Rule 17a-3 (3235-0033) Supporting Statement (Adds new ICs due to 2019 Rulemaking)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Rule 17a-3
OMB No. 3235-0033
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq. This Supporting Statement discusses the collections of
information that were part of the recent rulemaking for Regulation Best Interest and
Form CRS. The collections of information in 3235-0033 that were not affected by that
rulemaking are not being revised.
A.

JUSTIFICATION
1.

Information Collection Necessity

All brokers and dealers in the ordinary course of their businesses need to maintain certain
books and records reflecting, among other things, income and expenses, assets and liabilities,
daily trading activity and the status of customer and firm accounts. These books and records are,
for the most part, standard and would be kept by any prudent individual engaging in a securities
business.
The Commission is statutorily authorized by Sections 17(a) 1 and 23(a) 2 of the Securities
Exchange Act of 1934 (“Exchange Act”) to promulgate rules and regulations regarding the
maintenance and preservation of books and records of exchange members, brokers and dealers
(“broker-dealers”). Exchange Act Section 17(a)(1) provides in pertinent part:
“[all members of a national securities exchange and registered brokers and dealers] shall
make and keep for prescribed periods such records...as the Commission, by rule,
prescribes as necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the [Exchange Act].”
To standardize recordkeeping practices throughout the industry, the Commission, in
1939, adopted Rule 17a-3, 3 which established minimum standards with respect to business
records that broker-dealers must create. 4 Rule 17a-3 requires broker-dealers to make and keep
current certain records relating to their financial condition, communications, customer
information, and employees.
2019 Rulemaking
On June 5, 2019, the Commission adopted Rule 151-1 under the Securities Exchange Act
of 1934 (“Exchange Act”) establishing a standard of conduct for broker-dealers and natural
persons who are associated persons of a broker-dealer (unless otherwise indicated, together
referred to as “broker-dealer” or “BD”) when making a recommendation of any securities
1

15 U.S.C. § 78q(a).

2

15 U.S.C. § 78w(a).

3

17 CFR 240.17a-3.

4

Exchange Act Release No. 2304 (Nov. 13, 1939).

1

transaction or investment strategy involving securities to a retail customer (“Regulation Best
Interest”). 5 At the same time, the Commission adopted Exchange Act Rule 17a-14 (CFR
240.17a-14) and Form CRS (17 CFR 249.640) under the Exchange Act. 6
As part of new Rule 17a-14 and Form CRS (referred to collectively herein as “Form
CRS”), and Regulation Best Interest, the Commission amended Rule 17a-3 by adding new
paragraphs (a)(24) and (a)(35), 7 respectively. To aggregate the entire burden of Rule 17a-3 into
one information collection (and existing OMB control number), the Commission is adding the
annual burden hours for new paragraphs (a)(24) and (a)(35) of Rule 17a-3 into this information
collection.
Regulation Best Interest and Form CRS do not change any of the existing collections of
information that are already in Rule 17a-3. This Supporting Statement discusses only the new
collections of information that are being added by Regulation Best Interest and Form CRS.
2.

Information Collection Purpose and Use

The purpose of requiring broker-dealers to create the records specified in Rule 17a-3 is to
enhance regulators’ ability to protect investors. These records and the information contained
therein will be and are used by examiners and other representatives of the Commission, state
securities regulatory authorities, and the self-regulatory organizations (e.g., FINRA, CBOE, etc.)
(“SROs”) to determine whether broker-dealers are in compliance with the Commission’s
antifraud and anti-manipulation rules, financial responsibility program, and other Commission,
SRO, and state laws, rules, and regulations. If broker-dealers were not required to create these
records, Commission, SRO, and state examiners would be unable to conduct effective and
efficient examinations to determine whether broker-dealers were complying with relevant laws,
rules, and regulations. In addition, records made and retained in accordance with Rule 17a3(a)(35) and the amendment to Rule 17a-4(e)(5) 8 will assist a broker-dealer in supervising and
5

See Securities Exchange Act Release No. 86031 (Jun. 5, 2019), 84 FR 33318 (Jul. 12, 2019)
(“Regulation Best Interest Adopting Release”); see also Securities Exchange Act Release No.
83062 (Apr. 18, 2018) [83 FR 21574] (May 9, 2018) (“Regulation Best Interest Proposing
Release”). Because Regulation Best Interest has its own OMB Control Number, a separate
supporting statement is being submitted.

6

See Form CRS Relationship Summary; Amendments to Form ADV Exchange Act Release No.
86032, Advisers Act Release No. 5247, File No. S7-08-18 (June 5, 2019) (“Relationship
Summary Adopting Release”). See also Release No. 34-83063, IA-4888, File No. S7-08-18
(Apr. 18, 2018), 83 FR 23848 (May 23, 2018) (“Relationship Summary Proposal”).

7

Paragraph (a)(35) was originally proposed to be added as paragraph (a)(25).

8

As part of adopting Regulation Best Interest, the Commission also amended Exchange Act Rule
17a-4(e)(5) to require broker-dealers to retain any information that the retail customer provides to
the broker-dealer or the broker-dealer provides to the retail customer pursuant Rule 17a-3(a)(35),
in addition to the existing requirement to retail information obtained pursuant to Rule 17a3(a)(17). Similarly, in addition to Form CRS and Rule 17a-14, the Commission also adopted
Exchange Act Rule 17a-4(e)(10) requiring retention of all records required pursuant to §240.17a3(a)(24), as well as a copy of each Form CRS. Because the recordkeeping obligations have been
adopted under Rule 17a-4, which has its own OMB Control Number, a separate supporting
statement is being submitted to address these amendments.

