misleading investors. The proposed rule contains additional tailored
conditions and restrictions that advertisements using performance
results include certain disclosures or that the adviser provide
additional information, in certain cases upon request, and in certain
circumstances adopt and implement appropriate policies and
procedures.\619\ Certain conditions related to performance are only
applicable to Retail Advertisements. Finally, the proposed rule would
contain a requirement that advertisements be reviewed and approved by a
designated employee prior to dissemination, with certain
exceptions.\620\
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    \616\ Proposed rule 206(4)-1(a)(5).
    \617\ Proposed rule 206(4)-1(a)(2).
    \618\ Proposed rule 206(4)-1(b).
    \619\ Proposed rule 206(4)-1(c).
    \620\ Proposed rule 206(4)-1(d).
---------------------------------------------------------------------------

    Each requirement to disclose information, offer to provide
information, or adopt policies and procedures constitutes a
``collection of information'' requirement under the PRA. The
respondents to these collections of information requirements would be
investment advisers that are registered or required to be registered
with the Commission. As of September 30, 2019, there were 13,463
investment advisers registered with the Commission.\621\ The use of
advertisements is not mandatory, but given that: (i) Advertising is an
essential part of retaining and attracting clients; (ii) advertising
may be disseminated easily through the internet and social media; and
(iii) the proposed definition of ``advertisement'' expands the scope of
the current rule, such as including communications that are
disseminated to obtain or retain investors in pooled investment
vehicles; we estimate that all investment advisers will disseminate at
least one communication meeting the proposed rule's definition of
``advertisement'' and therefore be subject to the requirements of the
proposed rule. Because the use of testimonials, endorsements, third-
party ratings, and performance results in advertisements is voluntary,
the percentage of investment advisers that would include these items in
an advertisement is uncertain. However, we have made certain estimates
of this data, as discussed below, solely for the purpose of this PRA
analysis.
---------------------------------------------------------------------------

    \621\ See supra footnote 553.
---------------------------------------------------------------------------

1. Testimonials and Endorsements in Advertisements
    Under the proposed rule investment advisers are prohibited from
including in any advertisement any testimonial or endorsement unless
the adviser clearly and prominently discloses, or the investment
adviser reasonably believes that the testimonial or endorsement clearly
and prominently discloses, that the testimonial was given by a client
or investor, or the endorsement was given by a non-client or non-
investor and, if applicable, that cash or non-cash compensation has
been provided by or on behalf of the adviser in connection with
obtaining or using the testimonial or endorsement.\622\ We estimate
that approximately 50 percent of registered investment advisers would
use testimonials or endorsements in advertisements (because we estimate
that 100 percent of registered investment advisers would advertise
under the proposed rule, we estimate that the number of advisers that
would use testimonials or endorsements in their advertisements would be
6,732 advisers (50 percent of 13,463 advisers)). We estimate that an
investment adviser that includes testimonials or endorsements in
advertisements would use approximately 5 testimonials or endorsements
per year, and would create new advertisements with new or updated
testimonials and endorsements approximately once per year. We estimate
that an investment adviser that includes testimonials or endorsements
in its advertisement would incur an internal burden of 1 hour to
prepare the required disclosure for its testimonials and/or
endorsements (approximately 0.2 hours per each testimonial and/or
endorsement). Since each testimonial and/or endorsement used would
likely be different, we believe this burden would remain the same each
year. There would therefore be an annual cost to each respondent of
this hour burden of $337.00 to draft and finalize the required
disclosure for the advisers' advertisements that contain testimonials
or endorsements.\623\ We are not proposing an initial burden because we
estimate that advisers would create new advertisements with new or
updated testimonials and endorsements each year, and because we believe
the disclosures would be brief and straightforward.
---------------------------------------------------------------------------

    \622\ Proposed rule 206(4)-1(b)(1).
    \623\ This estimate is based on the following calculation: 1
hour (for preparation and review of disclosures) x $337 (blended
rate for a compliance manager ($309) and a compliance attorney
($365)). The hourly wages used are from SIFMA's Management &
Professional Earnings in the Securities Industry 2013, modified 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 length and content of the disclosure should not vary much
across investment advisers. Once these disclosures are created they
will require little, if any modification, until the adviser creates
advertisements with new or updated testimonials and endorsements (which
we estimate as approximately once per year, as noted above). Therefore,
we estimate that the yearly total internal burden of preparing the
disclosure would be 6,732 hours.\624\ Thus, the aggregate internal cost
of the

hour burden for investment advisers is estimated to be $2,268,684 per
year.\625\
---------------------------------------------------------------------------

    \624\ This estimate is based on the following calculation: 1
hour per adviser x 6,732 advisers.
    \625\ This estimate is based on the following calculation: 6,732
hours per advisers in the aggregate per year x $337 per hour.
---------------------------------------------------------------------------

2. Third-Party Ratings in Advertisements
    Proposed rule 206(4)-1(b)(2) would allow an investment adviser to
include third-party ratings in advertisements if the adviser reasonably
believes that any questionnaire or survey used in the preparation of
the third-party rating is structured to make it equally easy for a
participant to provide favorable and unfavorable responses, and is not
designed or prepared to produce any predetermined result. In addition,
the adviser would have to clearly and prominently disclose (or
reasonably believe that the third-party rating clearly and prominently
discloses): (i) The date on which the rating was given and the period
of time upon which the rating was based, (ii) the identity of the
third-party that created and tabulated the rating, and (iii) if
applicable, that cash or non-cash compensation has been provided by or
on behalf of the adviser in connection with obtaining or using the
third-party rating. In many cases, third-party ratings are developed by
relying significantly on questionnaires or client surveys. Investment
advisers may compensate the third-party to obtain or use the ratings or
rankings that are calculated as a result of the survey. Due to the
costs associated with third-party ratings, we estimate that
approximately 50 percent, or 6,732 advisers, will use third-party
ratings in advertisements, and that they will typically use one third-
party rating on an annual basis.
    We estimate that advisers would incur an initial internal burden of
1.5 hours to draft and finalize the required disclosure for third-party
ratings. Accordingly, we estimate the initial cost to each respondent
of this hour burden to be $505.50.\626\ The third-party rating
provision requires investment advisers to disclose up to four pieces of
information. We estimate that the total burden for drafting and
reviewing initial third-party rating disclosures for all investment
advisers that we believe use third-party ratings in advertisements
would be 10,098 hours,\627\ with a total initial internal cost of the
hour burden of approximately $3,403,026.\628\
---------------------------------------------------------------------------

    \626\ $337 per hour x 1.5 hours. See supra footnote 623 for a
discussion of the blended hourly rate for a compliance manager and a
compliance attorney.
    \627\ This estimate is based on the following calculation: 1.5
hours per adviser x 6,732 advisers.
    \628\ This estimate is based on the following calculation:
10,098 hours per advisers in the aggregate x $337 per hour.
---------------------------------------------------------------------------

    In addition, since many of these ratings or rankings are done
yearly (e.g., 2018 Top Wealth Adviser), an adviser that continues to
use a third-party rating in a retail advertisement would incur ongoing,
annual costs associated with this burden. We estimate that these
ongoing annual costs would be approximately 25 percent of the
investment adviser's initial costs per year, since the adviser would
typically only need to update its disclosures related to the date on
which the rating was given and the period of time upon which the rating
was based. Therefore, we estimate that an investment adviser would
spend 0.375 burden hours annually associated with drafting the required
third-party rating disclosure updates.\629\ Accordingly, we estimate
the annual ongoing cost to each respondent of this hour burden to be
$126.38.\630\ The aggregated ongoing burden for investment advisers
updating initial third-party rating disclosures for all investment
advisers that we estimate would use third-party ratings in
advertisements would be 2,524.5 hours,\631\ at a total ongoing annual
cost of the hour burden of approximately $850,756.50.\632\
---------------------------------------------------------------------------

    \629\ This estimate is based in the following calculation: 25
percent of 1.5 hours.
    \630\ This estimate is based in the following calculation: 0.375
hours per adviser x $337.
    \631\ This estimate is based in the following calculation: 0.375
hours x 6,732 advisers
    \632\ This estimate is based in the following calculation:
2,524.5 hours x $337.
---------------------------------------------------------------------------

3. Performance Advertising
    The proposed rule would impose certain conditions on the
presentation of performance results in advertisements. Specifically,
the proposed rule would require that advertisements that present gross
performance provide or offer to provide promptly a schedule of fees and
expenses deducted to calculate the net performance.\633\ In addition,
the proposed rule would require that advertisements that present any
related performance must include all related portfolios, except that
related performance may exclude any related portfolio if (a) the
advertised performance results are no higher than if all related
portfolios had been included and (b) the exclusion of any related
portfolio does not alter the presentation of the time periods
prescribed by paragraph (c)(2)(ii) of the proposed rule.\634\ The
proposed rule also would require that advertisements that present any
extracted performance must provide or offer to provide promptly the
performance results of all investments in the portfolio from which the
performance was extracted.\635\ Finally, the proposed rule would
require, for advertisements that present hypothetical performance, that
the adviser: (i) Adopt and implement policies and procedures reasonably
designed to ensure that the hypothetical performance is relevant to the
financial situation and investment objectives of the person to whom the
advertisement is disseminated; (ii) provide sufficient information to
enable such person to understand the criteria used and assumptions made
in calculating such hypothetical performance; and (iii) provide (or in
the case of Non-Retail Persons, provides or offers to provide promptly)
sufficient information to enable such person to understand the risks
and limitations of using such hypothetical performance in making
investment decisions.\636\ As a result of these conditions, the
proposed rule would include ``collection of information'' requirements
within the meaning of the PRA for investment advisers presenting
performance results in advertisements.
---------------------------------------------------------------------------

    \633\ Proposed rule 206(4)-1(c)(1)(i).
    \634\ Proposed rule 206(4)-1(c)(1)(iii).
    \635\ Proposed rule 206(4)-1(c)(1)(iv).
    \636\ Proposed rule 206(4)-1(c)(1)(v).
---------------------------------------------------------------------------

    We estimate that almost all advisers provide, or seek to provide,
performance information to their clients. Based on staff experience, we
estimate that 95 percent, or 12,790 advisers, provide performance
information in their advertisements. The estimated numbers of burden
hours and costs regarding performance results in advertisements may
vary depending on, among other things, the complexity of the
calculations and whether preparation of the disclosures is performed by
internal staff or outside counsel.
a. Gross Performance: Provide or Offer To Provide Promptly a Schedule
of Fees and Expenses Deducted To Calculate Net Performance
    We estimate that an investment adviser that elects to present gross
performance in an advertisement will incur an initial burden of 5 hours
in preparing a schedule of the fees and expenses deducted to calculate
net performance, in order to provide such a schedule, which may be upon
request.\637\ We further estimate each adviser electing to present
gross performance will include gross performance for 3 different
portfolios.
---------------------------------------------------------------------------

    \637\ This estimate includes only the time spent by an adviser
in preparing the schedule initially.
---------------------------------------------------------------------------

