Rule 206(4)-7 Supporting Statement (2024)

OMB CONTROL NUMBER: 3235-0585
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 206(4)-7
A.

JUSTIFICATION
1.

Necessity of the Information Collection

Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Advisers Act”) requires each
investment adviser registered with the Securities and Exchange Commission (“Commission”) to
(1) adopt and implement written policies and procedures reasonably designed to prevent
violations of the Advisers Act and its rules, (2) review those compliance policies and procedures
annually, and (3) designate a chief compliance officer who is responsible for administering the
compliance policies and procedures. The rule is designed to protect investors by fostering better
compliance with the securities laws.
Rule 206(4)-7 contains “collection of information” requirements within the meaning of
the Paperwork Reduction Act of 1995. 1 The title of the collection of information is “Investment
Advisers Act rule 206(4)-7, 17 C.F.R. Sec. 275.206(4)-7, Compliance procedures and practices.”
This collection of information has been previously approved and then extended by the Office of
Management and Budget under control number 3235-0585. This collection of information is
found at 17 CFR 275.206(4)–7, and is mandatory.
The collection of information under rule 206(4)-7 is necessary to help ensure that
investment advisers maintain comprehensive internal programs that promote the advisers’
compliance with the Advisers Act and its rules. The respondents are investment advisers
registered with the Commission. The Commission’s examination and oversight staff may review
the information collected to assess investment advisers’ compliance programs.

1

44 U.S.C. 3501, et seq.

2.

Purpose and Use of the Information Collection

The purpose of the information collection requirements in rule 206(4)-7 is to help ensure
that investment advisers maintain comprehensive internal programs that promote the advisers’
compliance with the Advisers Act and its rules. The information collection also assists the
Commission’s examination staff in assessing the adequacy of advisers’ compliance programs.
3.

Consideration Given to Information Technology

Rule 206(4)-7 does not require advisers or any others to report or file any information
with the Commission.
4.

Duplication

Rule 206(4)-7 imposes a broad requirement that advisers have in place written
compliance policies and procedures. Other federal securities laws require advisers to maintain
written policies and procedures, including more targeted policies and procedures. Rule 206(4)-7,
however, does not require advisers to maintain duplicate copies of records covered by these more
targeted requirements. The staff believes, therefore, that any duplication of regulatory
requirements is limited and does not impose significant additional costs on advisers.
5.

Effect on Small Entities

Registered advisers, regardless of their size, are subject to the requirements in rule
206(4)-7. Comprehensive internal compliance programs are essential for advisers of all sizes.
Rule 206(4)-7 affords advisers the flexibility to tailor their compliance program to the nature of
their business. Small advisers, which generally have less complex and more limited operations,
would likely need less extensive compliance programs than their larger counterparts. Therefore,
rule 206(4)-7 should not inappropriately burden small advisers. The staff does not believe it can

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adjust the rule to lessen the burden on small entities, without jeopardizing the interests of small
advisers’ clients.
6.

Consequences of Not Conducting Collection

If registered investment advisers are not required to comply with rule 206(4)-7, it is
harder to ensure they maintain comprehensive internal programs that promote the advisers’
compliance with the Advisers Act and its rules. Rule 206(4)-7 requires advisers to review their
compliance policies and procedures annually. These annual reviews are integral to detecting and
correcting any gaps in the program before irrevocable or widespread harm is inflicted upon
investors. Extending the time between reviews increases the likelihood that such harm could go
unchecked.
7.

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

Not applicable.
8.

Consultation Outside the Agency

The Commission requested public comment on the collection of information
requirements in rule 206(4)-7 before it submitted this request for extension 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 participate in
an ongoing dialogue with representatives of the investment adviser profession 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

Not applicable.

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10.

Confidentiality

Responses provided to the Commission pursuant to the rule in the context of the
Commission’s examination and oversight program are generally kept confidential. 2
11.

Sensitive Questions

No PII collected / Not applicable.
12.

Burden of Information Collection

Rule 206(4)-7 requires investment advisers to (1) adopt and implement written policies
and procedures reasonably designed to prevent violations of the Advisers Act and its rules, (2)
review those compliance policies and procedures annually, and (3) designate a chief compliance
officer who is responsible for administering the compliance policies and procedures. The current
approved number of responses is 13,249, per year. The current approved average time burden
per adviser is 90 hours with compliance managers performing 65.25 of its 90 burden hours and
compliance clerks performing the remaining 24.75 hours of work. The current approved
aggregate time burden is 1,152,663 hours, per year. The current approved aggregate monetized
time burden is $276,972,286, per year. We are updating and revising the burdens based on
updated data.
Updated Data. Based on Form ADV filings as of December 31, 2023, there were 15,441
advisers registered with the Commission, which represents the total number of respondents.
Each respondent would produce one response, per year. Therefore, with the updated data
showing 15,441 responses, we believe the annual aggregate time burden should increase to
1,389,690 hours. 3

2

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

3

15,441 responses x 90 hours per response = 1,389,690 hours.

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We continue to estimate that on average, each respondent would have compliance
managers perform 65.25 of its 90 burden hours and compliance clerks perform the remaining
24.75 hours of work. Our updated data indicate the hourly wage rate for a compliance manager
is $372, while the hourly wage rate for a compliance clerk is $84 an hour. 4 Using the updated
hourly wage rates and updated number of respondents, we estimate that rule 206(4)-7 results in a
monetized time burden of $406,901,232. 5

Table 1: Summary of the Annual Number of Respondents, Number of Responses per
Respondent, and Average Time Burden per Response
Description

Previously
Approved

Requested

Respondents

Change

15,441

14,376

1,065

Number of Responses per
Respondent

1

1

0

Average Time Burden per
Response (Hours)

90

90

0

4

The $372 per hour figure for a compliance manager is from SIFMA’s 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. The $84 per hour figure for a compliance clerk is from
SIFMA’s Office Salaries in the Securities Industry 2013, modified by Commission staff to
account for an 1800-hour work-year and inflation, and multiplied by 2.93 to account for bonuses,
firm size, employee benefits and overhead.

5

(15,441 registered investment advisers x 65.25 hours by compliance managers x $372 per hour) +
(15,441 registered investment advisers x 24.75 hours by compliance clerical staff x $84 per hour)
= $406,901,232.

5

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

Requested

Responses
Time Burden (Hours)
Monetized Time Burden (Dollars)

13.

Previously
Approved

Change

15,441

14,376

1,065

1,389,690

1,293,840

95,850

$406,901,232

$322,036,776

$84,864,456

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.
15.

Changes in Burden

We estimate that the annual aggregate time burden associated with rule 206(4)-7 will
increase from 1,293,840 hours to 1,389,690 hours, resulting in an increase of 95,850hours. We
estimate that the annual aggregate monetized cost burden will increase from $322,036,776 to
$406,901,232, resulting in an increase in $864,456. These increases are attributable to updated
data. Rule 206(4)-7 requires, among other things, registered investment advisers to adopt and
implement written policies and procedures reasonably designed to prevent violations of the
Advisers Act and its rules. According to updated data, more advisers are registered with the
Commission, therefore more respondents must comply with rule 206(4)-7, resulting in an
increase in the number of responses. Additionally, we increased our hourly wage estimates to
account for inflation.

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16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Requirement for Paperwork Reduction Act
Submissions

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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