2

assessing internal compliance with Regulation Best Interest. Records made and retained in
accordance with Rule 17a-3(a)(24) and the addition of paragraph (e)(10) to Rule 17a-4 will assist
a broker-dealer in supervising and assessing internal compliance with proposed Rule 17a-14 and
Form CRS.
Rule 17a-3(a)(24) requires SEC-registered broker-dealers to make a record indicating the
date that each Form CRS was provided to each retail investor, including any Form CRS provided
before the retail investor opens an account. 9 The Commission staff will use this collection of
information in its examination and oversight program.
Rule 17a-3(a)(35) requires broker-dealers to make a record of “all information collected
from and provided to the retail customer” pursuant to Regulation Best Interest where a securitiesrelated transaction or investment strategy involving securities is or will be recommended to a
retail customer. The broker-dealer must also make a record of the identity of the associated
person, if any, responsible for the account. Rule 17(a)(35) also clarifies that the neglect, refusal,
or inability of the retail customer to provide or update the information described above, shall
excuse the broker, dealer or associated person from obtaining that required information.
3.

Consideration Given to Information Technology

The Commission believes that improvements in telecommunications and data processing
technology may reduce any burdens that result from the addition of paragraphs (a)(24) and
(a)(35) to Rule 17a-3. The rules do not prescribe particular forms or methods of compliance for
broker-dealers or their associated person, to allow maximum flexibility with respect to new
technologies as they develop.
4.

Duplication

Rule 17a-3 was drafted and amended to codify SRO record-keeping requirements and the
record-keeping practices of prudent broker-dealers. Although most broker-dealers already create
many of the records required by the additions of paragraphs (a)(24) and (a)(35) to Rule 17a-3
either voluntarily or pursuant to SRO requirements, no duplication of such information is
apparent because no other Commission rule establishes an explicit requirement to create such
records.
As noted above, Rule 17a-3(a)(24) requires broker-dealers to make a record indicating
the date that a Form CRS was provided to each retail investor, including any Form CRS provided
before the retail investor opens an account. No other rule requires broker-dealers to provide the
same information that is required by Rule 17a-3(a)(24).
As noted above, Rule 17a-3(a)(35) requires a broker-dealer to make a record of all
information collected from and provided to the retail customer pursuant to Regulation Best
Interest. The Commission understands that broker-dealers currently make records of relevant
customer investment profile information, and therefore assumes that no additional record-making

9

Although the disclosures in Form CRS are discussed in this supporting statement, the burden and
cost estimates associated with preparing, filing, posting and delivery of Form CRS have their own
OMB Control Number, for which a separate supporting statement is being submitted.

3

obligations will arise as a result of broker-dealers’ or their registered representatives’ collection
of information from retail customers. 10
In addition, Rule 17a-3(a)(35) requires a broker-dealer, “for each retail customer to
whom a recommendation of any securities transaction or investment strategy involving securities
is or will be provided,” to make a record of the “identity of each natural person who is an
associated person, if any, responsible for the account.” The Commission understands that
broker-dealers likely make such records in the ordinary course of their business pursuant to
Exchange Act Rules 17a-3(a)(6) and (7). However, we are assuming based on our understanding
of current broker-dealer practices, for purposes of compliance with Rule 17a-3(a)(35), that
broker-dealers will need to create a record, or modify an existing record, to identify the
associated person, if any, responsible for the account in the context of Regulation Best Interest.
The Commission is adopting the provision substantially as proposed but redesignating it as new
paragraph (a)(35) of Rule 17a-3, instead of (a)(25).
5.

Effect on Small Entities

The Regulatory Flexibility Act (“RFA”) 11 requires federal agencies, in promulgating
rules, to consider the impact of those rules on small entities. Section 603(a) 12 of the
Administrative Procedure Act, 13 as amended by the RFA, generally requires the Commission to
undertake a regulatory flexibility analysis of all proposed rules, or proposed rule amendments, to
determine the impact of such rulemaking on “small entities.” 14 For purposes of a Commission
rulemaking in connection with the RFA, a broker-dealer will be deemed a small entity if it: (1)
had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the
prior fiscal year as of which its audited financial statements were prepared pursuant to Rule 17a5(d) under the Exchange Act, 15 or, if not required to file such statements, had total capital (net
10

The PRA burdens and costs arising from the requirement that a record be made of all information
provided to the retail customer are accounted for in the Regulation Best Interest Adopting Release
and the Relationship Summary Adopting Release. With respect to the requirement that a record
be made of all information from the retail customer, we believe that Rule 17a-3(a)(35) will not
impose any new substantive burdens on broker-dealers. As discussed in the Regulation Best
Interest Adopting Release, we believe that the obligation to exercise reasonable diligence, care
and skill will not require a broker-dealer to collect additional information from the retail customer
beyond that currently collected in the ordinary course of business even though a broker-dealer’s
analysis of that information and any resulting recommendation will need to adhere to the
enhanced best interest standard of Regulation Best Interest.

11

5 U.S.C. 601 et seq.

12

5 U.S.C. 603(a).

13

5 U.S.C. 551 et seq.

14

Although Section 601(b) of the RFA defines the term “small entity,” the statute permits agencies
to formulate their own definitions. The Commission has adopted definitions for the term small
entity for the purposes of Commission rulemaking in accordance with the RFA. Those
definitions, as relevant to this proposed rulemaking, are set forth in Rule 0-10 under the Exchange
Act, 17 CFR 240.0-10.

