Section II.A.1.\1121\
---------------------------------------------------------------------------

    \1119\ See, e.g., SIFMA Letter requesting greater flexibility
for this reason (stating that ``greater flexibility is needed to
accommodate various business models, given that different firms
offer different products and services'').
    \1120\ See generally footnotes 76-83 and accompanying text.
    \1121\ See supra footnotes 85-90 and accompanying text.
---------------------------------------------------------------------------

    In a change from the proposed instructions, the final instructions
encourage rather than require dual registrants and affiliates to
prepare one single relationship summary, but also allow them to instead
prepare two separate relationship summaries.\1122\ In addition, if
firms prepare one combined relationship summary, the final instructions
required them to employ design elements of their own choosing to
promote comparability, rather than the two-column format, as prescribed
in the proposed instructions. This increased flexibility in
presentation relative to the proposal can benefit dual registrants and
affiliates because it allows them to design disclosures more suitable
to their business models. For example, a firm which generally is
marketing both sides of its business to retail investors may find it
less costly and/or more beneficial to provide a combined summary.
However, dual registrants for which either the brokerage or investment
advisory side of their business is not generally marketed to most
customers or clients may find it more beneficial to provide two
separate relationship summaries. If a firm chooses to prepare two
distinct relationship summaries, it may incur an extra cost of
preparing the second summary, but we expect firms will only elect to
prepare two separate summaries if they believe the benefits of separate
summaries justify such additional preparation costs.
---------------------------------------------------------------------------

    \1122\ See supra Section II.A.5.
---------------------------------------------------------------------------

    Beyond the more general costs discussed above from the prescribed
formatting and wording requirements, some specific requirements may be
costly for certain firms. For example, because the relationship summary
requires information to be organized by standardized headings in a
prescribed order, some firms may find it difficult to effectively
present the most salient information specific to their business and
services. As such, certain firms may incur costs associated with trying
to fit their business model and other relevant information into the
standardized headings. This is mitigated by the fact they have
flexibility to present the required sub-topics of information in the
order of their choosing within each subtopic and by firms' ability to
omit irrelevant information. Firms and financial professionals also may
bear costs in providing additional information to potential or existing
investors to clarify any information that is salient to their business
but does not fit into the standardized headings of the relationship
summary. These costs are mitigated by firms' ability to supplement
their relationship summaries with cross-references or hyperlinks to
additional information.
    The page limit for the relationship summary also has potential
costs, particularly for firms with complex business models, even under
the increased flexibility provided by the final instructions, because
they would have to distill the complexity of their business into the
same space as less complex firms. The use of layered disclosure,
through mediums such as hyperlinks, will permit firms to provide more
detailed information that may ameliorate this cost to some extent,
while still adhering to the formatting requirements of the relationship
summary.
    Firms will also incur costs associated with the production and
verification of information in the relationship summary. Although some
of the information that will be summarized in the relationship summary
is contained in other disclosures that firms already provide, firms
will bear the cost of editing this information for the relationship
summary and cross-referencing or hyperlinking to additional
information. For example, to the extent that some firms do not already
have in place a concise description of how fees, costs, conflicts, and
standards of conduct are potentially connected, that also will allow
for meeting the relationship summary's space constraints, firms will
have to expend time and effort to develop an accurate, clear, and
concise description of these items, written in plain English, for
insertion into the relationship summary, and cross-referencing or
hyperlinking to additional information about these items. These costs
may be larger for broker-dealers than for investment advisers, who can
directly draw on the disclosures of fees, costs, and conflicts they
have to provide to retail investors in Part 2 of Form ADV. Also, to the
extent the costs of developing this section have a fixed component, the
relative burden of developing this section may be higher for smaller
firms. On the other hand, smaller firms are likely to have fewer types
of fees, costs, and conflicts to report compared to larger firms,
potentially making it less burdensome for them to summarize the
required information.
    In addition, the relationship summary requires ``conversation
starters'' as part of each section, and the conversation starters must
be highlighted through text features to improve their prominence
relative to other discussion text. Firms will incur costs associated
with the conversation starters, particularly with respect to
preparation and training on how financial professionals provide
accurate and complete responses to the ``conversation starters'' when
asked. We do not have access to data and information that would allow
us to estimate these costs to firms, but we expect them to be
comparatively greater for firms with more complex business, a wider
range of offered services and products, because training and
supervision costs for such firms could be more extensive. For firms
that provide automated investment advisory or brokerage services, those
firms will incur burdens to prepare answers to each conversation
starter question and make those available on the firm's website (while
providing in the relationship summary a means of facilitating access,
e.g., by providing a hyperlink, to that section or page).\1123\
---------------------------------------------------------------------------

