our burden estimates were too low for the proposed collection of information
and that the current approved burdens for Form ADV are too low. We have considered these
comments and are increasing our PRA burden estimates from 5 hours to 20 hours for
investment advisers to prepare and file the relationship summary. We also modified several
substantive requirements to mitigate some of these estimated increased costs relative to the
proposal. The Commission and staff of the Division of Investment Management also

participate in an ongoing dialogue with representatives of the investment advisory and
industry through public conferences, meetings, and informal exchanges. These various
forums provide the Commission and staff with a means of ascertaining and acting upon
paperwork burdens confronting the industry.
9.

Payment or Gift

None.

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10.

Confidentiality

The assurance of information collected pursuant to Form ADV is through filings
with the Commission. These disclosures are not kept confidential.
11.

Sensitive Questions

a.

No information of a sensitive nature will be required under this collection

of information. The IARD system contains an embedded check which prevents
individuals' social security numbers from being subject to public view.
b.

The information collection collects basic Personally Identifiable

Information (PII) that may include names, dates of birth and social security numbers (the
social security numbers are screened from public view). The agency has determined that
the information collection constitutes a system of record for purposes of the Privacy Act
and is covered under System of Records Notice (SORN) SEC-50 "Investment Adviser
Records". The Investment Adviser Records SORN is provided as a supplemental
document and is also available at https://www.sec.gov/privacy. A Privacy Act Statement
is applicable for the information collection and is available on the paper form and web
platform.
c.

In accordance with Section 208 of the E-Government Act of 2002, the

agency has conducted a Privacy Impact Assessment (PIA) of the IARD system, in
connection with this collection of information. The IARD PIA, published on July 8,
2014, is provided as a supplemental document and is also available at
https://www.sec.gov/privacy.

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Form ADV collects Personally Identifiable Information (PII). Form ADV
requires filers to provide names, dates of birth and social security numbers (the social
security numbers are screened from public view). The IARD system contains an
embedded check which prevents individuals from providing social security numbers. All
individuals (and entities other than trusts) are required to obtain CRD numbers, which do
not constitute PII. Such collection and usage is necessary for verification purposes.
Commission staff uses this information for positive verification of individuals and
entities. Alternative identities are used for all individuals and entities other than trusts
because a social security number is the only identifier available to them. The
Commission complies with section 7 of the Privacy Act of 1974 because the Advisers
Act authorizes the Commission to collect this information on Form ADV from advisers. 8
Filing Form ADV is mandatory. A System of Records Notice has been published in the
Federal Register at 66 FR 7820. It, along with instructions on how to obtain the
applicable Privacy Impact Assessment, can be found at:
http://www.sec.gov/about/privacy/secprivacyoffice.htm.
12.

Burden of Information Collection

The currently approved total aggregate annual hour burden estimate for all
advisers of completing, amending and filing Form ADV (Part 1 and Part 2) with the

8

See 15 U.S.C. §§ 80b-3 and 80b-4.

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Commission is 363,082 hours, 9 or a blended average of 23.77 hours per adviser, 10 with a
monetized total of $92,404,369, or $6,051 per adviser. 11 The currently approved annual
cost burden is $13,683,500. This burden estimate is based on: (i) the total annual
collection of information burden for SEC-registered advisers to file and complete Form
ADV (Part 1 and Part 2); and (ii) the total annual collection of information burden for
exempt reporting advisers to file and complete the required items of Part 1A of Form
ADV. Broken down by adviser type, the current approved total annual hour burden is
29.22 hours per SEC-registered adviser, and 3.60 hours per exempt reporting adviser. 12
The new amendments will increase the current burden estimate to 37.47 hours per SECregistered adviser, and maintain the 3.60 hours per exempt reporting adviser due in part
to the amendments to Form ADV to add Form ADV Part 3 (the relationship summary)
and the increased number of investment advisers and exempt reporting advisers since the
last burden estimate. As noted above, we are not adopting any changes to Part 1 or Part 2
of Form ADV.
The respondents to current Form ADV are investment advisers registered with the
Commission or applying for registration with the Commission and exempt reporting

9

See Form ADV and Investment Advisers Act Rules, Final Rule, Investment Advisers Act
Release No. 4509 (Aug. 25, 2016) [81 FR 60418 (Sep. 1, 2016)] (“2016 Form ADV
Paperwork Reduction Analysis”).