15

See 17 CFR 240.17a-5(d).

4

worth plus subordinated liabilities) of less than $500,000 on the last day of the preceding fiscal
year (or in the time that it has been in business, if shorter); and (2) is not affiliated with any
person (other than a natural person) that is not a small business or small organization. 16
Based on 2018 FOCUS Report data about the broker-dealer retail market, the
Commission believes that approximately 756 broker-dealers – with an estimated 5,281 retail
customer accounts – would qualify as small entities subject to Regulation Best Interest and Form
CRS and the related new record-making and recordkeeping requirements. However, Regulation
Best Interest and Form CRS do not distinguish between small entities and other broker-dealers.
The Commission recognizes that different broker-dealers may require different amounts of time
or external assistance in preparing for the new rules. The Commission believes, however, that
imposing different requirements on smaller firms would not be consistent with investor
protection and the purposes of Regulation Best Interest. Similarly, the Commission believes it
will be inappropriate to establish different recordkeeping requirements for small entities in
connection with Form CRS, because the recordkeeping requirements will facilitate the
Commission’s ability to inspect for and enforce compliance with firms’ obligations with respect
to the relationship summary, which is important for retail investor clients and customers of both
large and small firms. 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.
The number and complexity of records required to be made under Rule 17a-3 vary
proportionately with the volume and complexity of the broker-dealer’s business.
6.

Consequences of Not Conducting Collection

The information required to be collected and recorded under Rule 17a-3 allows the
Commission, state securities regulatory authorities, and SROs to determine whether brokerdealers are in compliance with Commission, state, and SRO anti-fraud and anti-manipulation
rules, financial responsibility rules, and other rules and regulations. Although many brokerdealers would likely make these records as a matter of best practice, they are not explicitly
required to do so under current Commission rules. If a broker-dealer does not make these
records, or it makes these records less frequently, the level of investor protection will be reduced
because the existence of the records would assist a broker-dealer in supervising and assessing
internal compliance with Regulation Best Interest and assist the Commission and SRO staff in
connection with examinations and investigations. The records a broker-dealer is required to
make under Rule 17a-3 are, for the most part, essential to the successful operation of a securities
firm, and failure to make the records on a current basis would likely cause the broker-dealer to
experience operational difficulties.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)2

There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).

16

See 17 CFR 240.0-10(c).

5

8.

Consultations Outside the Agency

The Commission issued releases soliciting comment on the new “collection of
information” requirements and associated paperwork burdens under the Relationship Summary
Release, which includes Rule 17a-3(a)(24), 17 and proposed Regulation Best Interest, which
includes Rule 17a-3(a)(35). 18 Copies of the releases are attached. Comments on Commission
releases are generally received from registrants, investors, and other market participants. In
addition, the Commission and staff participate in ongoing dialogue with representatives of
various market participants through public conferences, meetings and informal
exchanges. Comments received on this rulemaking are posted on the Commission’s public
website, and made available through http://www.sec.gov/rules/proposed.shtml. The Commission
considered all comments received prior to publishing the final rule, and explained in the adopting
releases how the final rules respond to such comments, in accordance with 5 C.F.R. 1320.11(f).
Comments Regarding Regulation Best Interest and Rule 17a-3(a)(35)
Several commenters expressed concern that the proposed rule amendment would
significantly expand recordkeeping requirements. 19 One commenter expressed concern that the
record retention requirements of the proposed new paragraph to Rule 17a-3 would apply to each
recommendation made by the broker-dealer rather than to each account (as required by existing
paragraph (a)(17) of Rule 17a-3, which operates on a per-account basis). Another commenter
requested clarification that “the current books and records requirement is sufficient to meet
record-keeping requirements to satisfy Reg BI,” adding that the Commission should “affirm that
Reg BI does not create new record-keeping requirements to prove that an advisor acted in a
client’s best interest.” 20
The Commission notes in the Regulation Best Interest Adopting Release that the
proposed new requirements of Rule 17a-3 are not designed to create additional, standalone
burdens for broker-dealers but instead to provide a means by which they can demonstrate, and
Commission examiners can confirm, their compliance with the new substantive requirements of
Regulation Best Interest. As explained in the Regulation Best Interest Adopting Release, 21 it
would not be accurate to state, as suggested by the commenter, that the Commission’s current
books and records requirements for broker-dealers are sufficient to meet recordkeeping
requirements to satisfy Regulation Best Interest. The additional books and records requirements
the Commission adopted are designed to allow firms to demonstrate compliance with the

17

Relationship Summary Proposing Release.

18

Regulation Best Interest Proposing Release.

19

See Letter from Kenneth E. Bentsen, Jr., President and Chief Executive Officer, SIFMA (Aug. 7,
2018) (“SIFMA August 2018 Letter”); Letter from Chris Lewis, General Counsel, Edward Jones
(Aug. 7, 2018) (“Edward Jones Letter”); Letter from Karen L. Sukin, Executive Vice President,
Deputy General Counsel, Primerica (Aug. 7, 2018) (“Primerica Letter”).

20

See Letter from Paul C. Reilly, Chairman and CEO, Raymond James Financial (Aug. 7, 2018)
(“Raymond James Letter”).

21

See Section II.D.

