2021 Rule 0-4 Supporting Statement

OMB CONTROL NUMBER 3235-0633
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 0-4
A.

JUSTIFICATION
1.

Necessity for the Collection Information

Multiple sections of the Investment Advisers Act of 1940 (“Advisers Act”) 1 give the
Securities and Exchange Commission (“Commission”) the authority to issue Orders granting
exemptions from the Advisers Act’s provisions. The section that grants broadest authority is
section 206A, which provides the Commission with authority to conditionally or unconditionally
exempt any person or transaction, or any class or classes of persons, or transactions, from any
provision of the Advisers Act, or the rules or regulations thereunder, if and to the extent that such
exemption is necessary or appropriate in the public interest and consistent with the protection of
investors and the purposes fairly intended by the policy and provisions of the Advisers Act. 2
Congress enacted section 206A to give the Commission the flexibility to address unforeseen or
changed circumstances in the investment adviser industry.
Rule 0-4 under the Advisers Act, prescribes general instructions for filing an application
seeking exemptive relief with the Commission.3 Rule 0-4 contains a currently approved
“collection of information,” for purposes of the Paperwork Reduction Act, under Office of
Management and Budget (“OMB”) control number 3235-0633, and is titled “Rule 0-4 under the
Investment Advisers Act of 1940, General Requirements of Papers and Applications.” An
agency may not conduct or sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid OMB control number.
1

15 U.S.C. 80b-1 et seq.

2

15 U.S.C. 80b-6(a).

3

17 CFR 275.0-4.

On November 4, 2021, the Commission proposed amendments to rule 0-4. 4 The
proposed amendments would require that every application for an order under any provision of
the Advisers Act, for which a form with instructions is not specifically prescribed, and every
amendment to such application be electronically filed pursuant to Regulation S-T, rather than in
paper format, as is currently required. The proposed amendments also would eliminate the
requirements to have verifications of applications and statements of facts made in connection
with applications notarized and would eliminate the requirement that applications include
proposed notices as exhibits to applications. In addition, the proposed amendments would
specify that paper submissions should be addressed to the Secretary of the Commission, remove
the reference to microfilming, and clarify the wording related to duplicate original copies of
paper applications.
Respondents to the collection of information are applying for orders of the Commission
exempting them from one or more provisions of the Advisers Act. The requirements of rule 0-4
are designed to provide Commission staff with the necessary information to assess whether
granting the orders of exemption is necessary and appropriate, in the public interest, and
consistent with the protection of investors and the intended purposes of the Advisers Act. This
collection of information is necessary in order to obtain or retain benefits. Responses will not be
kept confidential.

4

See Electronic Submission of Applications for Orders under the Advisers Act and the Investment
Company Act, Confidential Treatment Requests for Filings on Form 13F, and Form ADV-NR;
Amendments to Form 13F, Advisers Act Release No. 5903 (Nov. 4, 2021) (“Proposing Release”).

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2.

Purpose and Use of the Information Collection

Respondents to the collection are applying for Orders of the Commission exempting them
from one or more provisions of the Advisers Act. The requirements of rule 0-4 are designed to
provide Commission staff with the necessary information to assess whether granting the Orders
of exemption are necessary and appropriate, in the public interest, and consistent with the
protection of investors and the intended purposes of the Advisers Act.
3.

Consideration Given to Information Technology

Under the proposed amendments, rule 0-4 would require an applicant seeking Advisers
Act relief to submit its application electronically to the Commission through the Electronic Data
Gathering, Analysis, and Retrieval (“EDGAR”) system.
4.

Duplication

The Commission periodically evaluates collection of information requirements for
duplication, and reevaluates them whenever it proposes a rule or form, or a change in either. The
reporting requirements of rule 0-4 are not duplicated elsewhere.
5.

Effect on Small Entities

The requirements of rule 0-4 apply equally to all applicants seeking Orders of the
Commission exempting them from one or more provisions under the Advisers Act, regardless of
size. The burden on smaller entities may be greater; however, allowing small entities to seek
exemption from Advisers Act provisions contributes to lessening the burden on these entities
overall. As required by the Regulatory Flexibility Act, 5 the Commission reviews all rules
periodically to identify ways to minimize reporting and recordkeeping requirements that may
affect small businesses.