10

363,082 hours / (12,024 registered advisers + 3,248 exempt reporting advisers) = 23.77
hours.

11

$92,404,369 hours / (12,024 registered advisers + 3,248 exempt reporting advisers) =
$6,051.

12

See 2016 Form ADV Paperwork Reduction Analysis, supra note 9, at 81 FR 60454.

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advisers. 13 As of December 31, 2018, 13,299 investment advisers were registered with
the Commission, and 4,280 exempt reporting advisers report information to the
Commission.
Only those registered investment advisers offering services to retail investors will
be required to prepare and file a relationship summary. Based on IARD system data, the
Commission estimates that 8,235 registered investment advisers provide advice to
individual high net worth and individual non-high net worth clients. 14 This would leave
5,064 registered investment advisers that do not provide advice to retail investors 15 and
4,280 exempt reporting advisers that will not be subject to Form ADV Part 3

13

An exempt reporting adviser is an investment adviser that relies on the exemption from
investment adviser registration provided in either section 203(l) of the Advisers Act
because it is an adviser solely to one or more venture capital funds or 203(m) of the
Advisers Act because it is an adviser solely to private funds and has assets under
management in the United States of less than $150 million. An exempt reporting adviser
is not a registered investment adviser and therefore would not be subject to the
relationship summary requirements.

14

Based on responses to Item 5.D. of Form ADV. These advisers indicated that they advise
either high net worth individuals or individuals (other than high net worth individuals),
which includes trusts, estates, and 401(k) plans and IRAs of individuals and their family
members, but does not include businesses organized as sole proprietorships in Item
5.D.(a)(1) of Form ADV or have regulatory assets attributable to either high net worth individuals
or individuals other than high net worth individuals in Item 5.D.(a)(3) of Form ADV. The

definition of retail investor will include the legal representatives of natural persons who
seek to receive or receive services primarily for personal, family, or household purposes.
A legal representative of a natural person will cover only non-professional legal
representatives (e.g., a non-professional trustee that represents the assets of a natural
person and similar representatives such as executors, conservators, and persons holding a
power of attorney for a natural person). We are not able to determine, based on responses
to Form ADV, exactly how many advisers provide investment advice to these types of
trusts or other entities; however, we believe that these advisers most likely also advise
individuals and are therefore included in our estimate.
15

13,299 registered investment advisers – 8,235 = 5,064 registered investment advisers not
providing advice to retail investors.

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requirements, but are included in the PRA analysis for purposes of updating the overall
Form ADV information collection. 16
The amendments to Form ADV to add Part 3 will increase the information
collection burden for registered investment advisers with retail investors. The
Commission requires that those investment advisers file their Form ADV Part 3 with the
Commission electronically through IARD in the same manner as they currently file Form
ADV Parts 1 and 2. The Commission also requires that all relationship summaries be
filed in text-searchable format with machine-readable headings. Investment advisers also
will need to amend and file an updated relationship summary within 30 days whenever
any information becomes materially inaccurate.
For investment advisers not required to prepare and file Form ADV Part 3, the per
adviser annual hour burden for meeting their Form ADV requirements will remain the
same, at 29.22 hours per registered investment adviser without Form ADV Part 3
obligations. Similarly, because exempt reporting advisers will not have Form ADV Part
3 obligations, the annual hour burden for exempt reporting advisers to meet their Form
ADV obligations will remain the same, at 3.60 hours per exempt reporting adviser.
However, although we are not adopting changes to Form ADV Part 1 and Part 2, and the
per adviser information collection burden will not increase for those without the
obligation to prepare and file Form ADV Part 3, the information collection burden
attributable to Parts 1 and 2 of Form ADV will increase due to an increase in the number

16

13,299 registered investment advisers + 4,280 exempt reporting advisers = 17,579 total
responses based on IARD system data. We also note that these figures include the
burdens for 318 registered broker-dealers that are dually registered as investment advisers
as of December 31, 2018.