6

substantive requirements of Regulation Best Interest. The Commission further notes that the
new record-making requirements would not require the duplication of existing records. 22
Several commenters requested clarification that, except with respect to the specific
recordkeeping requirements in the rule text, Regulation Best Interest does not require additional
records (e.g., records to evidence best interest determinations on a recommendation-byrecommendation basis). 23 One commenter also stated that, as drafted, there are significant
obstacles and costs, including increased privacy and cybersecurity risks, that would result from
implementing the proposed new rule, in particular with respect to the “all information collected
from….the retail customer” requirement. 24
In response to comments, the Commission clarified that while the substantive
requirements of Regulation Best Interest apply on a recommendation-by-recommendation basis,
consistent with our approach elsewhere, we are not requiring that broker-dealers create and
maintain records to evidence best interest determinations on a recommendation-byrecommendation basis.
In addition, in response to requests from commenters for confirmation that the proposed
record-making requirements do not contemplate broker-dealers needing to create and maintain
records of why certain products were recommended over others on a recommendation-byrecommendation basis, 25 we confirm that broker-dealers are not expected to maintain records
comparing potential investments to one another so long as they are able to demonstrate that each
individual recommendation actually made to a customer meets the requirements of Regulation
Best Interest on its own.
In response to the commenter’s privacy and cybersecurity concerns with respect to the
proposed requirement to make a record of all information collected from the customer pursuant
to Regulation Best Interest, as noted in the Proposing Release 26 although a broker-dealer’s
customer obligations under Regulation Best Interest (e.g., the Care Obligation) go beyond those
set forth in the FINRA’s suitability rule, the concept of the “customer’s investment profile” that a
broker-dealer would be required to compile—that is, the customer information it would be
required to obtain—pursuant to Regulation Best Interest is consistent with that under FINRA’s
suitability rule. As such, the Commission believes that since broker-dealers are already required
22

In response to comments, the Regulation Best Interest Adopting Release also provides
clarifications regarding “related and underlying communications,” the treatment of information
collected from or provided to a retail customer whether orally or in writing, among other
guidance. See Section II.D.

23

See SIFMA August 2018 Letter; Edward Jones Letter; Letter from Anne Tennant, Managing
Director and General Counsel, Morgan Stanley (Aug. 7, 2018) (“Morgan Stanley Letter”); Letters
from Tom Quaadman, Executive Vice President, Center for Capital Markets Competitiveness,
U.S. Chamber of Commerce (“CCMC”) (Aug. 7, 2018) (supplemented by letter dated Sep. 5,
2018) (“CCMC Letters”).

24

See Primerica Letter.

25

See SIFMA August 2018 Letter; CCMC Letters.

26

Proposing Release at 21611 (noting that Retail Customer Investment Profile is consistent with
FINRA Rule 2111(a) (Suitability)).

7

to seek to obtain identical types of retail customer information pursuant to the FINRA suitability
rule, broker-dealers should already have in place policies and procedures, including training
programs, to address such privacy and cybersecurity concerns.
A number of commenters highlighted practical difficulties associated with delivering
disclosure either in writing, or prior to or at the time of a recommendation in some instances. 27
Although Regulation Best Interest requires that the Disclosure Obligation be made “in writing,”
we recognize the challenges associated with providing written disclosure in each instance that
disclosure may be required. For example, a broker-dealer may need to supplement, clarify or
update written disclosure it has previously made before or at the time it provides a customer with
a recommendation. As we stated in the Proposing Release, we recognized that broker-dealers
may provide recommendations by telephone and may need to offer clarifying disclosure orally in
some instances subject to certain conditions, such as a dual-registrant informing a retail customer
of the capacity in which the dual-registrant is acting in conjunction with a recommendation. We
stated that a broker-dealer could orally clarify the capacity in which it is acting at the time of the
recommendation if it had previously provided written disclosure to the retail customer
beforehand disclosing its capacity as well as the method it planned to use to clarify its capacity at
the time of the recommendation
Similarly, although Regulation Best Interest requires a broker-dealer to disclose, prior to
or at the time of a recommendation, all material facts relating to the scope and terms of the
relationship with the retail customer and relating to conflicts of interest that are associated with
the recommendation, we recognize that in some instances a broker-dealer may not have all the
material facts at the time of the recommendation, or that such disclosure is provided to the retail
customer pursuant to an existing regulatory obligation, such as the delivery of a product
prospectus or a trade confirmation, after the execution of the trade. We continue to believe that
some flexibility with respect to the provision by broker-dealers of written and oral disclosure, as
well as with respect to the timing that disclosure is made, is appropriate in certain circumstances,
such as when a broker-dealer updates its written disclosures orally in order to reflect facts not
reasonably known at the time the written disclosure is provided.
Accordingly, in the Regulation Best Interest Adopting Release, the Commission stated
that, in such circumstances, a broker-dealer may satisfy its Disclosure Obligation by making
supplemental oral disclosure not later than the time of the recommendation, provided that the
broker-dealer maintains a record of the fact that oral disclosure was provided to the retail
customer. As a result, we have added a new information collection relating to this record of oral
disclosure.
Comments Regarding Form CRS

27

See SIFMA August 2018 Letter; Morgan Stanley Letter; Letter from Ann M. Kappler, Senior
Vice President, Deputy General Counsel, Prudential Financial (Aug. 7, 2018).

