Rule 206(4)-6 Supporting Statement

OMB CONTROL NUMBER: 3235-0571
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 206(4)-6
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act” or “Act”)
(15 USC 80b-6(4)) prohibits any investment adviser from engaging in any act, practice or course
of business which is fraudulent, deceptive or manipulative and gives the Securities and Exchange
Commission (“Commission”) the power, by rules and regulations, to define and prescribe means
reasonably designed to prevent such acts, practices and courses of business. The Commission
adopted rule 206(4)-6 under the Advisers Act to address an investment adviser’s fiduciary
obligation to clients who have given the adviser authority to vote their proxies. Under the rule, an
investment adviser that exercises voting authority over client securities is required to: (i) adopt
and implement written policies and procedures that are reasonably designed to ensure that the
adviser votes client securities in the best interest of clients, including procedures to address any
material conflict that may arise between the interests of the adviser and the client; (ii) disclose to
clients how they may obtain information from the adviser on how the adviser has voted with
respect to their securities; and (iii) describe to clients the adviser’s proxy voting policies and
procedures and, on request, furnish a copy of the policies and procedures to the requesting client.
Rule 206(4)-6 contains “collection of information” requirements within the meaning of the
Paperwork Reduction Act of 1995. 1 The title of this collection is “Rule 206(4)-6” and the

1

44 U.S.C. 3501 to 3520.

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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 3235-0571 (expiring on July 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 control number. This collection of
information is codified at 17 CFR 275.206(4)-6 and is mandatory. The respondents are
investment advisers registered with the Commission that vote proxies with respect to clients’
securities. This collection of information is necessary to permit advisory clients of these
investment advisers to use the information collected to assess investment advisers’ proxy voting
policies and procedures and to monitor the advisers’ performance of their proxy voting activities.
Responses to the disclosure requirement are not kept confidential.
2.

Purpose and Use of the Information Collection

The rule is designed to assure that advisers that vote proxies for their clients vote those
proxies in their clients’ best interest and provide clients with information about how their proxies
were voted. As discussed in Item 1 (above), advisory clients use the information required by rule
206(4)-6 to assess investment advisers’ proxy voting policies and procedures and to monitor the
advisers’ performance of their proxy voting activities. The information required by Advisers Act
rule 204-2, a recordkeeping rule, also is used by the Commission staff in its examination and
oversight program. Without the information collected under the rules, advisory clients would not
have information they need to assess their advisers’ services and monitor their advisers’ handling
of their accounts, and the Commission would be less efficient and effective in its programs.

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3.

Consideration Given to Information Technology

The collection of information requirements under rule 206(4)-6 take the form of
(1) writing policies and procedures that are reasonably designed to ensure that the adviser votes
proxies in the best interest of clients, (2) disclosing how clients may obtain information on how
the adviser has voted their proxies, and (3) describing to clients information about the adviser’s
proxy voting procedures and policies. Accordingly, the Commission’s use of computer
technology may have little effect. The Commission, however, does currently permit advisers to
maintain the records related to their proxy voting policies and to how they have voted client
proxies though the use of electronic media. 2
4.

Duplication

The requirements of rule 206(4)-6 are not duplicated elsewhere for those investment
advisers that must comply with the rule, although those advisers effectively are required to use
disclosures mandated by Form ADV and related rules to meet their disclosure obligations under
rule 206(4)-6. Rule 204-3 under the Advisers Act generally requires investment advisers to
furnish certain information to clients and prospective clients by providing them a brochure that
contains all information required by Part 2 of Form ADV.
As required by Part 2 of Form ADV, this brochure must include, among other things, the
same proxy-related disclosure mandated by rule 206(4)-6. That is, an investment adviser that has,
or will accept, the authority to vote its clients’ securities must (i) describe in its brochure its
voting policies and procedures, including those adopted pursuant to rule 206(4)-6; (ii) describe in
its brochure whether (and, if so, how) its clients can direct a vote in a particular solicitation; (iii)
2

These records are separately required under the Advisers Act recordkeeping rule 204-2.