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of registered investment advisers and exempt reporting advisers since the last information
collection burden estimate.
a.

Initial Preparation and Filing of Relationship Summary

For investment advisers that provide advice to retail investors, we estimate that
the initial first year burden for preparing and filing the relationship summary will be 20
hours per registered adviser. We are revising our estimate of the time that it would take
each adviser to prepare and file the relationship summary in the first year from 5 hours in
the proposal to 20 hours, considering comments that our estimated burden was too low
and the changes we are making to the proposed relationship summary. We therefore
estimate that the total burden of preparing and filing the relationship summary will be
164,700 hours. 17
As with the Commission’s prior Paperwork Reduction Act estimates for Form
ADV, we believe that most of the paperwork burden will be incurred in advisers’ initial
preparation and submission of Form ADV Part 3, and that over time this burden will
decrease substantially because the paperwork burden would be limited to updating
information. 18 As under the currently approved collection, the estimated initial burden
associated with preparing the relationship summary will be amortized over the estimated
period that advisers will use the relationship summary, i.e., over a three-year period. 19

17

20.0 hours x 8,235 investment advisers = 164,700 total aggregate initial hours.

18

We discuss the burden for advisers making annual updating amendments to Form ADV
below.

19

See 2016 Form ADV Paperwork Reduction Analysis, supra note 9.

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The annual hour burden of preparing and filing the relationship summary will therefore
be 54,900. 20 In addition, based on IARD system data, the Commission assumes that
1,227 new investment advisers will file Form ADV with us annually. Of these, we
estimate that 656 will be required to prepare and file the relationship summary. 21
Therefore, the aggregate initial burden for newly registered advisers to prepare and file
the relationship summary will be 13,120 22 and, amortized over three years, 4,373 on an
annual basis. 23 In sum, the annual hour burden for existing and newly registered
investment advisers to prepare and file a relationship summary will be 59,273 hours, 24 or
approximately 6.67 hours per adviser, 25 for an annual monetized cost of $16,181,529, or
$1,965 per adviser. 26

20

20 hours x 8,235 investment advisers / 3 = 54,900 total annual aggregate hours.

21

The number of new investment advisers is calculated by looking at the number of new
advisers in 2017 and 2018 and then determining the number each year that serviced retail
investors. (644 for 2017 + 668 for 2018) / 2 = 656.

22

656 new RIAs required to prepare relationship summary x 20.0 hours = 13,120 hours for
new RIAs to prepare relationship summary.

23

656 x 20.0 hours / 3 = 4,373.

24

(164,700 + 13,120) / 3 years = 59,273 annual hour burden for existing and new advisers
to prepare and file relationship summary.

25

59,273 hours / (8,235 existing advisers + 656 new advisers) = 6.67 hours per year.

26

59,273 is the total aggregate initial hour burden for preparing and filing a relationship
summary. We believe that performance of this function will most likely be equally
allocated between a senior compliance examiner and a compliance manager. Data from
the Securities Industry Financial Markets Association’s Management & Professional
Earnings in the Securities Industry 2013 (“SIFMA Management and Professional
Earnings Report”), modified by Commission staff to account for an 1,800-hour workyear and inflation, and multiplied by 5.35 (professionals) or 2.93 (office) to account for
bonuses, firm size, employee benefits, and overhead, suggest that costs for these positions
are $237 and $309 per hour, respectively. (59,273 hours x 50% x $237) + (59,273 hours x
50% x $309 = $16,181,529). $16,181,529 / 8,235 investment advisers = $1,965 per
investment adviser. The SIFMA Management and Professional Earnings Report was
updated in 2019 to reflect inflation. The numbers in the report are higher than the

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b.

