supporting statement

OMB CONTROL NUMBER 3235-0278
SUPPORTING STATEMENT FOR
PAPERWORK REDUCTION ACT SUBMISSION AMENDMENT TO
RULE 204-2
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 204 of the Investment Advisers Act of 1940 (the “Advisers Act”) provides that
investment advisers required to register with the Securities and Exchange Commission (the
“Commission”) must make and keep certain records for prescribed periods, and make and
disseminate certain reports. 1 Advisers Act rule 204-2 sets forth mandatory requirements for
maintaining and preserving specified books and records.2 The records that an adviser must keep
in accordance with rule 204-2 must generally be retained for not less than five years. 3 These
requirements constitute a mandatory “collection of information,” within the meaning of the
Paperwork Reduction Act.
On November 4, 2019, the Commission proposed amendments to rules related to how
advisers advertise to and solicit clients and investors 4. The proposed amendments to the
advertising rule, rule 206(4)-1 5 under the Advisers Act, would replace the current advertising
rule’s broadly drawn limitations with principles-based provisions, and the proposed amendments

1

15 U.S.C. 80b-4.

2

17 CFR 275.204-2.

See id. at 275.204-2(e). The standard retention period required for books and records under rule 204-2 is five
years, in an easily accessible place, the first two years in an appropriate office of the investment adviser.

3

Investment Adviser Advertisements; Compensation for Solicitations, Release No. IA-5407 (November 4, 2019)
[84 FR 67518 (Dec. 10, 2019]
4

5

17 CFR § 275.206(4)-1.

2
to the Advisers Act cash solicitation rule, rule 206(4)-3, 6 would expand the rule to cover
solicitation arrangements involving all forms of compensation, rather than only cash
compensation, eliminate requirements duplicative of other rules, and tailor the required
disclosures solicitors would provide to investors. 7 The Commission also proposed amendments
under the Advisers Act to the books and records rule, rule 204-2, to correspond to the proposed
changes to the advertising and solicitation rules.
The proposed amendments to rule 204-2 would require registered advisers to retain
copies of advertisements to one or more persons, 8 whereas the current rule requires investment
advisers to retain copies of advertisements to 10 or more persons. 9 Under the amendments to the
rule, investment advisers will also be required to retain (i) for investment advisers that use a
third-party rating in any advertisement, a copy of any questionnaire or survey used in preparation
of the third-party rating; and, (ii) a copy of all written approvals of advertisements required under
proposed rule 206(4)-1(d).10 To correspond to proposed changes to rule 206(4)-3, the
Commission also proposed to amend the current books and records rule to replace the rule’s
requirement that investment advisers keep a record of all written acknowledgments of receipt
obtained from clients pursuant to rule 206(4)-3(a)(2)(iii)(B) with the proposed requirement that

6

17 CFR § 275.206(4)-3.

7

See Release No. IA-5407, supra footnote 4.

See proposed rule 204-2(a)(11); see also Release No. IA-5407, supra note 4, at section II.C (discussing the
proposed amendments to the books and records rule).

8

9

See 17 CFR § 275.204-2.

See proposed rule 204-2(a)(11); see also Release No. IA-5407, supra note 4, at section II.C (discussing the
proposed amendments to the books and records rule).

10

3
an investment adviser retain any communication or other document related to the investment
adviser’s determination that it has a reasonable basis for believing that any solicitor it
compensates under the solicitation rule has complied with the written agreement required by the
solicitation rule. 11
Additionally, to correspond to other proposed changes to the solicitation rule, we would
amend the books and records rule to require investment advisers to make and keep records of: (i)
if the adviser participates in any nonprofit program pursuant to the solicitation rule, copies of all
receipts of reimbursements of payments or other compensation the adviser provides relating to
its inclusion in the program; (ii) any communication or other document related to the investment
adviser’s determination that it has a reasonable basis for believing that any solicitor it
compensates under rule 206(4)-3 is not an ineligible solicitor, and that any nonprofit program it
participates in pursuant to the solicitation rule meets the requirements of the solicitation rule; and
(iii) the names of all solicitors who are an adviser’s partners, officers, directors or employees or
other affiliates, pursuant to the solicitation rule. 12 All of these records will be required to be
maintained in the same manner, and for the same period of time, as other books and records
required to be maintained under rule 204-2(a).
The collection of information under rule 204-2 is necessary for the Commission staff to
use in its examination and oversight program. The collection has been previously approved and
subsequently extended under Office of Management and Budget (“OMB”) control number 32350278 (expiring March 31, 2020), and it is found at 17 CFR 275.204-2. An agency may not

11

Id.

12

Id.

4
conduct or sponsor, and a person is not required to respond to, a collection of information unless
it displays a currently valid OMB number.
2.