5

5 U.S.C. 601 et seq.

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6.

Consequences of Not Conducting Collection

The requirements of rule 0-4 apply only to applications for Orders from the Commission
for which a form is not specifically prescribed. Because the Commission has no control over the
number of applications submitted, it cannot generally require less frequent collection unless it
does not require the collection with respect to every application. Eliminating rule 0-4
requirements for certain or all applications would make it difficult for the Commission to process
and review requests for exemptive relief. The Commission will, however, when it deems it
necessary and appropriate, codify prior exemptive relief granted to applicants into rules, thus
eliminating the need for respondents to file exemptive applications in those instances and
relieving them of the requirements of rule 0-4.
7.

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

Not applicable.
8.

Consultation With Persons Outside the Agency

The Commission requested public comment on the proposed amendments to the
collection of information requirements in Form ADV-NR. 6 Comments are due 30 days after
publication in the Federal Register.
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.

6

See Proposing Release, supra footnote 4.

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9.

Payment or Gift

Not applicable.
10.

Assurance of Confidentiality

Not applicable.
11.

Sensitive Questions

Not applicable.
12.

Burden of Information Collection

Most of the work of preparing an application is performed by outside counsel and,
therefore, imposes no hourly burden on the respondents. Nevertheless, the Commission requests
approval for one burden hour for administrative purposes. We do not believe that the proposed
amendments would change the burden on applicants. Likewise, we do not believe that our
proposed amendments would change the number of such applications that are filed annually.
Therefore, because there will continue to be no internal hourly burden we believe that the current
initial and annual hour burdens for such applications remain appropriate. The estimate of annual
burden hours is made solely for the purposes of the Paperwork Reduction Act, and is not derived
from a comprehensive or even representative survey or study of the costs of Commission rules
and forms.
13.

Cost to Respondents

Applicants for orders under the Advisers Act file applications as they deem necessary.
Applicants for Orders under the Advisers Act can include registered investment advisers,
affiliated persons of registered investment advisers, and entities seeking to avoid investment
adviser status, among others. The Commission estimates that it receives seven initial

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applications per year submitted under rule 0-4 of the Advisers Act. 7 Although some applications
are submitted on behalf of multiple applicants, these applicants in the vast majority of cases are
related entities and are treated as a single respondent for purposes of this analysis.
We are proposing to decrease the external costs associated with the existing collection of
information for rule 0-4 to reflect the proposed amendments; however, our estimated cost burden
would increase, taking into account an increased baseline. 8 The proposed amendments would
eliminate the requirement to notarize applications. The notary service is typically provided by a
secretary or similar administrative employee of the applicant or the outside counsel preparing the
application and represents a negligible hour or cost burden to the applicant, so elimination of the
notarization requirement would reduce the cost burden only a small amount. However, we
believe that these cost savings would be offset by the costs associated with transitioning to an
electronic submission process, such as updating policies and procedures, recordkeeping methods
and time spent learning to use the EDGAR system. The proposed amendments would require
that paper submissions under rule 0-4 be addressed to the Secretary of the Commission, remove
the reference to microfilming and clarify the wording related to duplicate original copies of paper
applications. These amendments would decrease the applicant’s cost burden. However, we
believe that these cost savings would also be offset by the time and costs associated with
transitioning to an electronic submission process. The proposed amendments also would
eliminate the requirement that applicants include proposed notices as exhibits to applications. A
proposed notice is a summary of the statements in the application. Based on staff experience, we

7

See e.g., 17 CFR 275.206(4)-5(e) (providing that the Commission may, upon application, exempt
an adviser from certain of the rule’s restrictions, and providing a non-exclusive list of factors the
Commission will consider when evaluating these applications).

8

We most recently estimated the annual cost burden to applicants of filing all applications to be
$392,500.