    Advisers' staff generally would have to conduct diligence to
determine which fees and expenses were applied and how to categorize
them for purposes of

the schedule. We believe many advisers that currently advertise
performance will have this information already, but will use compliance
staff to confirm and categorize the relevant fees and expenses. We
expect that an accountant or financial personnel at the adviser will
extract the relevant data needed to prepare the schedule. There would
therefore be an initial burden cost of 5 hours, with an estimated cost
of $1,564, for each adviser to prepare its schedule with respect to
each initial presentation of net performance of each portfolio.\638\ We
estimate that the initial burden, on a per-adviser basis, will be
$4,692.\639\
---------------------------------------------------------------------------

    \638\ This estimate is based on the following calculation: 4.0
hours (for review of disclosures) x $337 (blended rate for a
compliance manager ($309) and a compliance attorney ($365)) + 1.0
hour (for extraction of relevant fees and expenses) x $216 (senior
accountant) = $1,564. See supra footnote 623 for a discussion of the
blended rate.
    \639\ This estimate is based on the following calculation:
$1,564 for each schedule per initial presentation per portfolio x 3
portfolios per adviser.
---------------------------------------------------------------------------

    For purposes of this analysis, we estimate that advisers will
update their schedules 3.5 times each year.\640\ We estimate that after
initially preparing a schedule of fees and expenses, an adviser will
incur a burden of 0.5 hours to update the schedule. Accordingly, we
estimate that the amortized average annual burden with respect to
preparation of schedules would be 10.25 hours per year.\641\ The
estimated amortized aggregate annual burden with respect to schedules
is 131,098 hours per year for each of the first three years,\642\ and
the aggregate internal cost burden is estimated to be $44,180,026 per
year.\643\
---------------------------------------------------------------------------

    \640\ This estimate takes into account the Commission's
experience with the hour and cost burden estimates we have adopted
for rule 482 under the Securities Act, which requires in part that
advertisements with respect to RICs and BDCs to be filed with the
Commission or with FINRA. In our most recent hour and cost burden
estimate for rule 482, we estimated that approximately 3.5 responses
are filed each year per portfolio. We believe that estimate fairly
represents the number of times an advertisement is filed for
purposes of rule 482, and so use that same estimate in establishing
how often an advertisement's performance is updated for purposes of
this analysis.
    \641\ We estimate that the average investment adviser will have
an amortized average annual burden of 10.25 hours ((1 initial
schedule x 5 hours + 3.5 subsequent updates to schedule x 0.5 hours)
(year 1) + (3.5 subsequent updates to schedule x 0.5 hours) (year 2)
+ (3.5 subsequent updates to schedule x 0.5 hours) (year 3) = 10.25
over 3 years. 10.25 hours x 3 portfolios = 30.75 hours per adviser;
and 30.75 hours / 3 years = 10.25 hours).
    \642\ We estimate that 10.25 burden hours on average per year x
12,790 advisers presenting performance results (i.e., 95% of 13,463
total advisers).
    \643\ This estimate is based on the following calculation:
131,098 hours per advisers in the aggregate per year x $337 per
hour.
---------------------------------------------------------------------------

    We estimate that registered investment advisers may incur external
costs in connection with the requirement to provide a schedule of fees
and expenses. We estimate that the average annual costs associated with
printing and mailing these documents upon request would be collectively
$500 for all documents associated with a single registered investment
adviser.\644\ Accordingly, we estimate that the aggregate annual
external costs associated with printing and mailing these documents in
connection with Non-Retail Advertisements would be $6,395,000.\645\
---------------------------------------------------------------------------

    \644\ We do not have specific data regarding how the cost of
printing and mailing the schedule would differ, nor are we able to
specifically identify how the cost of printing and mailing the
schedule might be affected by the proposed rule. For these reasons,
we estimate $500 per year to collectively print and mail upon
request the schedule associated with an investment adviser for
purposes of our analysis. This estimate assumes only 25% of clients
who receive the relevant advertisement request the schedule from the
adviser and assumes that marketing personnel at the adviser would
respond to each such request. However, we are requesting comment on
this estimate. In addition, investors may also request to receive a
schedule electronically. We estimate that there would be negligible
external costs associated with emailing electronic copies of the
schedules.
    \645\ This estimate is based upon the following calculations:
$500 per adviser x 12,790 advisers that provide performance
information (i.e., 95% of the 13,463 total advisers) = $6,395,000.
For purposes of this Paperwork Reduction Act analysis, based upon
our experience, we assume that the burden of emailing these
documents would be outsourced to third-party service providers and
therefore would be included within these external cost estimates.
---------------------------------------------------------------------------

b. Related Performance
    We estimate that an investment adviser that elects to present
related performance in an advertisement will incur an initial burden of
25 hours, with respect to each advertised portfolio, in preparing the
relevant performance of all related portfolios. This time burden would
include the adviser's time spent classifying which portfolios meet the
proposed rule's definition of ``related portfolio''--i.e., which
portfolios have ``substantially similar investment policies,
objectives, and strategies as those of the services being offered or
promoted.'' \646\ This burden also would include time spent determining
whether to exclude any related portfolios in accordance with the
proposed rule's provision allowing exclusion of one or more related
portfolios if ``the advertised performance results are no higher than
if all related portfolios had been included'' and ``the exclusion of
any related portfolio does not alter the presentation of the time
periods prescribed by rule 206(4)-1(c)(2)(ii).'' \647\ For purposes of
making this determination, we assume that an adviser generally would
have to run at least two sets of calculations--one with, and one
without, a related portfolio, that will allow the adviser to consider
whether the exclusion of the portfolio would result in performance that
is inappropriately higher or performance that would not satisfy the
time period requirement.\648\ Finally, this time burden would include
the adviser's time calculating and presenting the net performance of
any related performance presented. There would therefore be an initial
cost of $8,425 for each adviser to comply with this proposed
requirement to present all related portfolios in connection with any
related performance.\649\
---------------------------------------------------------------------------

    \646\ See proposed rule 206(4)-1(e)(12). Our estimate accounts
for advisers that may already be familiar with any composites that
meet the definition of ``related portfolio.''
    \647\ See proposed rule 206(4)-1(c)(1)(iii).
    \648\ Our estimate also accounts for firms that exclude accounts
subject to investment restrictions that materially affect account
holdings regardless of whether the exclusion increases or decreases
overall performance, such as is required under GIPS.
    \649\ This estimate is based on the following calculation: 25.0
hours (for review of disclosures) x $337 (blended rate for a
compliance manager ($309) and a compliance attorney ($365)) =
$8,425. See supra footnote 623 for a discussion of the blended
hourly rate for a compliance manager and a compliance attorney.
---------------------------------------------------------------------------

    Today, advisers may advertise related performance using their own
definition, which may vary between advisers. For purposes of this
analysis, we estimate 80 percent of advisers will have other portfolios
with substantially similar investment policies, objectives, and
strategies as those being offered or promoted in the advertisement and
choose to include related performance, as defined under the proposal.
We estimate that after initially preparing related performance for each
portfolio, investment advisers will incur a burden of 5 hours to update
the performance for each subsequent presentation. For purposes of this
analysis, we estimate that advisers will update the relevant related
performance 3.5 times each year.
    Accordingly, we estimate that the amortized average annual burden
would be 25.8 hours for each of the first three years for each
investment adviser to prepare related performance in connection with
this requirement.\650\ The estimated amortized aggregate annual burden
with respect to Retail Advertisements is 277,866 hours per

year for each of the first three years,\651\ and the aggregate internal
cost burden is estimated to be $93,640,842 per year.\652\
---------------------------------------------------------------------------

    \650\ We estimate that the average investment adviser will make
4.5 presentations of related performance to meet this requirement in
three years, for an amortized average annual burden of 14.2 hours
((1 initial presentation x 25 hours + 3.5 subsequent updates to
presentations x 5 hours) (year 1) + (3.5 subsequent updates to
presentations x 5 hours) (year 2) + (3.5 subsequent updates to
presentations x 5 hours) (year 3) = 77.5 hours per adviser; and 77.5
hours / 3 years = 25.8 hours).
    \651\ We estimate that 25.8 burden hours on average per year x
10,770 advisers presenting related performance (i.e., 80% of 13,463
advisers).
    \652\ This estimate is based on the following calculation:
277,866 hours per advisers in the aggregate per year x $337 per
hour.
---------------------------------------------------------------------------

c. Extracted Performance
    We estimate that an investment adviser that elects to present
extracted performance in an advertisement will incur an initial burden
of 10 hours in preparing the performance results of the entire
portfolio from which the performance is extracted in order to provide
such performance results to investors, which may be promptly upon
request. There would therefore be an initial cost of $3,370 for each
adviser to prepare such performance.\653\
---------------------------------------------------------------------------

    \653\ This estimate is based on the following calculation: 10.0
hours (for review of disclosures) x $337 (blended rate for a
compliance manager ($309) and a compliance attorney ($365)) =
$3,370. See supra footnote 623 for a discussion of the blended
hourly rate for a compliance manager and a compliance attorney.
---------------------------------------------------------------------------

    For purposes of this analysis, we assume 5 percent of advisers will
include extracted performance. We estimate that after initially
preparing the performance of the entire portfolio from which extracted
performance is extracted, investment advisers will incur a burden of 2
hours to update the performance for each subsequent presentation. For
purposes of this analysis, we estimate that advisers will update the
relevant ``entire portfolio'' performance 3.5 times each year.
    Accordingly, we estimate that the amortized average annual burden
would be 10.3 hours for each of the first three years for each
investment adviser to prepare the performance of the entire portfolio
from which the presentation of extracted performance is extracted.\654\
The estimated amortized aggregate annual burden with respect to the
``entire portfolio'' requirement is 6,932 hours per year for each of
the first three years,\655\ and the aggregate internal cost burden is
estimated to be $2,336,084 per year.\656\
---------------------------------------------------------------------------

    \654\ We estimate that the average investment adviser will make
4.5 presentations of ``entire portfolio'' performance to meet this
requirement in three years, for an amortized average annual burden
of 5.7 hours ((1 initial presentation x 10 hours + 3.5 subsequent
presentations x 2 hours) (year 1) + (3.5 subsequent presentations x
2 hours) (year 2) + (3.5 subsequent presentations x 2 hours) (year
3) = 31 hours; and 31 hours / 3 years = 10.3 hours).
    \655\ We estimate that 10.3 burden hours on average per year x
approximately 673 advisers presenting extracted performance (i.e.,
5% of 13,463 advisers).
    \656\ This estimate is based on the following calculation: 6,932
hours per advisers in the aggregate per year x $337 per hour.
---------------------------------------------------------------------------

    We estimate that registered investment advisers may incur external
costs in connection with the requirement to provide performance results
of an entire portfolio from which extracted hypothetical performance is
extracted. We estimate that the average annual costs associated with
printing and mailing this information upon request would be
collectively $500 for all documents associated with a single registered
investment adviser. Accordingly, we estimate that the aggregate annual
external costs associated with printing and mailing these documents in
connection with extracted performance presented would be $336,500.\657\
---------------------------------------------------------------------------