    \1123\ See supra footnote 184.
---------------------------------------------------------------------------

    We also anticipate that firms will bear some costs in the
production of the electronic format as well as other graphical
elements, such as charts and tables, which may make important
information more salient to investors. Smaller firms may
disproportionately incur costs associated with electronic and graphical
formatting, particularly if they do not have an existing web presence
or currently produce brochures or other disclosures that make use of
graphical formatting. However, because the final instructions
encourage, but do

not require electronic formatting and graphical, text, and online
features, firms would only bear these costs if they expected these
features to provide benefits that justify these costs.
    Finally, there could also be some indirect costs to firms from some
of the required content in the relationship summary. In particular, to
the extent that including disciplinary history information in the
relationship summary increases the propensity of retail investors to
consider this information when selecting firms and financial
professionals, firms that affirm they have one or more reportable
disciplinary events may face a loss in competitiveness compared to
firms that have no event to report. This can in particular be costly
for firms that have few or less serious disciplinary events that may be
overlooked by investors that do not research the nature of the
disciplinary history in more detail.\1124\ We also recognize larger
firms might be more likely to incur such competitive costs, because
larger firms are more likely to have at least one reportable
disciplinary event than smaller firms. Similarly, holding size
constant, older firms, by virtue of having a longer business history,
are more likely to have one or more reportable events than younger
firms. Although we acknowledge the potential for firms to incur
competitive costs from having to affirm they have reportable
disciplinary history, those costs are justified by the potential
benefits to investors from this disclosure, as discussed above.
---------------------------------------------------------------------------

    \1124\ Commenters raised similar concerns. See supra footnote
586 and accompanying text.
---------------------------------------------------------------------------

(2) Filing, Delivery, and Updating Requirements
    As proposed, the final instructions require firms to file their
relationship summaries with the Commission and make them available on
firms' publicly available websites, if they have one. The relationship
summary must be filed in a text-searchable format with machine-readable
headings. Further, the final instructions will require investment
advisers to file their relationship summaries using IARD, as proposed;
however, the final instructions--in a change from the proposal--will
require broker-dealers to file through Web CRD[supreg] instead of
EDGAR. This should reduce overall burdens relative to the proposal as
broker-dealers already have extensive experience filing on Web
CRD[supreg], which is more accessible for broker-dealers. As proposed,
dual registrants will be required to file on two systems. Instead of
filing on EDGAR and IARD, as proposed, dual registrants will be
required to file using both Web CRD[supreg] and IARD. We recognize that
requiring dual registrants to file using both Web CRD[supreg] and IARD
may be more costly than filing through just one system; however, we
believe that any such cost is justified to ensure a complete and
consistent filing record for each firm and to facilitate the
Commission's data analysis, examinations, and other regulatory efforts.
    As discussed above, the firms that deliver relationship summaries
electronically must do so within the framework of the existing
Commission guidance regarding electronic delivery.\1125\ With respect
to initial delivery of the relationship summary to new or prospective
investors, firm are required to deliver the relationship summary in a
manner consistent with how the retail investor requested information,
consistent with the Commission's electronic delivery guidance.\1126\
Flexibility in the method of delivery, consistent with Commission
guidance, could promote efficiency by allowing firms to communicate
with retail investors in the same medium by which they typically
communicate other information.\1127\ Regardless of the method of
delivery (e.g., paper or electronic delivery), firms will incur costs
associated with delivering the relationship summary to retail
investors.
---------------------------------------------------------------------------