8

In regard to Form CRS, some commenters expressed concern with the potential costs and
feasibility of complying with the proposed recordkeeping requirements for broker-dealers. 28
Several commenters argued that keeping records of when a Form CRS was given to a
prospective retail investor would be unnecessarily burdensome for firms and would likely
provide de minimis benefits. 29 Some commenters stated that most firms’ recordkeeping systems
and procedures are not designed to maintain records relating to prospective clients and that
conforming such systems and procedures to the proposed rule requirements would be
burdensome and costly and would not result in an offsetting benefit. 30 Others noted they may
have to retain records for an indefinite length of time because their interactions with prospective
clients about engaging services often span weeks, months or years and may include numerous
phone calls, meetings or other forms of contact. 31
As an alternative, commenters suggested that firms only be required to maintain a record
of the most recent date they delivered the Form CRS to a prospective client that becomes an
actual client preceding the opening of an account. 32 Commenters suggested only requiring a
record that the Form CRS was delivered at account opening or when a retail investor becomes an
investment advisory client. 33
The inclusion of the recordkeeping requirements in the amended rules will impose costs
on firms in the form of revised recordkeeping policies and procedures and possible modifications
to their recordkeeping systems. The record requirements, however, may be less burdensome if
their recordkeeping and compliance systems are already capable of creating and maintaining
records related to communications with prospective clients. Further, these recordkeeping
requirements may benefit firms by assisting them in monitoring their compliance with the Form
CRS delivery requirements. Finally, these records will facilitate the Commission’s ability to
inspect for and enforce compliance with the Form CRS requirements. Accordingly, we are
adopting Rule 17a-3(a)(24) as proposed.
9.

Payment or Gift

No gifts or payments will be given to respondents.
10.

Confidentiality

The records required by Rule 17a-3 are available only to the examination staffs of the
Commission, state regulatory authorities, and the SROs. Subject to the provisions of the
Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”) and the Commission’s rules thereunder
(17 CFR 200.80(b)(4)(iii)), the Commission generally does not publish or make available
28

See, e.g., CCMC Letters; Comment Letter of the Committee of Annuity Insurers (Aug. 7, 2018)
(“Committee of Annuity Insurers Letter”); Edward Jones Letter; Morgan Stanley Letter;
Primerica Letter; SIFMA August 2018 Letter.

29

See id.

30

See, e.g., Committee of Annuity Insurers Letter; Edward Jones Letter; Morgan Stanley Letter;
Primerica Letter; SIFMA August 2018 Letter.

31

See, e.g., Edward Jones Letter; Primerica Letter; SIFMA August 2018 Letter.

32

See, e.g., CCMC Letters; SIFMA Letter.

33

See, e.g., SIFMA August 2018 Letter; Morgan Stanley; Edward Jones Letter.

9

information contained in reports, summaries, analyses, letters, or memoranda arising out of, in
anticipation of, or in connection with an examination or inspection of the books and records of
any person or any other investigation.
11.

Sensitive Questions

No questions of a sensitive nature are asked in the amendments that were part of the
recent rulemaking for Regulation Best Interest and Form CRS, and those information collections
do not collect any Personally Identifiable Information (“PII”).
Some of the information collections that were in existence prior to the recent rulemaking
for Regulation Best Interest and Form CRS may require collections of PII. Those collections
will be discussed in a separate Supporting Statement to request an extension for the existing
information collections in the rule.12.
Information Collection Burden
As noted above, Regulation Best Interest and Form CRS require the collection of
information. The Commission anticipates that the respondents will incur the following
recordkeeping burdens in connection with the new regulations. Rule 17a-3 already has a number
of collections of information that have been approved by OMB and that are not being affected by
the Regulation Best Interest and Form CRS rulemakings. Those collections of information are
summarized in a chart at the end of Item 12.
Summary of Hourly Burdens being added by Form CRS and Regulation BI
Name of
Information
Collection

Number
Small
of
Business
Entities Entities
Impacted Affected

Type of
Burden

Ongoing
Annual
or
Responses
Initial
per Entity
Burden

Burden
per
Entity
per
Response

Annual
Burden
Per
Entity

0.5

0.5

Annual
Industry
Burden

Form CRS and Rule 17a-3(a)(24)
Rule 17a3(a)(24):
Record of Date
Form CRS
Provided to
Each Customer
and Prospective
Customer

Ongoing
2766

756

1

Recordkeeping

1383
Initial OneTime

N/A

N/A

N/A

Ongoing

N/A

N/A

N/A

Regulation Best Interest and Rule 17a-3(a)(35)

Rule 17a3(a)(35):
Record of
Identity of
Associate Person
Responsible for
Account

2010

0

Recordkeeping

1341
Initial OneTime

1

2

0.667

10

-Large BrokerDealers

Rule 17a3(a)(35):
Record of
Identity of
Associate Person
Responsible for
Account/
Individual
Burden

Rule 17a3(a)(35):
Record of Oral
Disclosure

Ongoing

2766

756

N/A
1,359,983

Ongoing

756

N/A

Recordkeeping
Initial OneTime

2766

N/A

36,876

0.0133333

491.67877

19,175

0.02

383.5
1,060,761

Recordkeeping
Initial OneTime

N/A

N/A

N/A

TOTAL Annual Industry Burden

2,423,468

Regulation Best Interest imposes a best interest obligation on a broker-dealer when making
recommendations of any securities transaction or investment strategy involving securities (including
account recommendations) to “retail customers.” Form CRS and Rule 17a-14 require brokerdealers that offer services to retail investors to prepare, file through Web CRD®, post to the brokerdealer’s website (if available), and deliver to retail investors a brief relationship summary. As of
December 31, 2018, 3,764 broker-dealers were registered with the Commission – either as
standalone broker-dealers or as dually-registered entities. Based on data obtained from Form BR,
the Commission preliminarily believes that approximately 73.5% of this population, or 2,766
broker-dealers have retail customers and therefore would likely be subject to Regulation Best
Interest and Rules 17a-14 and Form CRS, as well as the proposed amendments to Rules 17a3(a)(24), 17a-3(a)(35), 17a-4(e)(5), and 17a-4(e)(10).34
As with broker-dealers, Regulation Best Interest imposes a best interest obligation on
natural persons who are associated persons of broker-dealers when making recommendations of
any securities transaction or investment strategy involving securities to retail customers.
The Commission believes that approximately 428,404 natural persons would qualify as
retail-facing, registered representatives at standalone broker-dealers or dually-registered firms, 35
34

As of December 31, 2018, 3,764 broker-dealers filed Form BD. Retail sales by broker-dealers
were obtained from Form BR.