    \657\ This estimate is based upon the following calculations:
$500 per adviser x approximately 673 advisers presenting extracted
performance (i.e., 5% of 13,463 advisers) = $336,500. For purposes
of this Paperwork Reduction Act analysis, based upon our experience,
we assume that the burden of emailing these documents would be
outsourced to third-party service providers and therefore would be
included within these external cost estimates.
---------------------------------------------------------------------------

d. Hypothetical Performance
    We estimate that an investment adviser that elects to present
hypothetical performance in an advertisement will incur an initial
burden of 5 hours in preparing and adopting policies and procedures
reasonably designed to ensure that hypothetical performance is relevant
to the financial situation and investment objectives of the person to
whom the advertisement is disseminated. For purposes of this analysis,
we assume 50 percent of advisers will include hypothetical performance
in advertisements.
    Advisers' compliance personnel typically would draft policies and
procedures to evaluate whether hypothetical performance is relevant to
each recipient. There would therefore be an initial burden cost of 5
hours related to the adoption of such policies and procedures, with an
estimated cost of $2,650, for each adviser to prepare its policies and
procedures.\658\
---------------------------------------------------------------------------

    \658\ This estimate is based on the following calculation: 5
hours (for adoption of policies and procedures) x $530 (rate for a
chief compliance officer). The hourly wages used are from SIFMA's
Management & Professional Earnings in the Securities Industry 2013,
modified 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.
---------------------------------------------------------------------------

    For purposes of this analysis, we estimate that advisers that use
hypothetical performance will disseminate advertisements containing
hypothetical performance 20 times each year. We estimate that after
adopting appropriate policies and procedures, an adviser will incur a
burden of 0.25 hours to categorize each investor based on its policies
and procedures. Accordingly, we estimate that the average annual burden
with respect to preparation of schedules would be 10 hours per
year.\659\ The estimated aggregate annual burden is 67,320 hours per
year,\660\ and the aggregate internal cost burden is estimated to be
$35,679,600 per year.\661\
---------------------------------------------------------------------------

    \659\ We estimate that the average investment adviser will have
an average annual burden of 3.3 hours (5 hours for adoption of
policies and procedures + 20 advertisements x 0.25 hours = 10
hours).
    \660\ We estimate that 10 burden hours on average per year x
6,732 advisers presenting performance results (i.e., 50% of 13,463
total advisers).
    \661\ This estimate is based on the following calculation:
67,320 hours per advisers in the aggregate per year x $530 per hour.
---------------------------------------------------------------------------

    Additionally, we estimate that an investment adviser that elects to
present hypothetical performance in an advertisement will incur an
initial burden of 16 hours in preparing the information sufficient to
understand the criteria used and assumptions made in calculating, as
well as risks and limitations in using, the hypothetical performance
(the ``underlying information''), in order to provide such information,
which may in certain circumstances be upon request.\662\ There would
therefore be an initial cost of $5,384 for each adviser to prepare such
information.\663\
---------------------------------------------------------------------------

    \662\ This estimate includes the time spent by an adviser in
preparing the information. The time spent calculating the
hypothetical performance that is based on such information is not
accounted for in this estimate, as the proposed rule has no
requirement that an advertisement present hypothetical performance.
    \663\ This estimate is based on the following calculation: 15.0
hours (for review of disclosures) x $337 (blended rate for a
compliance manager ($309) and a compliance attorney ($365)) + 1 hour
(to explain the assumptions used in creating the hypothetical
performance) x $329 (senior portfolio manager) = $5,384. The hourly
wages used are from SIFMA's Management & Professional Earnings in
the Securities Industry 2013, modified 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.
---------------------------------------------------------------------------

    We estimate that after initially preparing the underlying
information, investment advisers will incur a burden of 3 hours to
update the information for each subsequent presentation. For purposes
of this analysis, we estimate that advisers will update their
hypothetical performance, and thus the underlying information, 3.5
times each year.
    Accordingly, we estimate that the amortized average annual burden
would be 8.5 hours for each of the first three years for each
investment adviser to prepare the underlying information.\664\

The estimated amortized aggregate annual burden with respect to the
``underlying information'' requirement is 57,222 hours per year for
each of the first three years,\665\ and the aggregate internal cost
burden is estimated to be $19,283,814 per year.\666\
---------------------------------------------------------------------------

    \664\ We estimate that the average investment adviser will make
4.5 presentations of hypothetical performance, and thus underlying
information to meet this requirement, in three years, for an
amortized average annual burden of 8.5 hours (1 initial presentation
x 15 hours + 3.5 subsequent presentations x 3 hours = 25.5 hours;
and 25.5 hours / 3 years = 8.5 hours).
    \665\ We estimate that 8.5 burden hours on average per year x
6,732 advisers presenting hypothetical performance (i.e., 50% of
13,463 advisers).
    \666\ This estimate is based on the following calculation:
57,222 hours per advisers in the aggregate per year x $337 per hour.
---------------------------------------------------------------------------

    We estimate that registered investment advisers may incur external
costs in connection with the requirement to provide this underlying
information upon the request of a client or prospective client. We
estimate that the average annual costs associated with printing and
mailing this underlying information upon request would be collectively
$500 for all documents associated with a single registered investment
adviser.\667\ Accordingly, we estimate that the aggregate annual
external costs associated with printing and mailing these documents in
connection with hypothetical performance presented in advertisements
would be $3,366,000.\668\
---------------------------------------------------------------------------

    \667\ We do not have specific data regarding how the cost of
printing and mailing the underlying information would differ, nor
are we able to specifically identify how the cost of printing and
mailing the underlying information might be affected by the proposed
rule. For these reasons, we estimate $500 per year to collectively
print and mail upon request the underlying information associated
with hypothetical performance for purposes of our analysis. However,
we are requesting comment on this estimate. In addition, investors
may also request to receive the underlying information
electronically. We estimate that there would be negligible external
costs associated with emailing electronic copies of the underlying
information.
    \668\ This estimate is based upon the following calculations:
$500 per adviser x 6,732 advisers presenting hypothetical
performance = $3,366,000. For purposes of this Paperwork Reduction
Act analysis, based upon our experience, we assume that the burden
of printing and mailing the underlying information would be
outsourced to third-party service providers rather than handled
internally, and therefore would be included within these external
cost estimates.
---------------------------------------------------------------------------

4. Additional Conditions Related to Performance Results in Retail
Advertisements
    The proposed rule would impose certain additional conditions on the
presentation of performance results in Retail Advertisements. The
proposed rule requires that Retail Advertisements that present gross
performance must also present net performance: (a) With at least equal
prominence to, and in a format designed to facilitate comparison with,
gross performance, and (b) calculated over the same time period, and
using the same type of return and methodology as, the gross
performance.\669\ In addition, the proposed rule requires that Retail
Advertisements that present performance results of any portfolio or any
composite aggregation of related portfolios must include performance
results of the same portfolio or composite aggregation for 1-, 5-, and
10-year periods, each presented with equal prominence and ending on the
most recent practicable date; except that if the relevant portfolio did
not exist for a particular prescribed period, then the life of the
portfolio must be substituted for that period.\670\ As a result of
these conditions, the proposed rule would include additional
``collection of information'' requirements within the meaning of the
PRA for investment advisers presenting performance results in any
Retail Advertisements.
---------------------------------------------------------------------------

    \669\ Proposed rule 206(4)-1(c)(2)(i).
    \670\ Proposed rule 206(4)-1(c)(2)(ii).
---------------------------------------------------------------------------

    Based on Form ADV data, approximately 62 percent, or 8,396
investment advisers registered with the Commission have some portion of
their business dedicated to retail clients, including either individual
high net worth clients or individual non-high net worth clients.\671\
Estimating the number of advisers servicing retail investors based on a
review of individual clients reported on Form ADV entails certain
limitations, and this estimate is only being used for purposes of this
PRA analysis.
---------------------------------------------------------------------------

    \671\ See supra Economic Analysis discussion note 556. The
number of advisers that have retail investors as clients is based on
the number of advisers that report high net worth and non-high net
worth clients, determined by responses to Item 5.D.(1)(a or b), or
advisers who do not report individual clients per Item 5.D.(1)(a or
b), but do report regulatory assets under management attributable to
retail clients as per Item 5.D.(3)(a or b). If at least one of these
responses was filled out as greater than 0, the firm is considered
as providing business to a client that would be a ``retail
investor'' for purposes of the proposed rule. The data on individual
clients obtained from Form ADV may not be exactly the same as who
would be a ``retail investor'' for purposes of the proposed rule
because Form ADV allows advisers to treat as a ``high net worth
individual'' an individual who is a ``qualified client'' for
purposes of rule 205-3 or a ``qualified purchaser'' as defined in
section 2(a)(51)(A) of the Investment Company Act. In contrast, the
proposed rule would treat any individual client who meets the
definition of ``qualified purchaser'' or ``knowledge employee'' as a
non-retail investor. See also 2018 Investment Management Compliance
Testing Survey, Investment Adviser Association and ACA Compliance
Group, at 67 (Jun. 14, 2018) (indicating that 60% of 454 survey
respondents ``provide services to individual clients (e.g. retail,
high net worth, trusts)''), available at: https://higherlogicdownload.s3.amazonaws.com/INVESTMENTADVISER/aa03843e-7981-46b2-aa49-c572f2ddb7e8/UploadedImages/publications/2018-Investment-Management_Compliance-Testing-Survey-Results-Webcast_pptx.pdf.
    The figure representing advisers with non-retail clients or
investors is the number of advisers that have advisory clients that
are retail clients subtracted from the total number of registered
investment advisers. These figures do not reflect investors in
pooled investment vehicles.
---------------------------------------------------------------------------

a. Presentation of Net Performance in Retail Advertisements
    We estimate that an investment adviser that elects to present gross
performance in a Retail Advertisement will incur an initial burden of
10 hours in preparing net performance for each portfolio, including the
time spent determining and deducting the relevant fees and expenses to
apply in calculating the net performance and then actually running the
calculations. Based on staff experience, we estimate that the average
investment adviser will present performance for three portfolios over
the course of a year. Accordingly, we estimate that the initial burden,
on a per-adviser basis, will be 30 hours. There would therefore be an
initial estimated cost of $10,110 for the average adviser to comply
with this proposed requirement to present net performance in a Retail
Advertisement.\672\
---------------------------------------------------------------------------

    \672\ This estimate is based on the following calculation: 30.0
hours (for review of disclosures) x $337 (blended rate for a
compliance manager ($309) and a compliance attorney ($365)) =
$10,110. See supra footnote 623 for a discussion of the blended
rate.
---------------------------------------------------------------------------

    We expect that the calculation of net performance may be modified
every time an adviser chooses to update the advertised performance. We
estimate that after initially preparing net performance for each
portfolio, investment advisers will incur a burden of 2 hours to update
the net performance for each subsequent presentation. Accordingly, for
each presentation of net performance after the initial presentation, we
estimate that the burden, on a per-portfolio basis, will entail an
estimated cost of $674.\673\
---------------------------------------------------------------------------

    \673\ This estimate is based on the following calculation: 2
hours (for review of disclosures) x $337 (blended rate for a
compliance manager ($309) and a compliance attorney ($365)) = 674.
See supra footnote 623 for a discussion of the blended rate.
---------------------------------------------------------------------------

    For purposes of this analysis, we estimate that advisers will
update the relevant performance of each portfolio 3.5 times each
year.\674\ Accordingly, we estimate that the amortized average annual
burden would be 17 hours for each of the first three years for each
investment adviser to prepare net performance.\675\ The estimated

amortized aggregate annual internal burden with respect to Retail
Advertisements is 135,592 hours per year for each of the first three
years,\676\ and the aggregate internal cost burden is estimated to be
$45,694,504 per year.\677\
---------------------------------------------------------------------------