    \1125\ See supra Section II.B.3 and footnote 678.
    \1126\ See supra footnotes 679-681 and accompanying text.
    \1127\ See supra Section II.B.3 and footnote 680.
---------------------------------------------------------------------------

    Moreover, requiring firms to make a copy of the relationship
summary available upon request without charge will require firms to
incur costs. For example, firms that provide a paper version of the
relationship summary to retail customers that request it will incur
printing and mailing costs when such requests are made. Further, firms
may incur additional costs associated with systems for tracking
customer delivery preferences.
    Firms will also incur costs for updating and filing the
relationship summary within 30 days of whenever any information becomes
materially inaccurate.\1128\ Firms could communicate this information
by delivering the amended relationship summary or by communicating the
information another way to the retail investor. For example, if an
investment adviser communicated a material change to information
contained in its relationship summary to a retail investor by
delivering an amended Form ADV brochure or Form ADV summary of material
changes containing the updated information, the ability to disclose
material changes by delivering another required disclosure containing
the updated information should mitigate the cost of the requirement to
communicate updated information in the relationship summary to
investors. Firms could also incur costs to keep records of when the
initial or updated relationship summary was delivered; however, we
believe that firms will be able to leverage their current compliance
infrastructures in maintaining such information.
---------------------------------------------------------------------------

    \1128\ Along this line, firms could also incur some costs in
modifying certain referenced disclosures per the parameters of
General Instruction 3.B to Form CRS.
---------------------------------------------------------------------------

    The Commission anticipates that the costs associated with delivery
for an average broker-dealer or average dual registrant will be higher
than the costs for the average investment adviser. As Table 1 and Table
3 in Section IV.A.1 indicate, broker-dealers maintain a larger number
of accounts than investment advisers; therefore, delivery costs for
broker-dealers could exceed those of investment advisers, if the number
of accounts is a good indicator of the number of retail
investors.\1129\ Similarly, given that the average dual registrant has
more customer accounts than the average investment adviser, and that
the preparation of relationship summaries and any updates for dual
registrants may require more effort than for standalone broker-dealers
or investment advisers, the compliance costs could be larger for those
firms.
---------------------------------------------------------------------------

    \1129\ The Commission is unable to obtain from Form BD or FOCUS
data information on broker-dealer numbers of customers, and instead,
is only provided with the number of customer accounts. The number of
customer accounts will exceed the number of customers as a customer
could have multiple accounts at the same broker-dealer.
---------------------------------------------------------------------------

    Firms will be required to deliver the relationship summary to
retail investors. The final instructions have adopted a definition of
retail investor that is similar to the definition of retail customer in
Regulation Best Interest, but differs to reflect the differences
between the relationship summary delivery requirement and the
obligations of broker-dealers under Regulation Best Interest, including
that the retail investor definition covers prospective as well as
existing clients and customers and natural persons who seek services
from investment advisers as well as broker-dealers. This definition of
retail investor relative to the proposal may reduce uncertainty for
broker-dealers and investment advisers about which customers should
obtain relationship summaries. We do not believe this changes the scope
of retail investors that will benefit collectively from the final
rules.