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believe that preparation of the proposed notice by outside counsel represents approximately 1%
of the cost of preparing an application. We estimate that the total reduction in the external costs
would be approximately $4,091. 9 However, the as discussed in the table below, we estimate the
baseline costs would increase; therefore, although the proposed amendments decrease external
costs, our estimated cost burden would increase, taking into account the increased baseline.
Table 1: Proposed cost burden estimates to applicants applying for exemptive relief under
proposed rule 0-4

Adviser Act
Exemptive
Applications

Types of
applications

Current external
cost burden per
filing1

Estimated
reduction
in external
cost2

Estimated
external
cost burden
per filing

Number of
applications3

Estimated
external cost
burden per
filing type

Well
Precedented
Applications
Medium
Complexity
Applications
High
Complexity
Applications

$14,1824

$(141)

$14,041

3

$42,123

$48,282

$(483)

$47,799

3

$143,397

$221,909

$(2,219)

$219,690

1

$219,690

x

Total estimated annual external
cost burden for Advisers Act
Applications:

$405,210

Notes:
1. Based on conversations with applicants and attorneys, the cost for applications ranges from approximately
$14,182 for preparing a well-precedented, routine (or otherwise less involved) application, $48,282 for preparing
medium complex applications and approximately $221,909 to prepare a complex or novel application.
2. We estimate that preparation of the proposed notice by outside counsel represents approximately 1% of the cost of
preparing an application.
3. We estimate that the Commission annually receives three of the well-precedented applications, three applications
of medium complexity, and one high complexity applications.
4. The cost outside counsel charges applicants depends on the complexity of the issues covered by the application
and the time required. Based on conversations with applicants and attorneys, the cost for applications ranges from
approximately $14,182 for preparing a well-precedented, routine (or otherwise less involved) application to
approximately $221,909 to prepare a complex or novel application. $48,282 is the median between $14,182 and
$221,909. Supporting Statement for “Rule 0-4 under the Investment Advisers Act of 1940, General Requirements
of Papers and Applications” (OMB Control No. 3235-0633). We have adjusted these numbers to reflect changes in
prices from the 2019 estimates based on the U.S. Bureau of Labor Statistic’s CPI Inflation calculator. We estimate
that the Commission receives one of the most time-consuming applications annually, three applications of medium
complexity, and three of the least complex applications subject to rule 0-4. There are no ongoing expenses.
9

The total external cost reduction of 1% would amount to $4,091 given the estimated distribution
of all applications: ($141 x 3) + ($483 x 3) + ($2,219 x 1) = $4,091. See Table 1.

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Table 2: Summary of the Annual Number of Responses, Time Burden, and Cost Burden
Description

Previously
Approved

Requested

Change

Responses

7

7

0

Time burden (Hours) 10

1

1

0

Cost Burden (Dollars)1

$405,210

$392,500

$12,710

14.

Cost to the Federal Government

The annual cost of reviewing and processing all applications under the Advisers Act for
Orders from the Commission for exemptive relief amounted to approximately $692,357 in fiscal
year 2021, based on the Commission’s computation of the value of staff time devoted to this
activity and related overhead. 11
15.

Changes in Burden

There is no change in the hourly burden. Rule 0-4 imposes no hourly burden, however
we are continuing to request one hour for administrative purposes. The estimated annual cost
burden for this collection of information would increase by $12,710 from $392,500 to $405,210.
Although we expect the proposed amendments would decrease the cost burden, the cost burden
would increase due to updated data concerning baseline costs.
16.

Information Collection Planned for Statistical Purposes

Not applicable.

10

See Section 12 above, discussing that rule 0-4 imposes no hourly burden; however, we are
continuing to request one hour for administrative purposes.

11

Using the previously approved amount of $638,280 from October 2018, we used the CPI inflation
calculator from the U.S. Bureau of Labor Statistics to calculate that this amount has the same
buying power as $692,356.55 in September 2021. The U.S. Bureau of Labor Statistics CPI
inflation calculator is available at https://www.bls.gov/data/inflation_calculator.htm.

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17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submissions
Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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