Supporting Statement

Supporting Statement.pdf

Rule 34b-1 (17 CFR 270.34b-1) under the Investment Company Act of 1940, Sales Literature Deemed to be Misleading.

OMB: 3235-0346

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OMB CONTROL NUMBER: 3235-0346

SUPPORTING STATEMENT

For the Paperwork Reduction Act Information Collection Submission for

Rule 34b-1

A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 34(b) of the Investment Company Act of 1940 (“Investment Company
Act”) makes it unlawful for any person to make an untrue statement of a material fact in
any documents filed or transmitted pursuant to the Investment Company Act or to omit a
statement necessary to prevent such documents from being materially misleading.
Rule 34b-1 under the Investment Company Act governs sales material that
accompanies or follows the delivery of a statutory prospectus (“sales literature”). 1 Rule
34b-1 deems to be materially misleading any investment company (“fund”) sales
literature required to be filed with the Securities and Exchange Commission
(“Commission”) by Section 24(b) of the Investment Company Act 2 that includes
performance data, unless the sales literature also includes the appropriate uniformly
computed data and the legend disclosure required in investment company advertisements
by rule 482 under the Securities Act.

1

A “statutory prospectus” is a prospectus that meets the requirements of Section 10(a) of
the Securities Act of 1933 (“Securities Act”).

2

Sales literature addressed to or intended for distribution to prospective investors is
deemed filed with the Commission for purposes of Section 24(b) of the Investment
Company Act upon filing with a national securities association registered under Section
15A of the Securities Exchange Act of 1934 that has adopted rules providing standards
for the investment company advertising practices of its members and has established and
implemented procedures to review that advertising. See rule 24b-3 under the Investment
Company Act.

2.

Purpose and Use of the Information Collection

Rule 34b-1 is designed to prevent misleading performance claims by funds and to
enable investors to make meaningful comparisons among funds.
3.

Consideration Given to Information Technology

The Commission’s electronic filing system (“EDGAR”) automates the filing,
processing, and dissemination of full disclosure filings. The system permits publicly held
companies to transmit their filings to the Commission electronically. This automation
has increased the speed, accuracy, and availability of information, generating benefits to
investors and financial markets.
The vast majority of fund sales literature is filed with the Financial Industry
Regulatory Authority (FINRA) under Investment Company Act rule 24b-3, which allows
any sales material filed with FINRA to be deemed to be filed with the Commission. Rule
34b-1 sales literature that is required to be filed with the Commission is to be filed
electronically on EDGAR (17 CFR 232.101(a)(1)(i) and (iv)). The public may access
filings on EDGAR through the Commission’s Internet web site (http://www.sec.gov) or
at EDGAR terminals located at the Commission’s public reference rooms.
4.

Duplication

The Commission periodically evaluates reporting and recordkeeping requirements
for duplication and reevaluates them whenever it proposes a rule or form or a change in a
rule or form.
5.

Effect on Small Entities

The Commission reviews all rules periodically, as required by the Regulatory
Flexibility Act, to identify methods to minimize recordkeeping or reporting requirements

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affecting small businesses. The current disclosure requirements for rule 34b-1 sales
literature do not distinguish between small entities and other funds. Although the burden
on small funds may be greater than those of larger ones, the Commission believes that
imposing different requirements on smaller investment companies would not be
consistent with investor protection and the purposes of the rule 34b-1 requirements.
6.

Consequences of Not Conducting Collection

Since use of sales literature by funds is voluntary, the Commission does not
determine the frequency with which funds prepare and file sales literature. Therefore,
short of not requiring any collection for sales literature governed by rule 34b-1, the
Commission cannot require less frequent collection. Not requiring disclosure of the
information required by rule 34b-1 would harm investors by denying them information
that may be useful in making investment decisions. If such sales literature did not
contain this information, investors could receive inadequate information or could receive
confusing, false, or misleading information. As a result, investor confidence in the
securities industry could be adversely affected.
7.

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

This collection is not inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultation Outside the Agency

The Commission and the Division of Investment Management staff participate in
an ongoing dialogue with representatives of the investment company 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 that may confront the industry. The Commission requested public comment on

3

the collection of information requirements in rule 34b-1 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.
9.

Payment or Gift

No payment or gift to respondents was provided.
10.