Purpose and Use of the Information Collection

The proposed amendments to rule 204-2 would require registered advisers to retain: (i)
copies of copies of advertisements to one or more persons; 13 (ii) for investment advisers that use
a third-party rating in any advertisement, a copy of any questionnaire or survey used in
preparation of the third-party rating; (iii) a copy of all written approvals of advertisements
required under proposed rule 206(4)-1(d); (iv) any communication or other document related to
the investment adviser’s determination that it has a reasonable basis for believing that any
solicitor it compensates under the solicitation rule has complied with the written agreement
required by the solicitation rule. 14 The prosed amendments would also require registered advisers
to make and keep records of: (i) if the adviser participates in any nonprofit program pursuant to
the solicitation rule, copies of all receipts of reimbursements of payments or other compensation
the adviser provides relating to its inclusion in the program; (ii) any communication or other
document related to the investment adviser’s determination that it has a reasonable basis for
believing that any solicitor it compensates under rule 206(4)-3 is not an ineligible solicitor, and
that any nonprofit program it participates in pursuant to the solicitation rule meets the
requirements of the solicitation rule; and (iii) the names of all solicitors who are an adviser’s
partners, officers, directors or employees or other affiliates, pursuant to the solicitation rule. The

The current rule requires investment advisers to retail copies of advertisements to 10 or more persons. See 17
CFR § 275.204-2.

13

The current books and records rule requires advisers keep a record of all written acknowledgments of receipt
obtained from clients pursuant to rule 206(4)-3(a)(2)(iii)(B).
14

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purpose of the information collection in rule 204-2 is to assist the Commission’s examination
and oversight program. Requiring the creation, maintenance and retention of the above records
as part of rule 204-2 would facilitate the Commission’s ability to inspect for and enforce
compliance with firms’ obligations with respect to rules 206(4)-1 and 206(4)-3.
The respondents to the rule are investment advisers registered with the Commission. The
likely respondents for the amendments to the rule will be the investment advisers registered with
the Commission that advertise or compensate solicitors. Responses provided to the Commission
in the context of its examination and oversight program are generally kept confidential. 15 This
collection of information is found at 17 CFR 275.204-2 and is mandatory.
3.

Consideration Given to Information Technology

The Commission’s use of computer technology in connection with this information
collection, which has been previously approved by OMB, would not change. The Commission
currently permits advisers to maintain records required by the rule through electronic media. 16
4.

Duplication

The collection of information requirements of the rule, including the amendments, are not
duplicated elsewhere.
5.

Effect on Small Entities

The requirements of the rule are the same for all investment advisers registered with the
Commission, including those that are small entities. The requirements of the amendments to rule
204-2 will not distinguish between small entities and other investment advisers because the

15

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

16
See Electronic Recordkeeping by Investment Companies and Investment Advisers, Investment Advisers Act
Release No. 1945 (May 24, 2001) 66 FR 29224 (May 30, 2001).

6
protections of the Advisers Act are intended to apply equally to retail investor clients of both
large and small firms. OMB has previously approved the effect of this collection on all
investment advisers in general, including advisers that are small entities. Moreover, it would
defeat the purpose of the rule to exempt small entities from these requirements. 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

Less frequent information collection will be incompatible with the objectives of the rule and
would hinder the Commission’s oversight and examination program for investment advisers and
thereby reduce the protection to investors.
7.

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

The collection requirements under rule 204-2 generally require advisers to maintain
documents for five years, and in some cases longer. The retention period will not be affected by
the amendments to the rule. Although this period exceeds the three-year guideline for most
kinds of records under 5 CFR 1320.5(d)(2)(iv), OMB has previously approved the collection
with this retention period. The retention periods in rule 204-2 are warranted because the
recordkeeping requirements in rule 204-2 of the Advisers Act are designed to contribute to the
effectiveness of the Commission’s examination and inspection program. Because the period
between examinations may be as long as five years, it is important that the Commission have
access to records that cover the entire period between examinations.
8.

Consultation With Persons Outside the Agency

In its release proposing to amend the advertising, cash solicitation, and recordkeeping

7
rules, Commission requested public comment on the effect of information collections under
these amendments. The Commission has not yet received any comments addressing the impact
of the information collections.
The Commission and the staff of the Division of Investment Management also continue
to participate in an ongoing dialogue with representatives of the investment adviser industry
through public conferences, meetings and informal exchanges. These various forums provide the
Commission and the staff with a means of ascertaining and acting upon paperwork burdens
facing the industry.
9.

Payment or Gift

None.
10.

Confidentiality

Responses provided to the Commission pursuant to rule 204-2 in the context of the
Commission’s examination and oversight program are generally 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 collects basic Personally
Identifiable Information (PII) that may include names, job titles, work addresses, and phone
numbers. However, the agency has determined that the information collection does not
constitute a system of record for purposes of the Privacy Act. Information is not retrieved by a
personal identifier.]
12.