    \674\ See supra footnote 640.
    \675\ We estimate that the average investment adviser will make
13.5 presentations of net performance in three years, for an
amortized average annual burden of 17 hours (1 initial presentation
x 10 hours + 3.5 subsequent presentations x 2 hours = 17 hours x 3
portfolios = 51 hours per adviser; and 51 hours / 3 years = 17
hours).
    \676\ We estimate that 17 burden hours on average per year x
7,976 ``retail advisers'' presenting performance results (i.e., 95%
of 8,396 ``retail advisers'').
    \677\ This estimate is based on the following calculation:
135,592 hours per advisers in the aggregate per year x $337 per
hour.
---------------------------------------------------------------------------

b. Time Period Requirement in Retail Advertisements
    We estimate that an investment adviser that elects to present
performance results in a Retail Advertisement will incur an initial
burden of 35 hours in preparing performance results of the same
portfolio for 1-, 5-, and 10-year periods, taking into account that
these results must be prepared on a net basis (and may also be prepared
and presented on a gross basis). This estimate reflects that many
advisers currently prepare and present GIPS-compliant performance
information, and also that many advisers, particularly private fund
advisers, currently prepare annual performance for investors. There
would therefore be an initial cost of $11,795 for each adviser to
comply with this proposed time period requirement in a Retail
Advertisement.\678\
---------------------------------------------------------------------------

    \678\ This estimate is based on the following calculation: 35
hours (for review of disclosures) x $337 (blended rate for a
compliance manager ($309) and a compliance attorney ($365)) =
$11,795. See supra footnote 623 for a discussion of the blended
hourly rate for a compliance manager and a compliance attorney.
---------------------------------------------------------------------------

    Advisers may vary in the frequency with which they calculate
performance in order to satisfy this proposed time period requirement,
though presumably advisers will do so every time they choose to update
the advertised performance. We estimate that after initially preparing
1-, 5-, and 10-year performance for each portfolio, investment advisers
will incur a burden of 8 hours to update the performance for these time
periods for each subsequent presentation. For purposes of this
analysis, we estimate that advisers will update the relevant
performance 3.5 times each year.
    Accordingly, we estimate that the amortized average annual burden
would be 21 hours for each of the first three years for each investment
adviser to prepare performance in compliance with this time period
requirement.\679\ The estimated amortized aggregate annual burden with
respect to Retail Advertisements is 167,496 hours per year for each of
the first three years,\680\ and the aggregate internal cost burden is
estimated to be $56,446,152 per year.\681\
---------------------------------------------------------------------------

    \679\ We estimate that the average investment adviser will make
4.5 presentations of performance to meet this time period
requirement (i.e., 1-, 5-, and 10-year performance calculations) in
three years, for an amortized average annual burden of 22.7 hours (1
initial presentation x 35 hours + 3.5 subsequent presentations x 8
hours = 63 hours per adviser; and 63 hours / 3 years = 21 hours).
    \680\ We estimate that 21 burden hours on average per year x
7,976 ``retail advisers'' presenting performance results in a Retail
Advertisement (i.e., 95% of all 8,396 advisers that have retail
clients).
    \681\ This estimate is based on the following calculation:
167,496 hours per advisers in the aggregate per year x $337 per
hour.
---------------------------------------------------------------------------

5. Review and Approval of Advertisements
    The proposed rule would require that any advertisement be reviewed
and approved in writing by a designated employee.\682\ As noted above,
the use of advertisements is not mandatory, but given that advertising
is an essential part of retaining and attracting clients, and that
advertising may be disseminated easily through the internet and social
media, we estimate that all investment advisers will disseminate at
least one communication meeting the proposed rule's definition of
``advertisement''.\683\
---------------------------------------------------------------------------

    \682\ Proposed rule 206(4)-1(d).
    \683\ Additionally, if an adviser includes in any legal or
regulatory document information beyond what is required under
applicable law, and such additional information ``offers or
promotes'' the adviser's services, then that information would be
considered an ``advertisement'' for purposes of the proposed rule,
and therefore would be subject to the employee review and approval
requirement. See supra footnote 104 and accompanying text.
---------------------------------------------------------------------------

    Based on staff experience, we expect 80% of investment advisers, or
10,770, are light advertisers and 20%, or 2,693, are heavy
advertisers.\684\ We estimate that investment advisers that are light
advertisers and heavy advertisers would create new advertisements
approximately 10 and 50 times, respectively, per year. We also estimate
that investment advisers that are light advertisers and heavy
advertisers would update existing advertisements approximately 50 and
250 times, respectively, per year. These estimates account for the
proposed rule's expanded definition of ``advertisement'' relative to
the current rule. We further estimate that an investment adviser would
incur an average burden of 1.5 and 0.5 hours to review each new
advertisement and review each update of an existing advertisement,
respectively. Since each advertisement requiring employee review would
likely be different, we believe this burden would remain the same each
year. Although the proposed rule permits advisers to designate any
employee to review and approve advertisements, we would anticipate many
investment advisers to designate their chief compliance officers with
this task. In addition, a compliance attorney would review any
revisions that occur during the course of review. There would therefore
be an annual cost to each respondent of this hour burden of $671.25 and
$223.75 to review and approve each new or updated advertisement,
respectively, that is subject to the review requirement.\685\
Therefore, we estimate that the yearly total burden of reviewing and
approving advertisements would be 430,800 hours and 538,600 hours for
advisers that are light and heavy advertisers, respectively, or 969,400
hours across all advisers.\686\ Thus, the aggregate internal cost of
the hour burden for all investment advisers is estimated to be
$448,347,500 per year.\687\
---------------------------------------------------------------------------

    \684\ 0.80 x 13,463 (total investment advisers) = 10,770 light
advertisers. 0.20 x 13,463 (total investment advisers) = 2,693 heavy
advertisers.
    \685\ This estimate for new advertisements is based on the
following calculation: 0.75 hour (for review and approval) x $530
(hourly rate for a chief compliance officer) + 0.75 hour (for
revisions) x $365 (hourly rate for a compliance attorney) = $671.25.
This estimate for updates to existing advertisements is based on the
following calculation: 0.25 hour (for review and approval) x $530
(hourly rate for a chief compliance officer) + 0.25 hour (for
revisions) x $365 (hourly rate for a compliance attorney) = $223.75.
The hourly wages used are from SIFMA's Management & Professional
Earnings in the Securities Industry 2013, modified 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.
    \686\ This estimate for light advertisers is based on the
following calculation: [1.5 hours per adviser x 10 new
advertisements per year + 0.5 hours per adviser x 50 updated
advertisements per year] x 10,770 light advertisers = 430,800 hours.
This estimate for heavy advertisers is based on the following
calculation: [1.5 hours per adviser x 50 new advertisements per year
+ 0.5 hours per adviser x 250 updated advertisements per year] x
2,693 heavy advertisers = 538,600 hours. 430,800 + 538,600 =
969,400.
    \687\ This estimate is based on the following calculation:
969,400 hours for advisers in the aggregate per year x $462.5 per
hour (blended rate of a chief compliance officer and a compliance
attorney).
---------------------------------------------------------------------------

    We estimate that light advertisers and heavy advertisers would
utilize 10 and 50 hours, respectively, of external legal services per
year to review advertisements. Therefore, we estimate that the average
annual costs associated with external legal review of advertisements
would be $4,000 for a light advertiser and $20,000 for a heavy

advertiser, or $24,000 across all advisers.\688\
---------------------------------------------------------------------------

    \688\ The estimated $4,000 figure for light advertisers has been
calculated as follows: $400 per hour cost for outside legal services
x 10 hours = $4,000. The estimated $4,000 figure for heavy
advertisers has been calculated as follows: $400 per hour cost for
outside legal services x 50 hours = $20,000.
    These estimates are based on an estimated $400 per hour cost for
external legal services. We do not have specific data regarding
these external legal costs. However, we are requesting comment on
this estimate.
---------------------------------------------------------------------------

6. Total Hour Burden Associated With Proposed Rule 206(4)-1
    Accordingly, we estimate the total annual hour burden for
investment advisers registered or required to be registered with the
Commission under proposed rule 206(4)-1 to prepare testimonials and
endorsements, third-party ratings, and performance results disclosures,
as well as review and approve advertisements, would be 1,832,281
hours,\689\ at a time cost of $736,001,832.\690\ The total external
burden costs would be $27,000.\691\
---------------------------------------------------------------------------

    \689\ This estimate is based upon the following calculations:
6,732 + 10,098 + 2,524.5 + 131,098+ 277,866 + 6,932 + 67,320 +
57,222 + 135,592 + 167,496 + 969,400 hours = 1,832,281 hours.
    \690\ This estimate is based upon the following calculations:
$2,268,684 + $3,403,026 + $850,756.50 + $29,094,221 + $93,640,842 +
$1,292,732 + $35,679,600 + $19,283,814 + $45,694,504 + $56,446,152 +
$448,347,500 = $736,001,832.
    \691\ This estimate is based upon the following calculations:
$500 + $500 +$500 + $500 + $500 + $500 + $24,000 = $27,000.
---------------------------------------------------------------------------

    A chart summarizing the various components of the total annual
burden for investment advisers is below.

----------------------------------------------------------------------------------------------------------------
   Rule 206(4)-1 description of                               Internal burden
           requirements              Number of responses           hours              External burden costs
----------------------------------------------------------------------------------------------------------------
Ongoing annual burden for           33,660 (5 per          6,732 (1 per
 testimonials and endorsements *.    adviser).              response).
* This is not broken up into
 initial and ongoing burden
 because the annual burden is
 estimated to be the same each
 year, as discussed above..
Initial burden for third-party      6,732 (1 per adviser)  10,098 (1.5 per
 rating.                                                    response).
Ongoing annual burden for third-    6,732 (1 per adviser)  2,525 (0.375 per
 party rating.                                              response).
Initial burden for advertisements   38,370 (3 per          63,950 (5 per         $500 per adviser.
 presenting gross performance and    adviser).              response).
 providing a schedule of fees and
 expenses.
Ongoing annual burden for           134,295 (10.5 per      6,395 (0.5 per        $500 per adviser.
 advertisements presenting gross     adviser).              response).
 performance and providing a
 schedule of fees and expenses.
Initial burden for advertisements   10,770 (1 per adviser  269,250 (25 per
 presenting related performance.     presenting related     response).
                                     performance).
Ongoing annual burden for           32,310 (3.5 per        64,620 (5 per
 advertisements presenting related   adviser presenting     response).
 performance.                        related performance).
Initial burden for advertisements   673 (1 per adviser     6,730 (10 per         $500 per adviser.
 presenting extracted performance.   presenting extracted   response).
                                     performance).
Ongoing annual burden for           2,356 (3.5 per         1,346 (2 per          $500 per adviser.
 advertisements presenting           adviser presenting     response).
 extracted performance.              extracted
                                     performance).
Initial burden for policies and     6,732 (1 per adviser   33,660 (5 per
 procedures for hypothetical         presenting             response).
 performance.                        hypothetical
                                     performance).
Ongoing annual burden for policies  134,640 (20 per        1,683 (0.25 per
 and procedures for hypothetical     adviser presenting     response).
 performance.                        hypothetical
                                     performance).
Initial burden for advertisements   6,732 (1 per adviser   107,712 (16 hours     $500 per adviser.
 presenting underlying information   presenting             per response).
 for hypothetical performance.       hypothetical
                                     performance).
Ongoing annual burden for           23,562 (3.5 per        20,196 (3 hours per   $500 per adviser.
 advertisements presenting           adviser presenting     response).
 underlying information for          hypothetical
 hypothetical performance.           performance).
Initial burden for Retail           7,976 (1 per adviser   79,760 (10 hours per
 Advertisements presenting gross     presenting gross       response).
 performance.                        performance).
Ongoing burden for Retail           27,916 (3.5 per        55,832 (2 hours per
 Advertisements presenting gross     adviser presenting     response).
 performance.                        gross performance).
Initial burden for Retail           7,976 (1 per retail    279,160 (35 per
 Advertisements meeting ``time       adviser).              response).
 period'' requirement.
Ongoing annual burden for Retail    27,916 (3.5 per        223,328 (8 per
 Advertisements meeting ``time       retail adviser).       response)..
 period'' requirement.
Annual burden for review of         107,770 and 538,500    161,655 and 269,250   $4,000 per adviser.
 advertisements for light            (10 new and 50         (1.5 hours per
 advertisers*.                       updated per each       response for new
* This is not broken up into         adviser).              advertisements, 0.5
 initial and ongoing burden                                 hours per response
 because the annual burden is                               for updated
 estimated to be the same each                              advertisements).
 year..