Amendments to the Relationship Summary and Filing of

Amendments
The current approved information collection burden for Form ADV also includes
the hour burden associated with annual and other amendments to Form ADV, among
other requirements. We estimate that the relationship summary will increase the annual
burden associated with Form ADV by 0.5 hours 27 due to amendments to the relationship
summary for those advisers required to prepare and file a relationship summary. The
Commission is also requiring that firms delivering updated relationship summaries to
existing clients also highlight the most recent changes by, for example, marking the
revised text or including a summary of material changes. 28 Therefore we are increasing
the burden to 1 hour 29 instead of our proposed 0.5 hours estimate. We do not expect
amendments to be frequent, but based on the historical frequency of amendments made
on Form ADV Parts 1 and 2, we estimate that on average, each adviser preparing a

numbers we used in the Proposing Release and, along with the higher hourly burden,
result in higher cost estimates in this release, relative to the proposal.
27

We had previously estimated that investment advisers would incur 0.5 hours to prepare
an interim (other-than-annual) amendment to Form ADV. See 20416 Form ADV
Paperwork Reduction Analysis, supra note 9, at 81 FR at 60452.

28

Additionally, we are requiring that the additional disclosure showing the revised text or
summarizing the material changes be attached as an exhibit to the unmarked relationship
summary.

29

We have previously estimated that investment advisers would incur 0.5 hours to prepare
an interim (other-than-annual) amendment to Form ADV. See 2016 Form ADV
Paperwork Reduction Analysis, supra footnote 9, at 81 FR at 60452.

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relationship summary will likely amend and file the disclosure an average of 1.71 times
per year. 30 We therefore estimate that for making and filing amendments to their
relationship summaries, advisers will incur an estimated total paperwork burden of
14,082 hours per year, 31 or approximately 1.58 hours per adviser, 32 for an annual
monetized cost of $3,844,386, or $467 per adviser. 33
For existing and newly-registered advisers with relationship summary obligations,
the additional burden attributable to amendments to Form ADV to add Part 3: Form
CRS, (including the initial preparation and filing of the relationship summary and
amendments thereto) totals 73,355 hours, 34 or 8.25 hours per adviser, 35 and a monetized
cost of $20,025,915, or $2,252 per adviser. 36

30

Based on IARD data as of December 31, 2018, 8,235 investment advisers with retail
clients filed 14,118 other-than-annual amendments to Form ADV. 14,118 other-thanannual amendments / 8,235 investment advisers = 1.71 amendments per investment
adviser.

31

8,235 investment advisers amending relationship summaries x 1.71 amendments per year
x 1 hour = 14,082 hours.

32

14,082 hours / (8,235 existing advisers + 656 new advisers) = 1.58 hours per year.

33

14,082 is the total aggregate initial hour burden for amending relationship summaries.
We believe that performance of this function will most likely be equally allocated
between a senior compliance examiner and a compliance manager. Data from the SIFMA
Management and Professional Earnings Report suggest that costs for these positions are
$237 and $309 per hour, respectively. (14,082 hours x 50% x $237 + 14,082 hours x 50%
x $309 = $3,844,386. $3,844,386 / 8,235 investment advisers = $467 per investment
adviser.

34

59,273 hours for initial preparation and filing of the relationship summary + 14,082 hours
for amendments to the relationship summary = 73,355 total aggregate annual hour burden
attributable to the Form ADV amendments to add Part 3: Form CRS.

35

73,355 hours / (8,235 existing advisers + 656 newly registered advisers) = 8.25 hours per
adviser.