(3) Recordkeeping Amendments
    As adopted and discussed above, firms will be required to make and
preserve records of each version of their relationship summary and each
amendment filed with the Commission. Firms will also be required to
make and preserve a record of the dates that each relationship summary
was given to any client, customer, or prospective client or customer
who subsequently becomes a client or customer and such records will be
maintained in the same manner, and for the same period of time, as
other books and records under the applicable recordkeeping rules. As
previously discussed, commenters stated that they believe the
requirement to maintain records of the dates that the relationship
summary was given to prospective clients or customers may impose
significant and unnecessary costs and burdens.\1130\ Commenters stated
that firms do not have compliance and recordkeeping systems in place
that could, without substantial and costly modification, maintain
records of related to prospective clients or customers who might not
become actual clients or customers of the firms for weeks, months or
years after firms begin communicating with such individuals. As an
alternative, commenters suggested that firms only be required to
maintain a record of the most recent date they delivered the
relationship summary to a prospective client that becomes an actual
client preceding the opening of an account. Commenters suggested only
requiring a record that the relationship summary was delivered at
account opening or when a retail investor becomes an investment
advisory client.
---------------------------------------------------------------------------

    \1130\ See, e.g., Edward Jones Letter.
---------------------------------------------------------------------------

    The inclusion of the recordkeeping requirements in the amended
rules will impose costs on firms in the form of revised recordkeeping
policies and procedures and possible modifications to their
recordkeeping systems. The record requirements, however, may be less
burdensome if their recordkeeping and compliance systems are already
capable of creating and maintaining records related to communications
with prospective clients. For example, investment advisers are required
to keep similar records for the delivery of the Form ADV Part 2
brochure and broker-dealers are subject to comparable recordkeeping
requirements with respect to communications and correspondence with
prospective retail investors.\1131\ Further, these recordkeeping
requirements may benefit firms by assisting them in monitoring their
compliance with the relationship summary delivery requirements.
Finally, these records will facilitate the Commission's ability to
inspect for and enforce compliance with the relationship summary
requirements.
---------------------------------------------------------------------------

    \1131\ See supra footnote 810.
---------------------------------------------------------------------------

(4) Estimates of Certain Compliance Costs
    Although we are unable to quantify all costs discussed above, we
quantify certain direct compliance costs based on the estimates
developed for the purpose of the Paperwork Reduction Act analysis in
Section V. These costs, which we discuss below, are estimated
separately for investment advisers and broker-dealers that are required
to prepare and file a relationship summary. We note that all aggregate
cost estimates for either category of firms include the 318 dually
registered firms.\1132\ In addition, the costs estimates are calculated
for the average investment adviser or average broker- dealer. We
recognize that the actual compliance costs burdens for some firms will
exceed our estimates and the burden for others will be less because
firms vary in the size and complexity of their business models.
---------------------------------------------------------------------------

    \1132\ See supra footnote 863 and accompanying text.
---------------------------------------------------------------------------

    First, we quantify certain one-time costs associated with the
initial preparation and filing of the relationship summary. The cost
burden for an average investment adviser to initially prepare and file
the proposed Form CRS for the first time is estimated to range between
approximately $5,460 and $9,165, depending on the extent to which
external help is used.\1133\ The estimated aggregate non-amortized
combined internal and external costs for all current investment
advisers of initially preparing and filing the relationship summary
will be approximately $65.3 million.\1134\ In addition, based on IARD
system data, the Commission estimates that each year approximately 656
newly investment advisers will be required to prepare and file the
relationship summary with us.\1135\ The aggregate non-amortized initial
preparation and filing costs of the relationship summary for these new
investment advisers is estimated to be approximately $5.2
million.\1136\ Similarly, for broker-dealers, the cost to an average
broker-dealer for preparing Form CRS for the first time is estimated to
range between approximately $10,920 and $14,625.\1137\ We estimate the
aggregate non-amortized aggregate combined internal and external costs
to all current broker-dealers of initially preparing and filing the
relationship summary will be approximately $38.8 million.\1138\ We do
not expect any new broker-dealer firms based on the secular decline in
broker-dealer firms we have seen in recent years.\1139\
---------------------------------------------------------------------------