Annual burden for review of         134,650 and 673,250    201,975 and 336,625   $20,000 per adviser.
 advertisements for heavy            (50 new and 250        (1.5 hours per
 advertisers*.                       updated per each       response for new
* This is not broken up into         adviser).              advertisements, 0.5
 initial and ongoing burden                                 hours per response
 because the annual burden is                               for updated
 estimated to be the same each                              advertisements).
 year..
----------------------------------------------------------------------------------------------------------------

C. Rule 206(4)-3

    Rule 206(4)-3 (the ``cash solicitation rule'') (OMB number 3235-
0242) currently prohibits investment advisers from paying cash fees to
solicitors for client referrals unless certain conditions are met.
These conditions include a written agreement, disclosures and receipt
and retention of signed and dated acknowledgements, subject to certain
exemptions.
    We are proposing to amend the existing collection of information to
reflect the changes we are proposing to the rule. As discussed above,
we are proposing amendments to rule 206(4)-3 to expand the rule to
cover solicitation arrangements involving all forms of compensation,
rather than only cash compensation, and to apply to the solicitation of
current and prospective investors in any private fund, rather than only
to ``clients'' (including prospective clients) of the investment
adviser.\692\ The proposed rule would generally continue to require
that an adviser compensate a solicitor pursuant to a written agreement
that the adviser is required to retain, and would continue to require
as part of the written agreement the preparation of a solicitor
disclosure containing specified information about the solicitation
arrangement.\693\ The proposed rule would add flexibility to the
solicitor disclosure requirement by permitting the parties to designate
in the written agreement either the adviser or the solicitor as the
party required to deliver the disclosure to investors at the time of
solicitation (or, for mass communications, as soon as reasonably
practicable thereafter). The proposed rule would no longer require the
written agreement to require that the solicitor provide the prospective
client with a copy of the adviser's brochure, or that the adviser
obtain and retain a signed and dated acknowledgment from the client
that the client has received the brochure and the solicitor's
disclosure. The proposed rule would retain the current rule's partial
exemptions for: (i) Solicitors of clients for impersonal investment
advice; and (ii) certain solicitors that are affiliated with the
adviser, but it would eliminate the written agreement requirement and
the detailed solicitor disclosure for such solicitors. In order to
avail itself of the proposed rule's partial exemption for affiliated
solicitors: (i) The affiliation between the investment adviser and the
solicitor must be readily apparent or be disclosed to the investor at
the time of the solicitation; and (ii) and the adviser must document
the solicitor's status at the time the adviser enters into the
solicitation arrangement. The proposed rule also would add new
exemptions for de minimis compensation and certain nonprofit referral
programs.
---------------------------------------------------------------------------

    \692\ As discussed above, we are proposing to apply the rule to
compensation by investment advisers to solicitors to obtain clients
and prospective clients as well as investors and prospective
investors in private funds that those advisers manage. For purposes
of this release, we refer to any of these persons as ``investors,''
unless we specify otherwise.
    \693\ Current rule 204-2 requires advisers to keep records of
documents required by rule 206(4)-3.
---------------------------------------------------------------------------

    The proposed rule's requirements of a written agreement, the
solicitor disclosure (preparation and delivery) and the adviser's
oversight of the solicitor relationship would all be collections of
information.\694\ The rule's collections of information are necessary
to provide investors with information about the solicitation
relationship. The information that rule 206(4)-3 would require to be
disclosed is necessary to inform investors about the nature of the
solicitor's financial interest in the solicitation. With this
information, investors can evaluate the solicitor's potential bias in
referring them to the adviser. Solicitors would use the information
required by proposed rule's written agreement requirement to understand
their solicitation responsibilities. These include the solicitor
disclosure requirement and the requirement to perform solicitation
activities in accordance with sections 206(1), (2), and (4) of the Act.
Finally, the adviser's oversight of the solicitor relationship
(overseeing compliance with the terms of the written agreement) is
designed to help ensure that complete and accurate information about
the solicitor relationship is delivered to investors.
---------------------------------------------------------------------------

    \694\ These requirements are collections of information under
the current rule. See our most recent Paperwork Reduction Act
submission for rule 206(4)-3.
---------------------------------------------------------------------------

    The likely respondents to this information collection would be each
investment adviser registered with the Commission that would compensate
a solicitor for solicitation under the proposed rule. Respondents would
in each case typically not include investment advisers that compensate
solicitors eligible for the rule's proposed new and amended exemptions
(i.e., affiliated solicitors whose affiliation with the adviser is
``readily apparent'', solicitors for impersonal investment advice, and
solicitors for specified de minimis compensation).\695\ We estimate
that approximately 47.8 percent of the investment advisers registered
with the Commission, or 6,432 advisers, would be subject to this
collection of information. This estimate is based on a number of
inputs, as follows:
---------------------------------------------------------------------------

    \695\ The solicitors subject to some of the proposed rule's
partial exemptions would still be subject to the disqualification
provision of the proposed rule. However, the proposed rule's
disqualification provision is not a collection of information
hereunder.
---------------------------------------------------------------------------

     Currently, it is reported that about 27 percent of
investment advisers registered with the Commission (3,655 RIAs)
compensate persons other than employees to obtain one or more
clients.\696\
---------------------------------------------------------------------------

    \696\ Estimate based on IARD data from Form ADV, Part 1, Item
8.H.1 as of September 30, 2019. This Item relates to compensation
for client referrals. This number represents Firms that responded
``Yes'' to Item 8.H.1 (indicating that they or any related person,
directly or indirectly, compensate any person that is not an
employee for client referrals).
---------------------------------------------------------------------------

     In addition, approximately 7.2 percent investment advisers
registered with the Commission (976 RIAs) report that they compensate
only employees to obtain one or more clients.\697\ These advisers would
be exempt from this proposed collection of information if the
affiliation between the adviser and the

solicitor is ``readily apparent'' (if the affiliation is not readily
apparent, they would be subject to the requirement to disclose the
affiliation at the time of solicitation, which would be a collection of
information hereunder). For purposes of this PRA we estimate that
approximately half of these advisers (488 RIAS, or approximately 3.6
percent of all RIAs) would be exempt from this collection of
information because their affiliation would be readily apparent. The
other 50 percent (488 RIAS, or approximately 3.6 percent of all RIAs)
would be subject to only part of this collection of information, which
would be an abbreviated disclosure.
---------------------------------------------------------------------------

    \697\ 976 advisers responded ``yes'' to Item 8.H.2 (indicating
that they or any related person, directly or indirectly, provide any
employee compensation that is specifically related to obtaining
clients for the firm)--and responded ``No'' to Item 8.H.1. Under the
proposed rule, an adviser that compensates only its employees for
solicitation would be exempt from the written agreement and
solicitor disclosure obligations of the proposed rule, except when
the affiliation is not readily apparent. If the affiliation is not
readily apparent, the adviser would be required to disclose the
affiliation to the investor and would therefore be subject to this
collection of information only with respect to such disclosure.
---------------------------------------------------------------------------

     The number of advisers that currently report that they
compensate persons for client referrals includes advisers that use cash
as well as non-cash compensation, but we estimate that even more
investment advisers would be subject to this proposed collection of
information. This is because advisers might not currently view directed
brokerage as a type of non-cash compensation, and consequently might
not be reporting on Form ADV that they compensate any person for client
referrals when they use directed brokerage as a form of
compensation.\698\ We therefore estimate that another 5 percent of all
RIAs (673 RIAs) would use proposed rule 206(4)-3 to compensate any
person for client referrals and be subject to this collection of
information.
---------------------------------------------------------------------------

    \698\ The Instruction to Form ADV Item 8.H and 8.I reads: ``In
responding to Items 8.H. and 8.I., consider all cash and non-cash
compensation that you or a related person gave to (in answering Item
8.H.) or received from (in answering Item 8.I.) any person in
exchange for client referrals, including any bonus that is based, at
least in part, on the number or amount of client referrals.''
---------------------------------------------------------------------------

     Approximately 4 of the advisers that currently report that
they compensate persons for referrals also report that they provide
only impersonal investment advisory services, and would therefore be
exempt from proposed rule's requirements that are collections of
information, and would not be subject to this collection of
information.\699\
---------------------------------------------------------------------------

    \699\ Estimate based on IARD data from Form ADV. This number
includes firms that responded ``Yes'' to Item 8.H.1 or 8.H.2, and
responded in Item 5.G., that they only provide any of the following
advisory services, which likely would be ``impersonal investment
advice'' under the proposed rule: (8) Publication of periodicals or
newsletters; (9) Security ratings or pricing services; (10) Market
timing services; and/or (11) Educational seminars/workshops.
---------------------------------------------------------------------------

     In addition, approximately 1,590 registered investment
advisers to private funds currently report that they use at least one
marketer to obtain investors in private funds, and would likely be
newly subject to the proposed rule with respect to such fund marketing
arrangements.\700\ Of the 1,590 registered investment advisers to
private funds that use at least one solicitor, approximately 210
advisers use only solicitors that are ``related persons'' of the firm,
and would be eligible to use the proposed rule's partial exemption for
affiliated solicitors if the affiliation is readily apparent.\701\ For
purposes of this PRA, we estimate that half of these advisers, or 105
advisers, would be exempt from this collection of information because
their affiliation would be readily apparent, and the other half, or 105
advisers, would be subject to only part of this collection of
information, which would be an abbreviated disclosure stating the
affiliation.\702\
---------------------------------------------------------------------------