36

73,355 total aggregate annual hour burden for preparing, filing, and amending a
relationship summary. We believe that performance of this function will most likely be

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As discussed above, the currently approved total aggregate annual hour burden for
all registered advisers completing, amending, and filing Form ADV (Part 1 and Part 2)
with the Commission is 363,082 hours, or a blended average per adviser burden of 23.77
hours, with a monetized cost of $92,404,369, or $6,051 per adviser. This includes the
total annual hour burden for registered advisers of 351,386 hours, or 29.22 hours per
registered adviser, and 11,696 hours for exempt reporting advisers, or 3.60 hours per
exempt reporting adviser. For purposes of updating the total information collection based
on the proposed amendments to Form ADV, we consider three categories of respondents,
as noted above: (i) existing and newly-registered advisers preparing and filing a
relationship summary, (ii) registered advisers with no obligation to prepare and file a
relationship summary, and (iii) exempt reporting advisers.
For existing and newly-registered advisers preparing and filing a relationship
summary, including amendments to the disclosure, the total annual collection of
information burden for preparing all of Form ADV, updated to reflect the amendments to
Form ADV, equals 37.47 hours per adviser, with 8.25 hours attributable to the adopted

equally allocated between a senior compliance examiner and a compliance manager.
Data from the SIFMA Management and Professional Earnings Report suggest that costs
for these positions are $237 and $309 per hour, respectively. 73,355 hours x 50% x $237
= $8,692,568. 73,355 hours x 50% x $309 = $11,333,348. $8,692,568 + $11,333,348 =
$20,025,915. $20,025,915 / (8,235 existing registered advisers + 656 newly registered
advisers) = $2,252 per adviser.

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amendments. 37 On an aggregate basis, this totals 333,146 hours for existing and newly
registered advisers, with a monetized value of $90,978,858. 38
As noted above, we estimate 5,064 of existing registered advisers will not have
retail investors; therefore, they will not be obligated to prepare and file relationship
summaries, so their annual per adviser hour burden will remain unchanged. 39 To that
end, using the currently approved total annual hour estimate of 29.22 hours per registered
investment adviser to prepare and amend Form ADV, we estimate that the updated
annual hourly burden for all existing and newly-registered investment advisers not
required to prepare a relationship summary will be 164,655, 40 with a monetized value of
$44,950,816. 41 The revised total annual collection of information burden for exempt

37

29.22 hours + 8.25 hours for increase in burden attributable to initial preparation and
filing of, and amendments to, relationship summary = 37.47 hours total.

38

37.47 hours x (8,235 existing RIAs required to prepare a relationship summary + 656
newly registered RIAs required to prepare a relationship summary) = 333,146 total
aggregate annual hour burden for preparing, filing and amending a relationship summary.
We believe that performance of this function will most likely be equally allocated
between a senior compliance examiner and a compliance manager. Data from the
SIFMA Management and Professional Earnings Report suggest that costs for these
positions are $237 and $309 per hour, respectively. 333,146 hours x 0.5 x $237 =
$39,477,801. 333,146 hours x 0.5 x $309 = $51,471,057. $39,477,801 + $51,471,057 =
$90,948,858.

39

13,299 registered investment advisers – 8,235 registered investment advisers with retail
investors = 5,064 registered investment advisers without retail investors.

40

29.22 hours x (5,064 existing and 571 newly-registered investment advisers without retail
investors) = approximately 164,655 total annual hour burden for RIAs not preparing a
relationship summary.

41

We believe that performance of this function for registered advisers will most likely be
equally allocated between a senior compliance examiner and a compliance manager. Data
from the SIFMA Management and Professional Earnings Report suggest that costs for
these positions are $237 and $309 per hour, respectively. 164,655 hours x 50% x $237 =
$19,511,618. 164,655 hours x 50% x $309 = $25,439,198. $19,511,618 + $25,439,198 =
$44,950,816.

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reporting advisers, using the currently approved estimate of 3.60 hours per exempt
reporting adviser, will be 16,996 hours, 42 for a monetized cost of $4,639,908, or $983 per
exempt reporting adviser. 43
In summary, factoring in the amendments to Form ADV to add Part 3, the revised
annual aggregate burden for Form ADV for all registered advisers and exempt reporting
advisers will be 514,797, 44 for a monetized cost of $140,569,582. 45 This results in an
annual blended average per adviser burden for Form ADV of 29.28 hours 46 and $7,996
per adviser. 47 This is an increase of 151,715 hours, 48 or $48,165,213 49 in the monetized
value of the hour burden, from the currently approved annual aggregate burden estimates,

42

3.60 hours x 4,280 exempt reporting advisers currently + 441 new exempt reporting
advisers = 16,996 hours.