    \1133\ The lower end estimate is based on the assessment that,
without additional external help, it will take an average investment
adviser 20 hours to prepare the relationship summary for the first
time, see infra Section V.A.2.a. We assume that performance of this
function will be equally allocated between a senior compliance
examiner and a compliance manager at a cost of $237 and $309 per
hour, (see infra footnote 1232 for how we arrived at these costs).
Thus, the cost for one investment adviser to produce the
relationship summary for the first time is estimated at $5,460 (10
hours x $237 + 10 hours x $309 = $5,460) if no external help is
needed. In addition, we estimate that if the investment adviser
needs external help, the average cost to an investment adviser for
the most expensive type of such help (i.e., compliance consulting
services) would be $3,705, see infra footnote 1239, which brings the
total cost to $9,165.
    \1134\ We estimate that the aggregate internal cost of initial
preparation and filing of the relationship summary for existing
investment advisers is $44,963,100 (= $5,460 per investment adviser
x 8,235 existing investment advisers). The aggregate external cost
for existing investment advisers is estimated to be $20,371,331. See
infra Sections V.A.2.a and V.A.2.b for more detailed descriptions of
how we arrived at these estimates.
    \1135\ See infra footnote 1227 and accompanying text.
    \1136\ We estimate that the aggregate internal cost of initial
preparation and filing of the relationship summary for expected
newly registered investment advisers is $3,3,581,760 (= $5,460 per
investment adviser x 656 expected new investment advisers). The
aggregate external cost for expected new investment advisers is
estimated to be $1,622,780. See infra Sections V.A.2.a and V.A.2.b
for more detailed descriptions of how we arrived at these estimates.
    \1137\ The lower end estimate is based on the assessment that,
without additional external help, it will take an average broker-
dealer 40 hours to prepare the relationship summary for the first
time, see infra Section V.D.2.a. We assume that performance of this
function will be equally allocated between a senior compliance
examiner and compliance manager at a cost of $237 and $309 per hour,
respectively (see infra footnote 1365 for how we arrived at these
costs). Thus, the cost for one broker-dealer to produce the
relationship summary for the first time is estimated at $10,920 (20
hours x $237 + 20 hours x $309 = $10,920) if no external help is
needed. In addition, we estimate that if the broker-dealer needs
external help, the average cost to a broker-dealer for the most
expensive type of such help (i.e., compliance consulting services)
would be $3,705, see infra footnote 1378, which brings the total
cost to $14,625.
    \1138\ We estimate that the aggregate internal cost of initial
preparation and filing of the relationship summary for existing
broker-dealers is $30,204,720 (= $10,920 per broker-dealer x 2,766
existing broker-dealers). The aggregate external cost for existing
broker-dealers is estimated to be $8,560,770. See infra Sections
V.D.2.a and V.D.2.b for more detailed descriptions of how we arrived
at these estimates.
    \1139\ See infra Section IV.B.c for a discussion of this
decline.
---------------------------------------------------------------------------

    Firms will also incur one-time costs of the initial delivery of
relationship summaries to their existing retail investors. We expect
the non-amortized initial delivery costs to be

approximately $4,941 for the average investment adviser. \1140\ In
total, we estimate that the aggregate non-amortized initial delivery
costs to existing retail investors will be approximately $40.7 million
for all current investment advisers,\1141\ and $3.2 million for newly
registered investment advisers.\1142\ For the average broker dealer, we
expect costs for the initial delivery to existing retail investors to
be approximately $45,801.\1143\ The aggregate non-amortized initial
delivery cost for all current broker-dealers is estimated to be
approximately $126.7 million.\1144\
---------------------------------------------------------------------------

    \1140\ See supra Section V.C.2.b.(1) for a description of how
this is estimated.
    \1141\ Calculated as $4,941 per firm x 8,235 current firms =
$40,689,135.
    \1142\ Calculated as $4,941 per firm x 656 expected new firms =
$3,241,296.
    \1143\ Calculated as $126,684,600 (the estimated aggregate
costs)/2,766 (number of broker-dealers with retail customers). See
infra Section V.D.2.d. (1) for how the aggregate cost is estimated.
    \1144\ Id.
---------------------------------------------------------------------------