35

This estimate is based on the following calculation: (504,005 total licensed representatives
(including representatives of investment advisers)) x (15% (the percentage of total licensed
representatives who are standalone investment adviser representatives)) = 75,601 representatives

11

and would therefore likely be subject to proposed Regulation Best Interest, and the proposed
amendments to Rules 17a-3(a)(35) and 17a-4(e)(5). 36 To aggregate the entire burden of Rule
17a-3 into one information collection (and OMB control number), the Commission is adding the
annual burden hours for paragraphs (a)(24) and (a)(35) of Rule 17a-3 into the Rule 17a-3
information collection.
Rule 17a-3(a)(24): Record of Date Form CRS Provided to Each Customer and Prospective
Customer
Rule 17a-3(a)(24) requires SEC-registered broker-dealers to make a record indicating the
date that a Form CRS was provided to each customer and to each prospective customer.
As discussed above, several commenters suggested that our estimated burdens for the
Form CRS recordkeeping obligations were too low. 37 Some commenters argued that keeping
records of when a Form CRS was given to prospective retail clients would be unnecessarily
burdensome or not feasible, and was not adequately considered in the Commission’s burden
estimates. 38 One of these commenters said that it would be difficult for firms to integrate prerelationship delivery dates into their operational systems and procedures, and that there is no way
to track when a disclosure is accessed on a website. 39

at standalone investment advisers. To isolate the number of representatives at standalone brokerdealers and dually-registered firms, we have subtracted 75,601 from 504,005, for a total of F
retail-facing, licensed representatives at standalone broker-dealers or dually-registered firms.
36

Unless otherwise noted, for purposes of this supporting statement, we use the term “registered
representatives” to refer to associated persons of broker-dealers who are registered, have series 6
or 7 licenses, and are retail-facing, and we use the term “dually-registered representatives of
broker-dealers” to refer to registered representatives who are dually-registered and are associated
persons of a standalone broker-dealer (who may be associated with an unaffiliated investment
adviser) or a dually-registered broker-dealer.

37

See, e.g., CCMC Letter; SIFMA August 2018 Letter; see also NSCP Letter (estimating 80-500
hours to prepare, deliver, and file Form CRS, including recordkeeping policies and procedures).

38

See, e.g., CCMC Letter; SIFMA Letter; Committee of Annuity Insurers Letter; Edward Jones
Letter. A few others stated that creating recordkeeping policies and procedures relating to how
professionals respond to “key questions” would be burdensome and extremely difficult. See, e.g.,
LPL Financial Letter. Although the final instructions require “conversation starter” questions that
are similar to the proposed “key questions,” we are not increasing the burden as urged by
commenters. As discussed in a separate supporting statement for Form CRS, we increased the
burden estimates for the initial preparation of the relationship summary, acknowledging, among
other things, that certain broker-dealers that provide services only online will incur additional
burdens to develop written answers to the conversation starters and make those available on their
websites with a hyperlink to the appropriate page in the relationship summary for these
documents. However, we do not expect these broker-dealers to incur additional recordkeeping
burdens under amendments to Exchange Act rule 17a-3 because we are not establishing new or
separate recordkeeping obligations related to the conversation starters or the answers provided by
firms in response to the conversation starters.

39

See SIFMA August 2018 Letter.

12

After consideration of comments, and because broker-dealers do not currently maintain
similar records like the relationship summary, we are revising our estimate of the time that it
would take each broker-dealer to create the records required by new paragraph (a)(24) of rule
17a-3 as adopted from 0.1 hours to 0.5 hours. The incremental hour burden for broker-dealers to
create the records required by new paragraph (a)(24) of rule 17a-3 as adopted will therefore be
1,383 hours. 40 We also do not expect that broker-dealers will incur external costs for the
requirement to make records because we believe that broker-dealers will make such records in a
manner similar to their current recordkeeping practices, including those that apply to
communications and correspondence with retail investors. These estimates result in a total
annual estimated recordkeeping burden for Form CRS Records for All BDs of 1,383 hours.
Regulation Best Interest and Rule 17a-3(a)(35)
Rule 17a-3(a)(35) requires a broker-dealer to make a record of all information collected
from and provided to the retail customer pursuant to Regulation Best Interest, as well as the
identity of each natural person who is an associated person of a broker or dealer, if any,
responsible for the account.1 This requirement applies with respect to each retail customer to
whom a recommendation of any securities transaction or investment strategy involving securities
is provided. The neglect, refusal, or inability of a retail customer to provide or update any such
information will, however, excuse the broker-dealer from obtaining that information.
Due to changes in the number of broker-dealers and costs estimated for certain services,
we are revising our estimates from those in the Proposing Release. However, while we
understand commenters’ concerns that the estimates are lower than what would actually be
required to comply with Regulation Best Interest, we believe the estimates are generally accurate
in light of the increased specificity in Regulation Best Interest on how to comply with the
component obligations, including the Disclosure Obligation. 41
Rule 17a-3(a)(35): Record of Information Collected From and Provided to the Retail Customer
Pursuant to Regulation Best Interest
The Commission understands that broker-dealers currently make records of relevant
customer investment profile information, and we therefore assume that no additional recordmaking obligations would arise as a result of broker-dealers’ or their registered representatives’
collection of information from retail customers. 42
40

2,766 broker-dealers x 0.5 hours annually = 1,383 annual hours for recordkeeping.