43

As with preparation of the Form ADV for registered advisers, we believe that
performance of this function for exempt reporting advisers will most likely be equally
allocated between a senior compliance examiner and a compliance manager. Data from
the SIFMA Management and Professional Earnings Report suggest that costs for these
positions are $237 and $309 per hour, respectively. 16,996 hours x 0.5 x $237 =
$2,014,026. 16,996 hours x 0.5 x $309 = $2,625,882. $2,014,026 + $2,625,882 =
$4,639,908. $4,639,908 / (4,280 exempt reporting advisers currently + 441 new exempt
reporting advisers) = $983 per exempt reporting adviser.

44

333,146 annual hour burden for RIAs preparing relationship summary + 164,655 annual
hour burden for RIAs not preparing relationship summary + 16,996 annual hour burden
for exempt reporting advisers = 514,797 total updated Form ADV annual hour burden.

45

$90,948,858 for RIAs preparing relationship summary + $44,950,816 for RIAs not
preparing relationship summary + $4,639,908 for exempt reporting advisers =
$140,539,582 total updated Form ADV annual monetized hourly burden.

46

514,797 / (13,299 registered investment advisers + 4,280 exempt reporting advisers) =
29.28 hours per adviser.

47

$140,569,582 / 13,299 registered investment advisers + 4,280 exempt reporting advisers)
= $7,995 per adviser.

48

514,797 hours estimated – 363,082 hours currently approved = 151,715 hour increase in
aggregate annual hourly burden.

49

$140,569,582 monetized hourly burden – $92,404,369 = $48,165,213 increase in
aggregate annual monetized hourly burden.

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increases which are attributable primarily to the larger registered investment adviser and
exempt reporting adviser population since the most recent approval, adjustments for
inflation, and the amendments to Form ADV to add Part 3.

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Table 1: BURDEN ESTIMATES FOR FORM ADV

IC

Amndments to Form ADV under the
Investment Advisers Act of 1940
Description of Parts of IC

Initial Preparation and Filing of the
Relationship Summary and Amendments
to the Relationship Summary and Filing
IC1 of Amendments
Total for IC

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

15,272
15,272

17,579
17,579

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

2,307
2,307

363,082
363,082

514,797
514,797

151,715
151,715

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

90,978,858
90,978,858

140,569,582
140,569,582

48,165,213
48,165,213

13.

Cost to Respondents

The currently approved annual cost burden for Form ADV is $13,683,500,
$3,600,000 of which is attributable to external costs incurred by new advisers to prepare
Form ADV Part 2, and $10,083,500 of which is attributable to obtaining the fair value of
certain private fund assets. 50 The currently approved total annual collection of
information burden estimate for Form ADV anticipates that there will be external costs,
including (i) a one-time initial cost for outside legal and compliance consulting fees in
connection with the initial preparation of Part 2 of Form ADV, and (ii) the cost for
investment advisers to private funds to report the fair value of their private fund assets. 51
We do not anticipate that the amendments to add a new Part 3 will affect the per adviser
cost burden for those existing requirements but anticipate that some advisers may incur a
one-time initial incremental cost for outside legal and consulting fees in connection with
the initial preparation of the relationship summary. We do not anticipate external costs to
investment advisers in the form of website set-up, maintenance, or licensing fees because
they would not be required to establish a website for the sole purpose of posting their
relationship summary if they do not already have a website. We also do not expect other

50

See 2016 Form ADV Paperwork Reduction Analysis, supra note 9, at 81 FR at 60452-53.
The $10,083,500 is based on 4,469 registered advisers reporting private fund activity as
of May 16, 2016.