Confidentiality

No assurance of confidentiality was provided.
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. In accordance with Section 208 of the EGovernment Act of 2002, the agency has conducted a Privacy Impact Assessment (PIA)
of the EDGAR system, in connection with this collection of information. The EDGAR
PIA, published on 1/29/2016, is provided as a supplemental document and is also
available at https://www.sec.gov/privacy.
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for
purposes of the Paperwork Reduction Act of 1995 (“PRA”) 3 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules

3

44 U.S.C. 3501 et seq.

4

and forms. Compliance with rule 34b-1 is mandatory. Responses to the disclosure
requirements will not be kept confidential.
IC

IC Title
Rule 34b-1

IC1

Annual No. of Responses
Previously
Requested
Change
approved

Recordkeeping

Total for all ICs

Annual Time Burden (Hrs.)
Previously
Requested
Change
approved

Burden Cost Burden ($)
Previously
Requested
Change
approved

13004

7713

-5291

26008

46278

20270

0

0

0

13004

7713

-5291

26008

46278

20270

0

0

0

The Commission estimates that on average approximately 7,713 4 responses that
include the information required by rule 34b-1 each year. The burden resulting from the
collection of information requirements of rule 34b-1 is estimated to be 6 hours per
response. The total hourly burden for rule 34b-1 is approximately 46,278 hours per year
in the aggregate. 5
Based on a Commission estimate of approximately 46,278 hours and an estimated
wage rate of approximately $298.5 per hour, 6 the total annual hour burden for complying
with the requirements of rule 34b-1 is approximately $13.8 million. 7

4

The estimated number of responses to rule 34b-1 is composed of 7362 responses filed
with FINRA and 351 responses filed with the Commission in 2019

5

7,713 responses x 6 hours per response = 46,278 hours.

6

The industry burden is calculated by multiplying the total annual hour burden to comply
with rule 34b-1 by the estimated hourly wage rate of $298.5. The estimated wage figure
is based on published rates for compliance attorneys, paralegals, and senior compliance
examiners from the Securities Industry and Financial Markets Association’s Report on
Management & Professional Earnings in the Securities Industry 2013, modified by
Commission staff to account for an 1800 hour work-year and inflation, and multiplied by
5.35 to account for bonuses, firm size, employee benefits and overhead, yielding effective
hourly rates of $368, $219, and $239, respectively. The estimated wage rate is further
based on the estimate that attorneys would handle 50% of hours spent on advertising
regulation and that paralegals and compliance examiners would handle the remaining
50% in equal parts, yielding a weighted wage rate of $298.5 (($368 x 0.50) + ($219 x
0.25) + ($239 x 0.25) = $298.50).

7

46,278 hours x $298.50 per hour = $13,813,983.

5

13.

Cost to Respondents

Cost burden is the cost of services purchased to comply with rule 34b-1, such as
for the services of computer programmers, outside counsel, financial printers, and
advertising agencies. The cost burden does not include the cost of the hour burden
discussed in Item 12 above. Estimates are based on the Commission’s experience with
advertisements and sales literature. The Commission currently attributes no external cost
burden to rule 34b-1.
14.

Cost to the Federal Government

The annual cost of reviewing and processing disclosure documents, including new
registration statements, post-effective amendments, proxy statements, and shareholder
reports of investment companies amounted to approximately $21.2 million in fiscal year
2016, based on the Commission’s computation of the value of staff time devoted to this
activity and related overhead. However, the vast majority of the responses that are
required to be filed under Section 24(b) of the Investment Company Act are in practice
filed with FINRA and deemed filed with the Commission pursuant to rule 24b-3. 8 As a
result, the estimated cost to the federal government related to rule 34b-1 responses is
estimated to be negligible.
15.

Change in Burden

As summarized above, the estimated hourly burden has increased from 26,008
hours to 46,278 hours. The increase in burden hours for complying with rule 34b-1 is
attributable to an increase in the number of burden hours we estimate per response from 2
8

See supra note 2.

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hours to 6 hours. The Commission continues to estimate that there is no external cost
burden associated with this rule.
16.

Information Collection Planned for Statistical Purposes

The results of any information collection will not be published.
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
The Commission is not seeking an exception to the certification statement.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS

The collection of information will not employ statistical methods.

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File Typeapplication/pdf
File TitleSUPPORTING STATEMENT
AuthorKieran Brown
File Modified2020-12-31
File Created2020-12-31

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