4
describe in its brochure how it addresses conflicts of interest between it and its clients with
respect to voting their securities; (iv) describe in its brochure how clients may obtain information
from the investment adviser about how it voted their securities; and (v) explain in the brochure
that clients may obtain a copy of its proxy voting policies and procedures upon request. These
brochure disclosure requirements are not duplicative of those contained in rule 206(4)-6 because
an adviser need not make separate disclosures to satisfy each requirement.
5.

Effect on Small Entities

All advisers, regardless of their size, are equally subject to the collection requirements.
The requirements of rule 206(4)-6 apply equally to all investment advisers that are registered with
the Commission and vote proxies on behalf of their clients, including those advisers that are small
entities. It would be incompatible with the objectives of the rule to exempt small entities from
these requirements, which are designed to ensure clients are afforded the full protections attendant
to an adviser’s fiduciary duties as recognized by the Advisers Act when an adviser is voting their
proxies. Nevertheless, in designing the rule, the Commission took an approach that permits small
firms to implement the rule in whatever manner is least burdensome in light of their particular
circumstances. The Commission drafted rule 206(4)-6 to permit each firm subject to the rule to
design and structure its own policies and procedures in light of the firm’s operational structure
and the particular types of conflicts encountered by the firm in connection with its unique business
and clients.
6.

Consequences of Not Conducting Collection

Less frequent information collection would be incompatible with the objectives of rule
206(4)-6. For example, if the information required by the rule were to be either not collected or

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collected less frequently, both the Commission’s ability to protect investors and the ability of
advisory clients to assess and monitor advisers’ proxy voting practices would be reduced.
7.

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

The collection of information imposes no additional requirements regarding record retention.3
8.

Consultation Outside the Agency

The Commission requested public comment on the collection of information requirements
in rule 206(4)-6 before it submitted this request for extension and approval to the Office of
Management and Budget. The Commission received no comments in response to its request.
The Commission and the staff of the Division of Investment Management also participate in an
ongoing dialogue with representatives of the investment adviser industry through public
conferences, meetings and informal exchanges. These various forums provide the Commission
and the staff with a means of ascertaining and acting upon paperwork burdens confronting the
industry.
9.

Payment or Gift

Not applicable.
10.

3

Confidentiality

As discussed in Items 3 and 4 (above), records related to an adviser’s proxy voting policies and
procedures and proxy voting history are separately required under the Advisers Act recordkeeping
rule 204-2. The standard retention period required for books and records under rule 204-2 is five
years, in an easily accessible place, the first two years in an appropriate office of the investment
adviser. Rule 204-2(e). Although this period exceeds the three-year guideline for most kinds of
records under 5 CFR 1320.5(d)(2)(iv), OMB has previously approved the collection with this
retention period. The retention periods in Rule 204-2 are warranted because retention of these
records is necessary for the Commission’s inspection program to ascertain compliance with the
Investment Advisers Act.

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Rule 206(4)-6 requires investment advisers to make certain disclosures to their clients.
These responses are not kept confidential.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection does not collect personally
identifiable information (PII). The agency has determined that a system of records notice (SORN)
and privacy impact assessment (PIA) are not required in connection with the collection of
information.
12.

Burden of Information Collection

Rule 206(4)-6 requires an investment adviser that votes client securities to adopt written
policies and procedures reasonably designed to ensure that the adviser votes client securities in
the best interest of clients, and requires the adviser to disclose to clients information about those
policies and procedures. For purposes of estimating the paperwork burden for investment
advisers under rule 206(4)-6, we estimate that the number of investment advisers subject to
collection of information requirements under the rule is 12,265. 4 We further estimate that each of
these advisers is required to spend on average 10 hours annually documenting its proxy voting
procedures under the requirements of the rule, for a total burden of 122,650 hours. 5

4

Based on records of information submitted to the Commission by investment advisers in Part 1 of
Form ADV, 12,265 of the 13,506 total investment advisers registered with the Commission report
that they provide continuous and regular supervisory or management services for client securities
portfolios on a discretionary basis. Because Part 1 of ADV does not require investment advisers to
describe whether they vote proxies on behalf of clients, for purposes of this estimate, we infer that
these advisers vote proxies on behalf of one or more clients in connection with providing
discretionary asset management services.