    Moreover, firms are required to post a current version of their
relationship summary prominently on their public website (if they have
one). We estimate that the initial posting will cost approximately $93
per firm (whether an investment adviser or a broker-dealer).\1145\ In
aggregate we expect the initial cost of posting the relationship
summary to firms' websites to be approximately $686,437 for existing
investment advisers,\1146\ $54,682 for newly registered investment
advisers,\1147\ and $257,238 for broker-dealers.\1148\
---------------------------------------------------------------------------

    \1145\ See infra sections V.C.2.a (for investment advisers) and
V.D.2.a (for broker-dealers) for how the average cost per firm is
estimated.
    \1146\ Based on IARD system data, 91.6% of investment advisers
with individual clients report having at least one public website;
see infra Section IV.B.2.a. Therefore the aggregate cost for
existing investment advisers is estimated as: 91.6% x $91(average
cost per firm) x 8,235 (number of existing investment advisers) =
$686,437.
    \1147\ Assuming that the fraction of firms with at least one
public website is the same for newly registered investment advisers
as it is for existing investment advisers (see id), we estimate the
aggregate costs as: 91.6% x $91(average cost per firm) x 8,235
(excepted number of new investment advisers) = $54,682.
    \1148\ See infra footnote 1370 and accompanying text.
---------------------------------------------------------------------------

    In addition to the estimates of one-time costs discussed above, for
the purposes of the Paperwork Reduction Act analysis, we have also
developed estimates of certain expected ongoing compliance costs of the
final rules. For example, firms will incur costs each year due to the
requirement to re-deliver the relationship summary to existing retail
investors in certain situations. We estimate that the annual average
cost to re-deliver the relationship summary will be approximately $992
for an average investment adviser and in aggregate approximately $8.8
million annually for all investment advisers.\1149\ For broker-dealers,
we estimate that the annual average cost to re-deliver the relationship
summary will be approximately $9,222 for the average firm, and in
aggregate approximately $25.5 million annually for all broker-
dealers.\1150\ Firms will also be required to deliver relationship
summaries to new and prospective retail investors. Based on the
Commission's projections of future client and customer account growth,
we estimate that the annual costs to current firms of delivery to new
and prospective retail investors would be between approximately $223
for an average investment adviser and $5,072 for an average broker-
dealer, or approximately $1.8 million annually in aggregate for
investment advisers and approximately $14.0 million annually in
aggregate for broker-dealers.\1151\ The difference in cost estimates
between investment advisers and broker-dealers is mainly due to the
fact that investment advisers serving retail investors generally have
fewer clients than broker-dealers serving retail investors have
customer accounts, but also because we project a lower growth rate for
retail clients for investment advisers (4.5%) \1152\ than for retail
customer accounts for broker-dealers (11.0%).\1153\ In addition, firms
will also incur costs associated with making paper copies of the
relationship summary available upon request. We estimate that such
annual costs would be approximately $31 for the average firm (whether
investment adviser or broker-dealer), and the aggregate annual costs
for investment advisers and broker-dealers combined would be
approximately $338,272.\1154\
---------------------------------------------------------------------------

    \1149\ See infra Section V.C.2.b.(2).
    \1150\ See infra Section V.D.2.d.(2).
    \1151\ See infra section V.C.2.c for how we estimate the costs
to investment advisers, and see infra Section V.D.2.e for how we
estimate the costs for broker-dealers.
    \1152\ See infra footnote 1341 and accompanying text.
    \1153\ See infra footnote 1415 and accompanying text.
    \1154\ See infra footnote 1339 and accompanying text for how we
estimate the costs for investment advisers, and see infra footnote
1413 and accompanying text for how we estimate the costs for broker-
dealers.
---------------------------------------------------------------------------