41

See, e.g., Raymond James Letter; CCMC Letters; SIFMA August 2018 Letter.

42

The PRA burdens and costs arising from the requirement that a record be made of all information
provided to the retail customer are accounted for in the Regulation Best Interest Adopting Release
and the Relationship Summary Adopting Release. With respect to the requirement that a record
be made of all information from the retail customer, we believe that Rule 17a-3(a)(35) would not
impose any new substantive burdens on broker-dealers. As discussed in the Regulation Best
Interest Adopting Release, we continue to believe that the obligation to exercise reasonable
diligence, care and skill will not require a broker-dealer to collect additional information from the
retail customer beyond that currently collected in the ordinary course of business even though a
broker-dealer’s analysis of that information and any resulting recommendation would need to
adhere to the enhanced best interest standard of Regulation Best Interest.

13

Rule 17a-3(a)(35): Record of Identity of Associate Person Responsible for Account/ Firm
Burden
In addition, Rule 17a-3(a)(35) requires a broker-dealer, “for each retail customer to
whom a recommendation of any securities transaction or investment strategy involving securities
is or will be provided,” to make a record of the “identity of each natural person who is an
associated person, if any, responsible for the account.” The Commission continues to believe
that broker-dealers likely make such records in the ordinary course of their business. However,
we are assuming, for purposes of compliance with proposed Rule 17a-3(a)(35), that brokerdealers will need to create a record, or modify an existing record, to identify the associated
person, if any, responsible for the account in the context of Regulation Best Interest. For small
broker-dealers, the use of outside counsel would result in a cost burden, which is discussed in
Item 13 below. For large broker-dealers, we estimate that the initial burden will be 2 hours for
each broker-dealer: 1 hour for compliance personnel and 1 hour for legal personnel. The
Commission therefore estimates the aggregate initial one-time burden for large broker-dealers to
be approximately 4,020 burden hours. 43 These estimates result in a total annual estimated
recordkeeping burden for Identity of Associated Person Responsible for the Account for
Large BDs of 1,341 hours.
Rule 17a-3(a)(35): Record of Identity of Associated Person Responsible for Account/ Individual
Burden
Finally, we estimate it will require an additional 0.04 hours for the registered
representative responsible for the information (or other clerical personnel) to fill out that
information in the account disclosure document, for an approximate total aggregate initial onetime burden of 4,080,000 hours, or approximately 1,475 hours per broker-dealer (put another
way, each broker-dealer would incur the burden for each of 36,876 retail customer accounts 44)
for the first year after Regulation Best Interest is in effect. 45
The Commission does not believe that the identity of the registered representative
responsible for the retail customer’s account will change. Accordingly, we continue to believe
that there are no ongoing costs and burdens associated with this record-making requirement of
Rule 17a-3(a)(35). These estimates result in a total annual estimated recordkeeping burden

43

This estimate is based on the following calculation: (2 burden hours per broker-dealer) x (2,010
large broker-dealers) = 4,020 aggregate burden hours per year.

44

This estimate is based on the following calculation: (102 million retail customer accounts) /
(2766 broker-dealers) = 36,876 retail customer accounts per broker-dealer.

45

These estimates are based on the following calculations: (0.04 hours per customer account) x
(102 million retail customer accounts) = 4,080,000 aggregate burden hours. Conversely,
(4,080,000 burden hours) / (2,766 broker-dealers) = 1,475 hours per broker-dealer for the first
year after Regulation Best Interest is in effect. (102 million retail customer accounts) / (3 years)
= 34 million annual responses. The costs and burdens associated with the delivery of the account
disclosure document are addressed elsewhere in the supporting statement for Regulation Best
Interest, thus, they were not included in this section of the analysis. The Regulation Best Interest
collection OMB control number is 3235-0762.

14

for Identity of Associated Person Responsible for the Account for All BDs of 1,359,983
hours.
Rule 17a-3(a)(35): Record of Oral Disclosure
In cases where broker-dealers choose to meet part of the Disclosure Obligation orally
under the circumstances outlined in Section II.C.1 of the Regulation Best Interest Adopting
Release, we believe the requirement to maintain a record of the fact that oral disclosure was
provided to the retail customer will trigger a record-making obligation under paragraph (a)(35)
and we estimate that this would take place among 52% of a broker-dealer’s retail customer
accounts (and thus 52% of a registered representative’s retail customer accounts) annually. 46
These estimates result in a total annual estimated recordkeeping burden for a Record of
Oral Disclosures for All BDs of 1,060,761 hours. 47
13.

Costs to Respondents

The Commission does not expect respondents to incur external costs in connection with
Rule 17a-3(a)(24). The external costs in connection with Rule 17a-3(a)(35) are reflected in the
chart below.
Summary of Hourly Costs being added by Regulation BI
Name of
Information
Collection

Number
Small
of
Business
Entities Entities
Impacted Affected

Type of
Burden

Ongoing
Annual
or
Responses
Initial
per Entity
Burden

Burden
Annual
per
Annual
Burden
Entity
Industry
Per
per
Burden
Entity
Response

46

The Commission believes (and our experience indicates) that broker-dealers will use oral
disclosure rarely, and primarily when making disclosures regarding a change in capacity. We do
not have reliable data to determine the precise number of retail customers that have both a
brokerage and an advisory account with a dually registered associated person. Approximately
52% of registered representatives were dually registered as investment adviser representatives at
the end of 2018. As a result, we have assumed for purposes of this analysis that this will take
place among 52% of all retail customer accounts at broker-dealers annually. This estimate is
likely over inclusive, as it includes all retail customer accounts at all broker-dealers (as opposed
to only retail customer accounts where the retail customer has both a brokerage and advisory
account with a dually registered financial professional), and under inclusive, as it assumes that
such an oral disclosure will happen annually (as opposed to multiple times a year).