51

See 2016 Form ADV Paperwork Reduction Analysis, supra note 9, at 81 FR 60452. We
do not anticipate that the amendments that the Commission proposed to add Form ADV
Part 3 will affect those per adviser cost burden estimates for outside legal and compliance
consulting fees. The estimated external costs of outside legal and consulting services for
the relationship summary are in addition to the estimated hour burden discussed above.

ongoing external costs for the relationship summary. We estimate that an external
service provider will spend 5 hours helping an adviser prepare an initial relationship
summary. While we recognize that different firms may require different amounts of
external assistance in preparing the relationship summary, we believe that this is an
appropriate average number for estimating an aggregate amount for the industry purposes
of the PRA analysis, particularly given our experience with the burdens for Form ADV. 52
Although advisers that will be subject to the relationship summary requirement
may vary widely in terms of the size, complexity, and nature of their advisory business,
we believe that the strict page limits will make it unlikely that the amount of time, and
thus cost, required for outside legal and compliance review will vary substantially among
those advisers who elect to obtain outside assistance.
Most of the information proposed to be required in the relationship summary is
readily available to investment advisers from Form ADV Part 2A, and the narrative
descriptions are concise, brief, and at a summary level. As a result, we anticipate that a
quarter of advisers will seek the help of outside legal services and half will seek the help
of compliance consulting services in connection with the initial preparation of the
relationship summary. We estimate that the initial per existing adviser cost for legal

52

In estimating the external cost for the initial preparation of Form ADV Part 2, we
estimated that small, medium, and large advisers would require 8, 11, and 26 hours of
outside assistance, respectively, to prepare Form ADV Part 2. See Brochure Adopting
Release at 75 FR at 49257. In comparison, as discussed above, the relationship summary
is limited to two pages in length for standalone investment advisers and four pages in
length for dual registrants.

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services related to the preparation of the relationship summary will be $2,485. 53 We
estimate that the initial per existing adviser cost for compliance consulting services
related to the preparation of the relationship summary will be $3,705. 54 Thus, the
incremental external cost burden for existing investment advisers is estimated to be
$20,371,331, or $6,790,444 annually when amortized over a three-year period. 55 In
addition, we estimate that 1,227 new advisers will register with us annually, 656 of which
will be required to prepare a relationship summary. For these 656 new advisers, we
estimate that they will require $1,622,780 in external costs to prepare the relationship
summary, or $540,927 amortized over three years. 56

In summary, the annual external

legal and compliance consulting cost for existing and new advisers relating to obligations

53

External legal fees are in addition to the projected hour per adviser burden discussed
above. Data from the SIFMA Management and Professional Earnings Report suggest
that outside legal services cost approximately $497 per hour. $497 per hour for legal
services x 5 hours per adviser = $2,485. The hourly cost estimate of $497 is based on an
inflation-adjusted figure and our consultation with advisers and law firms who regularly
assist them in compliance matters.

54

External compliance consulting fees are in addition to the projected hour per adviser
burden discussed above. Data from the SIFMA Management and Professional Earnings
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, and adjusted for
inflation, suggest that outside management consulting services cost approximately $741
per hour. $741 per hour for outside consulting services x 5 hours per adviser = $3,705.

55

25% x 8,235 existing advisers x $2,485 for legal services = $5,115,994 for legal services.
50% x 8,235 existing advisers x $3,705 for compliance consulting services =
$15,255,338. $5,115,994 + $15,255,338 = $20,371,331 in external legal and compliance
consulting costs for existing advisers. $20,371,333 / 3 = $6,790,444 annually.

56

25% x 656 new advisers x $2,485 for legal services = $407,540. 50% x 656 new advisers
x $3,705 for compliance consulting services = $1,215,240. $407,540 + $1,215,240 =
$1,622,780 in external legal and compliance consulting costs for new advisers.
$1,622,780 / 3 = $540,927.annually in external legal and compliance consulting costs for
newly registered advisers.