    \700\ Estimate based on IARD data from Form ADV Part 1A, Section
7.A.(1) (Private Fund Reporting) of Schedule D, as of September 30,
2019. Firms that responded ``Yes'' to Question 28.(a), indicated
that they use the services of someone other than the firm or the
firm's employees for marketing purposes (firms must answer ``yes''
if they use a placement agent, consultant, finder, introducer,
municipal advisor or other solicitor, or similar person). We believe
that marketers reported in this Item would generally be solicitors
under the proposed rule.
    \701\ Estimate based on IARD data from Form ADV Part 1A, Section
7.A.(1) (Private Fund Reporting) of Schedule D, as of September 30,
2019.
    \702\ Our proposed rule would partially exempt a solicitor that
is one of the investment adviser's partners, officers, directors, or
employees, or is a person that controls, is controlled by, or is
under common control with the investment adviser, or is a partner,
officer, director or employee of such a person: Provided that (A)
the affiliation between the investment adviser and such person is
readily apparent or is disclosed to the client or private fund
investor at the time of the solicitation, and (B) and the adviser
documents such solicitor's status at the time the adviser enters
into the solicitation arrangement.
---------------------------------------------------------------------------

     In addition, advisers that use nonprofit programs for
solicitation would be exempt from the rule, but would be subject to the
collection of information only with respect to limited disclosures. We
estimate that very few advisers would use the nonprofit solicitation
exemption. For purposes of this PRA, we believe that one percent of
registered investment advisers--or approximately 135 advisers--would
use the nonprofit exemption.
     Therefore, we estimate that the total number of RIAs that
would be subject to this collection of information are approximately
6,432 registered investment advisers (3,655 + 488 + 673 - 4 + 1,590 -
210 + 105 +135 registered investment advisers), or 46.7% of RIAs, would
be subject to the proposed collection of information.\703\ Of these
advisers, (i) 5,704 advisers, or approximately 42.4 percent of all
RIAs, would be subject to the complete collection of information, and
(ii) 728 advisers, or approximately 5.4 percent of all RIAs, would be
subject to a limited subset of this collection of information.
---------------------------------------------------------------------------

    \703\ We estimate that this number would both increase and
decrease to account for: (i) Advisers that would newly be subject to
the solicitation rule with respect to compensating persons for
endorsements under the proposed amendments to the advertising rule
206(4), and therefore, depending on the facts and circumstances,
they would be subject to the solicitation rule for such activity (we
also estimate that some of these advisers would already be subject
to the solicitation rule for conducting other paid solicitations);
and (ii) advisers that would newly be exempted from the solicitation
rule because of the proposed de minimis exemption. We estimate that
the addition and subtraction of these advisers would net to zero
change to the total estimate of the number of registered investment
advisers that would be subject to the proposed amendments to the
solicitation rule.
---------------------------------------------------------------------------

    We are estimating that each registered investment adviser subject
to the proposed solicitation rule would enter into 3 solicitation
relationships each year. Even though our data shows that registered
investment advisers to private funds report a median of one
``marketer'',\704\ which would be a solicitor under the proposed rule,
we are aware that many firms act as solicitors or marketers for
multiple advisers and private funds.\705\ In addition, we estimate that
the median number of solicitors per adviser would be greater than 1
when taking into account all advisers that use solicitors (for private
funds and/or other advisory services), even though solicitors for de
minimis compensation would be exempt from this collection of
information under our proposed rule. We therefore recognize that while
some advisers may use only one or a few solicitors to solicit a few
targeted investors, other advisers may use numerous solicitors to
solicit investors. In addition, we believe that many advisers that use
solicitors enter into long-term multi-year solicitation relationships
with their solicitors, and do not necessarily engage new solicitors
each year. Therefore, we are estimating that advisers would enter into
approximately three contracts with new solicitors per year (advisers
that engage solicitors on a long-term basis would enter fewer contracts
each year, and advisers that routinely use new solicitors would enter
more contracts each year). The estimated number of contracts and
disclosures per adviser and solicitor per year reflects an

estimate in this variable range. We estimate for PRA purposes, and
request comment below, that for each registered investment adviser that
would use the proposed rule, there would be approximately 30 referrals
annually. We have seen changes in solicitation practices over the years
due to changes in technology and the use of social media, making it
easier for advisers to use multiple solicitors to solicit multiple
clients.
---------------------------------------------------------------------------

    \704\ For registered investment advisers to private funds that
report using at least one marketer, the average number of marketers
reported is 2.9, while the median reported is 1 and the maximum is
79. Based on responses to Section 7.B.(1) 28(a) as of September 30,
2019.
    \705\ See id.
---------------------------------------------------------------------------

    This collection of information consists of three components: (i)
The requirement to enter into a written agreement; (ii) the requirement
to prepare and deliver the solicitor disclosure (as part of the written
agreement requirement), and (iii) the requirement to oversee the
solicitor relationship. In addition, as discussed above, certain
advisers that would use the proposed rule's exemptions for affiliated
solicitors and for nonprofit programs would be subject to this
collection of information only with respect to a limited subset of
required disclosures, as follows: (i) Advisers that use affiliated
solicitors for whom the affiliation is not readily apparent would be
required to disclose the affiliation at the time of solicitation; and
(ii) advisers that use nonprofit programs that would be eligible for
the rule's exemption would be required make certain disclosures about
the nonprofit program.
    Because a written agreement would be required for each solicitation
relationship subject to this collection of information (other than the
relationships with affiliated advisers and nonprofit programs that
would be subject to a limited subset of disclosures but not subject to
the written agreement requirement), we estimate that each such adviser
would be subject to this proposed collection of information regarding
entering into the written agreement 17,112 times (5,704 registered
investment advisers x 3 written agreements each).
    For PRA purposes, we estimate that compliance with the proposed
rule's solicitor disclosure preparation and delivery requirement would
result in 171,120 total responses (5,704 advisers x 30 solicitor
disclosures). Finally, we estimate that compliance with the proposed
rule's requirements regarding oversight of the solicitor relationship
would result in 17,112 total annual responses (5,704 advisers x 3
solicitor relationships per adviser).
    Based on Commission staff experiencer, we believe that the proposed
rule would lengthen the solicitor disclosures, particularly with
respect to the proposed requirements to describe non-cash compensation
and any potential material conflicts of interest on the part of the
solicitor resulting from the investment adviser's relationship with the
solicitor and/or the compensation arrangement. The estimated average
internal burden hours each year per adviser to comply with the rule's
requirement to enter into a written agreement with each solicitor would
be 3 hours, or a total of 17,112 aggregate average burden hours each
year.\706\ We estimate that this burden would be ongoing, since we
estimate that advisers would enter into approximately 3 new
solicitation agreements each year. An adviser's in-house compliance
managers and compliance attorneys are likely to prepare the written
agreements. We estimate the blended hourly wage rate for compliance
managers and compliance attorneys to be $337.\707\ Accordingly, the
annual cost of the burden hours to each adviser regarding the
requirement to enter into a written agreement would be $1,011 per
adviser ($337 x 3 hours), or $5,766,744 for advisers in the aggregate
($337 x 17,112 hours).
---------------------------------------------------------------------------

    \706\ 1 hour per written agreement (1 x 3 = 3 hours). 3 hours x
5,704 RIAs = 18,015 hours.
    \707\ This estimate is based on the following calculation: $337
(blended rate for a compliance manager ($309) and a compliance
attorney ($365)). The hourly wages used are 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.
---------------------------------------------------------------------------

    We estimate that the average internal burden for the adviser to
prepare and deliver each solicitor disclosure would be 0.10 hours per
solicitor disclosure. We therefore propose that the estimated average
internal burden hours each year per adviser to prepare and deliver the
solicitor disclosures would be 3 hours (0.10 hours x 30 solicitor
disclosures), for a total of 17,112 hours for advisers (3 hours x 5,704
advisers). An investment adviser's in-house compliance managers and
compliance attorneys would likely prepare solicitor disclosures, and
in-house marketing personnel would likely deliver the solicitor
disclosures. The blended rate of these professionals is $307.50.\708\
Accordingly, the annual cost of the burden to each adviser to prepare
the solicitor disclosure would be $5,261,940 (17,112 hours x $307.50).
We estimate that 20 percent of the solicitor disclosures would be
delivered by the U.S. Postal Service, with the remaining 80 percent
delivered electronically or as part of another delivery of documents.
We therefore estimate that respondents will incur aggregate incremental
postage costs of $18,823.20 ($0.55 x 30 disclosures x 1,141 RIAs).
---------------------------------------------------------------------------

    \708\ We estimate the hourly wage for in-house marketing
personnel to be $278, which is the hourly wage used in 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. We estimate the blended
hourly wage rate for compliance managers and compliance attorneys to
be $337 (blended rate for a compliance manager ($309) and a
compliance attorney ($365)). The hourly wages used are 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. Therefore, the blended rate
for both of these professionals is $307.50 (($278 + $337)/2).
---------------------------------------------------------------------------

    We estimate the average burden hours each year per adviser to
oversee the solicitation relationship would be two hours for each
solicitor relationship, or six hours for each adviser that is subject
to this collection of information.\709\ In-house compliance managers
and compliance attorneys are likely to provide oversight of the written
agreement (including the solicitor disclosure) under the rule. We
estimate the blended hourly wage rate for compliance managers and
compliance attorneys to be $337.\710\ Accordingly, the annual cost to
each respondent regarding oversight of the solicitor disclosure and
written agreement would be $2,022 ($674 per solicitor relationship x 3
solicitor relationships). Accordingly, the annual cost to all advisers
subject to this collection of information regarding the oversight of
the solicitor disclosure and written agreement would be $11,533,488
($337 per hour x 17,112 hours).
---------------------------------------------------------------------------

    \709\ This estimate is based on the following calculation: 2
hours per each solicitor relationship x 3 solicitor relationships.
    \710\ This estimate is based on the following calculation: $337
(blended rate for a compliance manager ($309) and a compliance
attorney ($365)). The hourly wages used are 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.
---------------------------------------------------------------------------

    As discussed above, advisers that use the following types of
solicitors would be reflected in this collection of information only
with respect to abbreviated disclosures: (i) Affiliated solicitors
(whose affiliation is not ``readily apparent'') and (ii) nonprofit
solicitors. We anticipate that these advisers would incur an ongoing
annual burden of 0.3 hours per year to make the abbreviated disclosures
(0.01 hours per disclosure x 30 disclosures = 0.3 hours per year). This
burden includes the

preparation and delivery of the disclosures. Because the disclosures
would be very brief, we believe that all such advisers would deliver
the required disclosures either electronically or as part of another
delivery of documents, and therefore would not incur any additional
postage costs. Accordingly, we estimate the total annual cost of the
hour burden to be approximately $22,654,596, which is the sum of:
$5,766,744 (ongoing cost of the hour burden for entering into written
agreements), $5,261,940 (ongoing cost of the hour burden for
preparation and delivery of the solicitor disclosures), $18,823.20
(postage costs for delivery), $11,533,488 (ongoing cost of the hourly
burden for oversight of the solicitor relationships), and $73,600.80
(ongoing cost of the hour burden for solicitation relationships with
(i) affiliated solicitors (whose affiliation is not ``readily
apparent'') and (ii) nonprofit solicitors).