47

(52%) x (102 million retail customer accounts) x (0.02 hours for recording each oral disclosure
relating to a retail customer’s account) = 1,060,800 aggregate burden hours. Conversely,
1,060,800 aggregate burden hours / 2,766 broker-dealers = 383.5 burden hours per broker-dealer
per year. Put another way, assuming each broker-dealer has 36,876 retail customer accounts (See
note 44 supra), (52%) x (36,876 retail customer accounts per broker-dealer) = 19,175 affected
retail customer accounts. (19,175 affected retail customer accounts) x (0.02 hours for recording
each oral disclosure relating to a retail customer’s account) = 383.5 burden hours per brokerdealer.

15

Regulation Best Interest and Rule 17a-4(a)(35)
Rule 17a3(a)(35):
Record of
Identity of
Associate Person
Responsible for
Account/ Firm
Burden

Ongoing
756

756

1

$497

$497

Recordkeeping

$375,732
Initial OneTime

-Small Brokerdealers

N/A

N/A

N/A

Rule 17a-3(a)(35): Record of Identity of Associate Person Responsible for Account/ Firm
Burden
To meet the requirement under Rule 17a-3(a)(35) to make a record of the “identity of
each natural person who is an associated person, if any, responsible for the account,” we believe
that small broker-dealers will require, on average, approximately 1 hour per year for outside
legal counsel, at an updated average rate of $497/hour, for an average annual cost of $497 for
each small broker-dealer to update an account disclosure document. The projected aggregate
initial cost for small broker-dealers is therefore estimated to be $375,732 per year. 48 These
estimates result in a total annual estimated recordkeeping cost burden for Rule 17a3(a)(35) for small Broker-Dealers of $375,732 per year.
14.

Costs to Federal Government

There will be no additional costs to the Federal Government.
15.

Explanation of Changes in Burden and Cost

The Commission has revised its burden and cost estimates for some of the information
collections, as summarized in the following charts:
Changes in Hourly Burden
Name of Information
Collection

Annual
Industry
Burden

Annual
Industry
Burden
Previously
Reviewed

Change in
Burden

Rule 17a-3(a)(24):
Record of Date Form
CRS Provided to Each

1383

286

(1097)

48

Reason for Change

Increase in estimated
time burden to record
date based on
comments.

This estimate is based on the following calculation: (1 hour per small broker-dealer) x (756 small
broker-dealers) x ($497/hour) = $375,732 in aggregate costs per year.

16

Customer and
Prospective Customer
Rule 17a-3(a)(35):
Record of Identity of
Associate Person
Responsible for
Account

1341

Rule 17a-3(a)(35):
Record of Identity of
Associate Person
Responsible for
Account/ Individual
Burden

1359983

Rule 17a-3(a)(35):
Record of Oral
Disclosure

1062144

1371

(30)

Decrease in number of
large broker-dealers.

1237612

122371

Increase in number of
responses per year.

0

1062144

New rule
requirement/IC based
on comments.

Changes in Hourly Cost
Name of
Information
Collection

Annual
Industry
Cost

Annual Industry
Cost Previously
Reviewed

Change in
Cost

Regulation Best
Interest and Rule
17a-3(a)(35)

$375,732

$126,181

$249,551

Reason for Change

Correction of an error in
the estimate for the
proposed rule, which
results in an increased
hour burden. 49 There is
also a small decrease in
number of small brokerdealers.

The Commission generally believes the previously reviewed burdens and costs relating to
the record-making and recordkeeping collections of information are accurate but have updated
estimates to reflect a change in the burden of recording certain information, as well as to reflect
changes in the number of broker-dealers and costs of certain services since the last estimate.
In calculating the annual cost for purposes of the Proposing Release, the Commission erroneously
included this burden as an initial cost as opposed to an ongoing cost. As a result the burden was $126,181
hours but should have been $378,544.

49

17

In light of comments received, and because broker-dealers do not currently maintain
similar records like the relationship summary, we revised our estimate of the time that it would
take each broker-dealer to create the records required by new paragraph (a)(24) of rule 17a-3 as
adopted from 0.1 hours to 0.5 hours.
Furthermore, due to changes in the number of broker-dealers and costs estimated for
certain service, we revised our estimates from the Proposing Release with respect to paragraph
(a)(35) of rule 17a-3. Specifically, we believe that the total annual estimated recordkeeping
burden to identify the associated person responsible for an account for large broker-dealers will
now be 1,341 hours, while the total annual estimated recordkeeping burden for identifying and
recording the associated person responsible for the account for all broker-dealers will be
1,359,983 hours.
Finally, in response to comments and in recognition that certain broker-dealers may
choose to meet part of the Disclosure Obligation orally under the circumstances outlined in
Section II.C.1. of the Regulation Best Interest Adopting Release, we have estimated a total
annual recordkeeping burden for a record of oral disclosure for all broker-dealers of 1,062,144
hours.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

18