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to prepare the relationship summary is estimated to total $7,331,370, or $825 per
adviser. 57
We do not expect any change in the annual external costs relating to new advisers
preparing Form ADV Part 2. Due to the slightly higher number of registered advisers
with private funds, however, the aggregate cost of obtaining the fair value of private fund
assets is likely to be higher. We estimate that 6% of registered advisers have at least one
private fund client that may not be audited. Based on IARD system data as of December
31, 2018, 4,806 registered advisers advise private funds. We therefore estimate that
approximately 288 registered advisers may incur costs of $37,625 each on an annual
basis, for an aggregate annual total cost of $10,836,000. 58
In summary, taking into account (i) a one-time initial cost for outside legal and
compliance consulting fees in connection with the initial preparation of Part 2 of Form
ADV, (ii) the cost for investment advisers to private funds to report the fair value of their
private fund assets, and (iii) the incremental external legal or compliance costs for the
preparation of the relationship summary, we estimate the annual aggregate external cost
burden of the Form ADV information collection will be $21,767,370, or $1,637 per

57

$6,790,444 in annual external legal and compliance consulting costs for existing advisers
+ $540,927 annually for new advisers = $7,331,370 annually for existing and new
advisers. $7,331,370 / (8,235 existing advisers + 656 new advisers) = $825 per adviser.

58

6% x 4,806 = 288 advisers needing to obtain the fair value of certain private fund assets.
288 advisers x $37,625 = $10,836,000.

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registered adviser. 59 This represents an $8,083,870 increase from the current external
costs estimate for the information collection. 60
14.

Cost to the Federal Government

There are no costs to the government directly attributable to Form ADV.
15.

Change in Burden

We estimate that amendments to Form ADV, the revised total aggregate annual
hour burden for the form will be approximately 514,797 hours. 61 This is an increase of
151,715 hours from the currently approved annual aggregate burden estimate, 62 which is
attributable primarily to the amendments to Form ADV to add Part 3; but also to the
larger registered investment adviser and exempt reporting adviser population since the
most recent approval, adjustments for inflation, and the amendments to Form ADV. The
resulting blended average per adviser burden for Form ADV is 29.28 hours. 63

59

$3,600,000 for preparation of Form ADV Part 2 + $10,836,000 for registered investment
advisers to fair value their private fund assets + $7,331,370 (see supra note 57) to prepare
relationship summary = $21,767,370 in total external costs for Form ADV. $21,767,370
/ 13,299 total registered advisers as of December 31, 2018 = $1,637 per registered
adviser.

60

$21,767,370 - $13,683,500 = $8,083,870.

61

333,146 annual hour burden for RIAs preparing relationship summary + 164,655 annual
hour burden for RIAs not preparing relationship summary + 16,996 annual hour burden
for exempt reporting advisers = 514,797 total updated Form ADV annual hour burden.

62

514,797 hours estimated – 363,082 hours currently approved = 151,715 hour increase in
aggregate annual hourly burden.

63

514,797 / (13,299 registered investment advisers + 4,280 exempt reporting advisers) =
29.28 hours per adviser.

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Registered investment advisers are also expected to incur an annual external cost
burden of $21,767,370, 64 an increase of $8,083,870 from the current approved cost
burden estimate of $13,683,500. 65 The increase in annual external cost burden is
attributable to adopted Part 3 and also to the larger registered investment adviser and
exempt reporting adviser population since the most recent approval.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

We request authorization to omit the expiration date on the electronic version of
the form, although the OMB control number will be displayed. Including the expiration
date on the electronic version of this form will result in increased costs, because the need
to make changes to the form may not follow the application’s scheduled version release
dates.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.

64

$3,600,000 for preparation of Form ADV Part 2 + $10,836,000 for registered investment
advisers to fair value their private fund assets + $7,331,370 (see supra note 57) to prepare
relationship summary = $21,767,370 in total external costs for Form ADV.

65

$21,767,370 - $13,683,500 = $8,083,870.

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B.

COLLECTIONS OF INFORMATION EMPLOYING

STATISTICAL METHODS
Not applicable.

- 28 -