----------------------------------------------------------------------------------------------------------------
    Rule 206(4)-3 description of
            requirements                No. of  responses     Internal burden hours          Burden costs
----------------------------------------------------------------------------------------------------------------
Ongoing burden for entering into     17,112 responses        1 hour per each         1 hour x $337 blended rate
 written agreements.                  (5,704 RIAs x 3         response.               for compliance manager and
                                      written agreements                              compliance attorney = $337
                                      per each adviser).                              per response (total =
                                                                                $5,766,744).
Ongoing burden for preparation and   (30 solicitor           0.10 hours per          0.10 hours x $307.50
 delivery of the solicitor            disclosures x 5,704     response.               blended rate for
 disclosures..                        RIAs) = 171,120                                 compliance manager and
                                      responses.                                      compliance attorney, and
                                                                                in-house marketing
                                                                                personnel = $30.75 per
                                                                                response (total =
                                                                                $5,261,940)
                                                                                + $18,823.20 postage costs
                                                                                for delivery.
Ongoing burden for oversight of the  5,704 RIAs x 3          2 hours per response..  2 hours x $337 blended rate
 solicitor relationships              solicitor                                       for compliance manager and
 (disclosure and written agreement    relationships per                               compliance attorney = $674
 requirements)..                      each adviser) =                                 per response (total =
                                      17,112 responses.                               $11,533,488).
Ongoing burden for solicitation      728 RIAs x 30           0.01 hours per          0.3 hours x $337 blended
 relationships with (i) affiliated    disclosures.            response.               rate for compliance
 solicitors (whose affiliation is                                                     manager and compliance
 not ``readily apparent'') and (ii)                                                   attorney = $101.10 per
 nonprofit solicitors..                                                               adviser, or $73,600.80.
Ongoing Burden for All SEC-          ......................  ......................  $22,654,596.
 Regulated Entities and solicitors
 that would be expected to use the
 proposed amended solicitation rule.
----------------------------------------------------------------------------------------------------------------

    On a per adviser basis, the ongoing burden for each adviser that
would be subject to this collection of information would be: (i) 12
hours per year for each adviser other than those that would use only
affiliated solicitors whose affiliation is not ``readily apparent'' or
nonprofit solicitors, and (ii) 0.3 hours per year per each adviser that
enters into solicitation relationships with affiliated solicitors whose
affiliation is not ``readily apparent'' or nonprofit solicitors. The
estimated burden hours per year for advisers subject to this proposed
collection of information would therefore be: 10.7 hours per year per
adviser subject to this collection of information per year per adviser
((12 hours x 89 percent) \711\ + (0.3 hours x 11 percent) \712\ =
10.713 hours).
---------------------------------------------------------------------------

    \711\ 89 percent is the percentage of RIAs we estimate would be
subject to all aspects of this collection of information (5,704
RIAs) out of all RIAs subject to this collection of information
(6,432 RIAs).
    \712\ 11 percent is the percentage of RIAs we estimate would be
subject to only part of this collection of information, because they
would use nonprofit solicitors or are affiliated with the adviser
(where the affiliation is not readily apparent) (728 RIAs) out of
all RIAs subject to this collection of information (6,432 RIAs).
---------------------------------------------------------------------------

    The following chart shows the changes from the approved annual
hourly burden for the current cash solicitation rule.

----------------------------------------------------------------------------------------------------------------
                                                 Estimated burden increase or
                 Requirement                               decrease                     Brief explanation
----------------------------------------------------------------------------------------------------------------
Internal burden hours........................  3.66 hours increase per adviser   The currently approved burden
                                                for advisers that are currently   presents the burden in terms
                                                subject to the rule). The         of the aggregate number of
                                                burden would be new for           referrals. We are proposing to
                                                advisers that would newly be      treat as three separate
                                                subject to the rule.              burdens the requirement to
                                               The overall hour burden per        enter into a contract, the
                                                adviser would increase from       preparation and delivery of
                                                7.04 hours to 10.7 hours..        the solicitor disclosure; and
                                               The overall annual responses per   the oversight of the solicitor
                                                adviser would increase from 11    relationship. In addition, we
                                                (total responses for              are proposing to add a
                                                referrals), to: (i) 36 (3         separate burden for advisers
                                                written agreements; preparation   that would be partially exempt
                                                and delivery of 30 solicitor      from the rule but would be
                                                disclosures, and oversight of 3   subject to the collection of
                                                solicitor relationships) for      information with respect to
                                                advisers other than those that    only abbreviated disclosures.
                                                would use only affiliated
                                                solicitors whose affiliation is
                                                not ``readily apparent'' or
                                                nonprofit solicitors); and (ii)
                                                preparation and delivery of 30
                                                abbreviated disclosures for
                                                advisers that would use only
                                                affiliated solicitors whose
                                                affiliation is not ``readily
                                                apparent'' or nonprofit
                                                solicitors.

Burden costs.................................  Increase from $5,538,403 to       This increase is due primarily
                                                $22,654,596. This is an           to: (i) Our estimate of
                                                increase of $17,116,193.          increases in salary for
                                                                                compliance managers, and our
                                                                                belief that advisers would
                                                                                utilize compliance attorneys
                                                                                instead of general clerks (the
                                                                                current burden reflects that
                                                                                general clerks would perform
                                                                                50% of the work), which would
                                                                                result in increased hourly
                                                                                wages; (ii) our estimate of
                                                                                2,158 advisers that would be
                                                                                newly subject to this
                                                                                collection of information;
                                                                                \713\ and (iii) the additional
                                                                                burden hours that would
                                                                                correspond to additional
                                                                                disclosures that the proposed
                                                                                rule would require for
                                                                                advisers that compensate
                                                                                solicitors with non-cash
                                                                                compensation.
----------------------------------------------------------------------------------------------------------------

D. Rule 204-2

    Under section 204 of the Advisers Act, investment advisers
registered or required to register with the Commission under section
203 of the Advisers Act must make and keep for prescribed periods such
records (as defined in section 3(a)(37) of the Exchange Act), furnish
copies thereof, and make and disseminate such reports as the
Commission, by rule, may prescribe as necessary or appropriate in the
public interest or for the protection of investors. Rule 204-2 sets
forth the requirements for maintaining and preserving specified books
and records. This collection of information is found at 17 CFR 275.204-
2 and is mandatory. The Commission staff uses the collection of
information in its examination and oversight program. As noted above,
responses provided to the Commission in the context of its examination
and oversight program concerning the proposed amendments to rule 204-2
would be kept confidential subject to the provisions of applicable law.
---------------------------------------------------------------------------

    \713\ 2,158 RIAs = sum of (i) 5% of all RIAs (673 RIAs), which
is our estimate of advisers that might not currently view directed
brokerage as a type of non-cash compensation, and consequently might
not be reporting on Form ADV that they compensate any person for
client referrals when they use directed brokerage as a form of
compensation, plus (ii) approximately 1,590 registered investment
advisers to private funds that currently report that they use at
least one marketer to obtain investors in private funds, and would
likely be newly subject to the proposed rule with respect to such
fund marketing arrangements, minus (iii) 105 of such advisers that
report that their private fund marketers are affiliated, and for
which we estimate their affiliation would be readily apparent and
they would therefore not be subject to the proposed collection of
information.
---------------------------------------------------------------------------

    We are proposing amendments to rule 204-2 that would require
investment advisers to retain copies of advertisements to one or more
persons.\714\ The current rule requires investment advisers to retain
copies of advertisements to 10 or more persons.\715\ We are also
proposing to require investment advisers 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).\716\
---------------------------------------------------------------------------

    \714\ See proposed rule 204-2(a)(11); see also supra section
II.C (discussing the proposed amendments to the books and records
rule).
    \715\ Rule 204-2(a)(11).
    \716\ See supra section II.C (discussing the proposed amendments
to the books and records rule).
---------------------------------------------------------------------------

    We would continue to require registered investment advisers to
maintain copies of the solicitor disclosure delivered to clients
pursuant to the solicitation rule. However, to correspond to changes we
are proposing to make to rule 206(4)-3, we are proposing 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 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. 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. Each of these records would 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). Specifically, investment advisers would be required to
maintain and preserve these records in an easily accessible place for
not less than five years from the end of the fiscal year during which
the last entry was made on such record, the first two years in an
appropriate office of the investment adviser. Requiring maintenance of
these records would facilitate the Commission's ability to inspect and
enforce compliance with proposed rules 206(4)-1 and 206(4)-3.\717\ The
information generally is kept confidential.\718\
---------------------------------------------------------------------------

    \717\ Id.
    \718\ See section 210(b) of the Advisers Act (15 U.S.C. 80b-
10(b)).
---------------------------------------------------------------------------

    The respondents to this collection of information are investment
advisers registered or required to be registered with the Commission.
The use of advertisements is not mandatory, but as discussed above, we
estimate that 100 percent of investment advisers will disseminate at
least one communication meeting the proposed rule's definition of
``advertisement'' and therefore be subject to the requirements of the
proposed rule. The Commission therefore estimates that, based on Form
ADV filings as of September 30, 2019, approximately 13,463 investment
advisers would be subject to the proposed amendments to rule 204-2
under the Advisers Act (i.e., the proposed requirements to retain
copies of advertisements to one or more persons, all written approvals
of advertisements, and all written approvals of advertisements as
required

by the proposed amendment to the advertising rule). In addition, we
estimate that approximately 50 percent of these 13,463 investment
advisers, or 6,732 advisers, would use third-party ratings in
advertisements, and would therefore also be subject to the proposed
recordkeeping amendments corresponding to the proposed amendments to
the advertising rule relating to the use of third-party ratings (i.e.,
to retain a copy of any questionnaire or survey used in the preparation
of a third-party rating included or appearing in any
advertisement).\719\
---------------------------------------------------------------------------

    \719\ See supra section III.B.2.
---------------------------------------------------------------------------

    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 estimate of 13,299 registered
advisers, or 183 hours per registered adviser.\720\ 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).
---------------------------------------------------------------------------

    \720\ 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)].
---------------------------------------------------------------------------

    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 hours \721\ for each of the estimated 6,432 registered
investment advisers that we estimate would be subject to the
solicitation rule.\722\ We therefore estimate that the proposed
amendments to both rules would result in an aggregate increase in the
collection of 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.\723\ This would yield an annual estimated aggregate
burden of 2,607,783 hours under amended rule 204-2 for all registered
advisers,\724\ for a monetized cost of $165,229,131.\725\
---------------------------------------------------------------------------

    \721\ 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.
    \722\ See discussion above regarding the number of respondents
that we estimate would be subject to proposed amended solicitation
rule.
    \723\ 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.
    \724\ 13,463 registered investment advisers x 193.7 hours =
2,607,783 hours.
    \725\ As with our estimates relating to the previous amendments
to rule 204-2 (see 2016 Form ADV Paperwork Reduction Analysis, supra
footnote 720, at 81 FR at 60454-55), we expect that performance of
this function will most likely be allocated between compliance
clerks and general clerks, with compliance clerks performing 17% of
the function and general clerks performing 83% of the function. Data
from the Securities Industry and Financial Markets Association's
Office Salaries Data 2013 Report, modified 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
costs for these positions are $70 and $62, respectively. (17% x
2,607,783 hours x $70) + (83% x 2,607,783 hours x $62) =
$165,229,131.
---------------------------------------------------------------------------

    As noted above, the approved annual aggregate burden for rule 204-2
is currently 2,435,364 hours, based on an estimate of 13,299 registered
advisers, or 183 hours per registered adviser.\726\ The revised annual
aggregate hourly burden for rule 204-2 would be 2,607,783 hours,
represented by a monetized cost of $165,229,131, based on an estimate
of 13,463 registered advisers. This represents in an increase of
172,419 \727\ annual aggregate hours in the hour burden and an annual
increase of $23,988,551 from the currently approved total aggregate
monetized cost for rule 204-2.\728\ These increases are attributable to
a larger registered investment adviser population since the most recent
approval and adjustments for inflation, as well as the proposed rule
204-2 amendments relating to advertising and solicitation as discussed
in this proposing release.
---------------------------------------------------------------------------

    \726\ 2,435,364 hours / 13,299 registered advisers = 183 hours
per adviser.
    \727\ 2,607,783 hours-2,435,364 hours = 172,419 hours.
    \728\ $154,304,663-$130,316,112 = $23,988,551.
---------------------------------------------------------------------------

    A chart summarizing the various components of the total annual
burden for investment advisers is below.