5

12,265 x 10 = 122,650.

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The rule also requires these advisers to describe their proxy voting policies and procedures
to clients and make certain related disclosures, as discussed in Item 1, above. The attendant
paperwork burden is already incorporated in collections titled “Form ADV” (OMB control
number 3235-0049) and “Rule 204-3” (OMB control number 3235-0047). As discussed above,
investment advisers are required to make disclosures concerning their proxy voting policies and
procedures in brochures that contain all information required by Part 2 of Form ADV, including
the information described in rule 206(4)-6.
In addition, rule 206(4)-6 requires these investment advisers to provide copies of their
proxy voting policies and procedures to clients upon request. Based on information submitted to
the Commission by SEC-registered investment advisers, we estimate that SEC-registered advisers
have, on average, 2,786 clients each. However, we estimate that, on average, at least 90 percent
of each adviser’s clients would find the adviser’s description of its policies sufficiently informative,
and at most ten percent, or 279 clients of each adviser on average, would request copies of the
underlying policies and procedures. 6 We estimate that it would take these advisers 0.1 hours per
client to deliver copies of the policies and procedures, for a total burden of 342,194 hours. 7
Accordingly, we estimate that rule 206(4)-6 results in an annual aggregate burden of
collection for SEC-registered investment advisers of a total of 464,844 hours. 8
We believe that investment advisers use compliance professionals to document their firms’
proxy voting policies and procedures. We estimate the hourly wage for compliance professionals
6

2,786 x 10% = 279.

7

0.1 x 279 x 12,265 =342,194.

8

122,650 + 342,194 = 464,844.

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to be $309, including benefits. Additionally, we believe that investment advisers use clerical staff
to deliver copies of proxy voting policies in response to clients’ requests. We estimate the hourly
wage for clerical staff to be $62, including benefits. Accordingly, we estimate the annual
aggregate cost of collection to be $59,114,878. 9 Information related to the estimated total burden
is also summarized in the table below.
Summary of Revised Annual Responses, Burden Hours, and Cost Estimates
IC Title

Annual No. of Responses
Previously Requested
Change
approved

Annual Time Burden (Hrs.)
Previously Requested
Change
approved

External Cost to Respondents ($)
Previously
Requested
Change
approved

Rule
206(4)-6

1,531,880

261,513

0

13.

3,421,935

+1,890,055

464,844

+203,331

0

0

Cost to Respondents

We do not anticipate that rule 206(4)-6 will impose any non-labor costs.
14.

Cost to the Federal Government

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

Change in Burden

We have increased the estimated hour burden from 261,513 hours to 464,844 hours based on
new information with respect to the number of registered investment advisers that provide
9

Data from the Securities Industry and Financial Markets Association’s report entitled Management
& Professional Earnings in the Securities Industry 2013, modified by Commission staff to
account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead, suggest that the cost for a Compliance Manager is
approximately $309 per hour. Data from the Securities Industry and Financial Markets
Association’s report entitled Office Salaries in the Securities Industry 2013, modified by
Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 2.93 to
account for bonuses, firm size, employee benefits and overhead, suggest that the cost for a General
Clerk is approximately $62 per hour. (122,650 hours x $309 per hour) + (342,194 hours x $62 per
hour) = $59,114,878.

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discretionary asset management services and to the estimated average number of clients per SECregistered investment adviser. This new information is based on data derived from information
submitted by advisers on Form ADVs filed through the IARD. The number of hours per response has
not changed since the last estimate. The increase in hour burden is entirely due to an increase in the
number of respondents.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exception to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.