Burden of Information Collection

The approved annual aggregate burden for rule 204-2 is currently 2,435,364 hours, with a
total annual aggregate monetized cost burden of approximately $154,304,663, based on an

8
estimate of 13,299 registered advisers, or 183 hours per registered adviser. 17 Based on Form
ADV filings, as of September 30, 2019, 13,463 investment advisers were registered with the
Commission. For the proposed recordkeeping amendments that correspond to proposed changes
to the advertising rule, including the expanded definition of “advertisement,” we estimate that
the proposed amendments would result in an increase in the collection of information burden
estimate by 10 hours for each of the estimated 13,463 registered advisers (inclusive of the
additional hours required for half of these advisers to also retain a copy of any questionnaire or
survey used in the preparation of a third-party rating included or appearing in any
advertisement).
For the proposed recordkeeping amendments that correspond to proposed changes to the
solicitation rule, we estimate that the proposed amendments would result in a collection of
information burden estimate of 1.5 hours18 for each of the estimated 6,432 registered investment
advisers that we estimate would be subject to the solicitation rule. 19 We therefore estimate that
the proposed amendments to both rules would result in an aggregate increase in the collection of

See Form ADV and Investment Advisers Act Rules, Final Rule, Release No. IA-4509 (Aug. 25, 2016) [81 FR
60418 (Sept. 1, 2016)], at 81 FR 60454-55 (“2016 Form ADV Paperwork Reduction Analysis”). There were recent
revisions to the collection of information for rule 204-2 and Form ADV as a result of the following rulemakings:
Form CRS Relationship Summary; Amendments to Form ADV, Release No. IA-5247 (June 5, 2019) [84 FR 33492
(Jul. 12, 2019)]; and Regulation Best Interest, Release No. 34-86031 (June 5, 2019) [84 FR 39178 (Aug. 9, 2019)].

17

This would be for advisers that would be subject to the solicitation rule, as proposed to be amended, and the
corresponding amended recordkeeping requirements. We recognize that not all advisers that would be subject to the
solicitation rule would be subject to all of the recordkeeping requirements related to the solicitation rule. For
example, we estimate that only a few advisers would use nonprofit programs under the proposed solicitation rule
and be subject to the corresponding books and records rule related to nonprofit programs. However, for purposes of
the PRA, we are estimating that all advisers that would use the proposed solicitation rule would incur an estimated
1.5 hours in complying with the recordkeeping requirements related to the solicitation rule.
18

See Release No. IA-5407, supra note 4 at 410-414 (discussing the number of respondents that we estimate would
be subject to proposed amended solicitation rule).
19

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information burden estimate by 10.7 hours for each of the estimated 13,463 registered advisers,
resulting in a total of 193.7 hours per adviser. 20 This would yield an annual estimated aggregate
burden of 2,607,783 hours under amended rule 204-2 for all registered advisers, 21 for a
monetized cost of $165,229,131.
The table below provides a summary of the annual burden hours.

10 hours (advertising rule for all advisers) + 0.7 hours (solicitation rule for 6,432 advisers [1.5 hours x 47.8%]) =
10.7 hours.
20

21

13,463 registered investment advisers x 193.7 hours = 2,607,783 hours.

Summary of Annual Responses, Burden Hours, and Burden Hour Costs Estimates for Rule 204-2

IC

Rule 204-2 under
the Investment
Advisers Act of
1940
Description of
Parts of IC

IC1

Recordkeeping and
Record retention

Total for IC

Annual No. of Responses
Previously
approved

Requested
Change Due
to New
Statute

13,299

164

13,299

164

Annual Time Burden (Hrs.)
Previously
approved

Requested
Change Due
to New
Statute

13,469

2,435,364

13,463

2,435,364

Total

Monetized Time Burden ($)
Requested
Change Due
to New
Statute

Total

Previously
approved

172,419

2,607,783

154,304,664

10,924,467

165,229,131

172,419

2,607,783

154,304,664

10,924,467

165,229,131

Total

13.

Cost to Respondents

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

Cost to the Federal Government

There are no additional costs to the federal government directly attributable to rule 204-2.
15.

Changes in Burden

We estimate that the total burden hour associated with rule 204-2 will increase from
2,435,364 hours per year to 2,607,783 hours per year and an increase from $154,304,664 per
year to $165,229,131 in monetized cost, 22 because of the amendments to rule 204-2. This
represents an increase of 235,573 23 annual aggregate hours in the hour burden and an annual
increase of $10,924,46724 from the currently approved total aggregate monetized cost for rule
204-2. These increases are attributable to a larger registered investment adviser population since
the most recent approval and adjustments for inflation, as well as the rule 204-2 amendments
relating to advertising and solicitation.
16.

Information Collection Planned for Statistical Purposes

None.
17.

Approval to Omit OMB Expiration Date

Not Applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not Applicable.

22

$95,588,191 + $58,716,473 = $154,304,664.

23

2,607,783 hours – 2,435,364 hours = 172,419 hours.

24

$165,229,131– $154,304,664 = $10,924,767.

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B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.