----------------------------------------------------------------------------------------------------------------
Rule 204-2 Description of proposed new
             requirements                 Number of responses     Internal burden hours    External burden costs
----------------------------------------------------------------------------------------------------------------
Retain a copy of advertisements to one  13,463 (all advisers)..  134,630 (10 hours per
 or more persons, a copy of all         .......................   response).
 written approvals of advertisements    .......................  .......................
 required under proposed rule 206(4)-   .......................  .......................
 1(d), and for investment advisers      .......................  .......................
 that use a third-party rating in any   6,432 (47.8% of          4,502 (0.7 hours per
 advertisement, a copy of the            advisers).               response).
 questionnaire or survey used to
 create the third-party rating.
Retention of (i) copies of the
 solicitor disclosure delivered to
 clients and private fund investors
 pursuant to Sec.   275.206(4)-
 3(a)(1)(iii), and, if the adviser
 participates in any nonprofit program
 pursuant to Sec.   275.206(4)-
 3(b)(4), 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 (a) any solicitor it
 compensates under Sec.   275.206(4)-3
 has complied with the written
 agreement required by Sec.
 275.206(4)-3(a)(1), and that such
 solicitor is not an ineligible
 solicitor, and (b) any nonprofit
 program it participates in pursuant
 to Sec.   275.206(4)-3(b)(4) meets
 the requirements of Sec.   275.206(4)-
 3(b)(4); and (iii) a record of the
 names of all solicitors who are an
 adviser's partners, officers,
 directors or employees or other
 affiliates, pursuant to Sec.
 275.206(4)-3(b)(2).
----------------------------------------------------------------------------------------------------------------

    The following chart shows the differences from the approved annual
hourly burden for the current books and records rule.

------------------------------------------------------------------------
                                 Estimated burden
          Requirement              increase or       Brief explanation
                                     decrease
------------------------------------------------------------------------
All collections of information  10.7 hour          The currently
 under proposed rule 204-2       increase. The      approved burden
 (including new requirements).   overall hour       reflects the current
                                 burden per         rule's requirement
                                 adviser would      that investment
                                 increase from      advisers retain
                                 183 hours to       copies of
                                 193.7 hours.       advertisements to 10
                                                    or more persons. We
                                                    have proposed that
                                                    they retain copies
                                                    of advertisements to
                                                    one or more persons,
                                                    as well as copies of
                                                    questionnaires or
                                                    surveys used to
                                                    create third-party
                                                    ratings in
                                                    advertisements,
                                                    written approvals of
                                                    advertisements, and
                                                    copies of the
                                                    solicitor disclosure
                                                    delivered to clients
                                                    and private fund
                                                    investors, along
                                                    with additional
                                                    records
                                                    corresponding to
                                                    proposed new
                                                    requirements under
                                                    the solicitation
                                                    rule.
------------------------------------------------------------------------

E. Form ADV

    Form ADV (OMB Control No. 3235-0049) is the investment adviser
registration form under the Advisers Act. Part 1 of Form ADV contains
information used primarily by Commission staff, and Part 2A is the
client brochure. Part 2B requires advisers to create brochure
supplements containing information about certain supervised persons. On
June 5, 2019, the Commission adopted amendments to Form ADV and related
rules under the Act to add new Form ADV Part 3: Form CRS (relationship
summary) requiring certain registered investment advisers to prepare
and file a relationship summary for retail investors.\729\ We use the
information on Form ADV to determine eligibility for registration with
us and to manage our regulatory and examination programs. Clients and
investors use certain of the information to determine whether to hire
or retain an investment adviser, as well as what types of accounts and
services are appropriate for their needs. The collection of information
is necessary to provide advisory clients, prospective clients, and the
Commission with information about the investment adviser and its
business, conflicts of interest and personnel. Rule 203-1 under the
Advisers Act requires every person applying for investment adviser
registration with the Commission to file Form ADV. Rule 204-4 under the
Advisers Act requires certain investment advisers exempt from
registration with the Commission (``exempt reporting advisers'') to
file reports with the Commission by completing a limited number of
items on Form ADV. Rule 204-1 under the Advisers Act requires each
registered and exempt reporting adviser to file amendments to Form ADV
at least annually, and requires advisers to submit electronic filings
through IARD. The paperwork burdens associated with rules 203-1, 204-1,
and 204-4 are included in the approved annual burden associated with
Form ADV and thus do not entail separate collections of information.
These collections of information are found at 17 CFR 275.203-1,
275.204-1, 275.204-4 and 279.1 (Form ADV itself) and are mandatory.
Responses are not kept confidential.
---------------------------------------------------------------------------

    \729\ OMB approved, and subsequently extended, this collection
under this control number (expiring on August 31, 2020).
---------------------------------------------------------------------------

    We are proposing amendments to Form ADV to add a subsection L to
Item 5 of Part 1A (``Advertising Activities'') to require information
about an adviser's use in its advertisements of performance results,
testimonials, endorsements, third-party ratings and its previous
investment advice. Specifically, we would require an adviser to state
whether any of its advertisements contain performance results, and if
so, whether all of the performance results were verified or reviewed by
a person who is not a related person. We would also require an adviser
to state whether any of its advertisements includes testimonials or
endorsements, or includes a third-party rating, and if so, whether the
adviser pays or otherwise provides cash or non-cash compensation,
directly or indirectly, in connection with their use. Finally, we would
require an adviser to state whether any of its advertisements includes
a reference to specific investment advice provided by the adviser.
    The collection of information is necessary to improve information
available to us and to the general public about advisers' advertising
practices. Our staff would use this information to help prepare for
examinations of investment advisers. This information would be
particularly useful for staff in reviewing an adviser's compliance with
the proposed amendments to the advertising rule, including the proposed
restrictions and conditions on advisers' use in advertisements of
performance presentations and third-party statements. We are not
proposing amendments to Parts 2 or 3 of Form ADV.
1. Respondents
    The respondents to current Form ADV are investment advisers
registered with the Commission or applying for registration with the
Commission and exempt reporting advisers.\730\ Based on the IARD system
data as of September 30, 2019, approximately 13,463 investment advisers
were registered with the Commission, and 4,206 exempt reporting
advisers file reports with the Commission. As discussed above, we are
proposing amendments to Form ADV to add a subsection L to Item 5 of
Part 1A (``Advertising Activities'') to require information about an
adviser's use in its advertisements of performance results,
testimonials, endorsements, third-party ratings and its previous
investment advice. The amendments we are proposing would increase the
information requested in Part 1A of Form ADV for registered investment
advisers. Because exempt reporting advisers are required to complete a
limited number of items in Part 1A of Form ADV, which exclude Item 5,
they would not be subject to the proposed amendments to Form ADV Part
1A and would therefore not be subject to this collection of
information.\731\ However, these exempt reporting advisers are included
in the PRA for purposes of updating the overall Form ADV

information collection. In addition, as noted above, the Commission
recently adopted amendments to Form ADV to add a new Part 3, requiring
registered investment advisers that offer services to retail investors
to prepare and file with the Commission, post to the adviser's website
(if it has one), and deliver to retail investors a relationship
summary.\732\ The burdens associated with completing Part 3 are
included in the PRA for purposes of updating the overall Form ADV
information collection.\733\
---------------------------------------------------------------------------

    \730\ An exempt reporting adviser is an investment adviser that
relies on the exemption from investment adviser registration
provided in either section 203(l) of the Advisers Act because it is
an adviser solely to one or more venture capital funds or 203(m) of
the Advisers Act because it is an adviser solely to private funds
and has assets under management in the United States of less than
$150 million.
    \731\ An exempt reporting adviser is not a registered investment
adviser and therefore would not be subject to the proposed
amendments to Item 5 of Form ADV Part 1A. Exempt reporting advisers
are required to complete a limited number of items in Part 1A of
Form ADV (consisting of Items 1, 2.B., 3, 6, 7, 10, 11 and
corresponding schedules), and are not required to complete Part 2.
    \732\ See Form CRS Release, supra footnote 227.
    \733\ See Updated Supporting Statement for PRA Submission for
Amendments to Form ADV Under the Investment Advisers Act of 1940
(the ``Approved Form ADV PRA'').
---------------------------------------------------------------------------

    The currently approved burdens for Form ADV are set forth below:
\734\
---------------------------------------------------------------------------

    \734\ The information in the following table is from the
Approved Form ADV PRA, id.

----------------------------------------------------------------------------------------------------------------
                                  RIAs not obligated   RIAs obligated to
                                    to  prepare and    prepare and file    Exempt reporting
                                  file  relationship     relationship          advisers          All advisers
                                       summaries           summaries
----------------------------------------------------------------------------------------------------------------
Number of advisers included in    5,064 + 571         8,235 + 656         4,280 + 441         17,597 advisers +
 the currently approved burden.    expected newly      expected newly      expected new ERAs   1,740 expected
                                   registered RIAs     registered RIAs     annually.           new RIAs and ERAs
                                   annually.           annually.                               annually.
Currently approved total annual   29.22 hours.......  37.47 hours.......  3.60 hours........  29.28 annual
 hour estimate per adviser.                                                                    blended average
                                                                                hours per
                                                                                adviser.
Currently approved aggregate      164,655 hours.....  333,146 hours.....  16,996 hours......  514,797 hours.
 annual hour burden.
Currently approved aggregate      $44,950,816.......  $90,978,858.......  $4,639,908........  $140,569,582.
 monetized cost.
----------------------------------------------------------------------------------------------------------------

    Based on updated IARD system data as of September 30, 2019, we
estimate that the number of registered investment advisers that are
required to complete, amend, and file Form ADV (Part 1 and Part 2) with
the Commission, but who are not obligated to prepare and file
relationship summaries as of the applicable compliance date for Form
ADV Part 3, has increased by 3 RIAs, to 5,067, and we also continue to
believe, based on IARD system data, that that 1,227 new advisers will
register with us annually, 571 of which will not be required to prepare
a relationship summary.\735\ Based on updated IARD system data as of
September 30, 2019, we estimate that the number of registered
investment advisers that are required to complete, amend, and file Form
ADV (Part 1 and Part 2) and prepare and file relationship summaries as
of the applicable compliance date for Form ADV Part 3, has increased by
161 RIAs, to 8,396, and we continue to believe, based on IARD system
data, that that 1,227 new advisers will register with us annually, 656
of which will be required to prepare a relationship summary.\736\ Based
on updated IARD system data as of September 30, 2019, we estimate that