    In Section V, for the purposes of the Paperwork Reduction Act
analysis, we also estimate the quantifiable expected ongoing costs
associated with updating the relationship summary. These costs would be
associated with preparing updated relationship summaries when
information becomes materially inaccurate, re-posting updated
relationship summaries to a public website, and communicating changes
to the relationship summary through re-delivery to existing retail
investors. We estimate that the annual costs for firms to update and
file amended relationship summaries will be approximately $467 for the
average investment adviser, or approximately $3.8 million in aggregate
for all investment advisers.\1155\ For investment advisers with a
public website, we estimate the average annual costs of re-posting
amended relationship summaries to be approximately $53.32 per adviser,
or $402,207 in aggregate for all investment advisers with public
websites.\1156\ Finally, we expect investment advisers will incur
quantifiable costs of communicating changes to amended relationship
summaries, if they choose to do so by delivery. We estimate the average
annual costs of communicating changes to amended relationship summaries
by delivery will be $8,450 per adviser that to choose to do so, and in
aggregate approximately $34.8 million for all investment advisers that
we expect to choose delivery to communicate updated information.\1157\
For broker-dealers, we estimate the annual costs to update, file, and
post amended relationship summaries will be approximately $608 for the
average firm and approximately $1.7 million in aggregate for all
broker-dealers.\1158\ We estimate annual delivery costs will be
approximately $ 91,602 for the average broker-dealer that will choose
delivery to communicate updated information, and in aggregate
approximately $126.7 million annually for all broker-dealers that we
expect to choose delivery.\1159\
---------------------------------------------------------------------------

    \1155\ See infra Section V.A.2.c for how we estimate these
costs.
    \1156\ See infra Section V.C.2.b.(3) for how we estimate these
costs.
    \1157\ Id.
    \1158\ See infra Section V.D.2.c for how we estimate these
costs.
    \1159\ See infra Section V.D.2.d.(3) for how we estimate these
costs.
---------------------------------------------------------------------------

    Finally, for the purposes of the Paperwork Reduction Act analysis,
we also developed estimates of certain compliance costs associated with
the recordkeeping requirements in the final rules. We estimate that the
annual costs to firms related to these recordkeeping requirements will
be $12.67 for an average investment adviser and approximately $104,354
in aggregate for all investment advisers. \1160\ For broker-

dealers, we estimate annual recordkeeping and record retention costs to
be approximately $39 for an average broker-dealer, and $107,017 in
aggregate for all broker-dealers.\1161\
---------------------------------------------------------------------------

    \1160\ For investment advisers we estimate 0.2 additional burden
hours related to the recordkeeping requirements in the final rule;
see infra footnote 1280 and accompanying text. We expect that this
incremental burden will most likely be allocated between compliance
clerks and general clerks, with compliance clerks performing 17% of
the function at a total cost of $70 per hours, and general clerks
performing 83% of the function at total cost of $62 per hour; see
infra footnote 1282. The average costs per investment adviser is
then estimated as (17% x 0.2 hours x $70) + (83% x 0.2 hours x $62)
= $12.672. The aggregate cost is then $12.672 x 8,235 (number of
investment advisers) = $104,354.
    \1161\ See infra Section V.E for the estimation of recordkeeping
costs (estimated at $32 annually per broker-dealer, or $87,627 in
aggregate), and see infra section V.F.1 for the estimation of record
retention costs (estimated at $7 annually per broker-dealer, or
$19,390 in aggregate).
---------------------------------------------------------------------------

3. Impact on Efficiency, Competition, and Capital Formation
    In addition to the specific benefits and costs discussed in the
previous section, we expect that the relationship summary could produce
a number of broader long-term effects on the market for financial
advice. Below, we elaborate on these potential effects, in particular
as they pertain to their impact on efficiency, competition, and capital
formation.
a. Efficiency
    The final rule requiring broker-dealers, investment advisers, and
dually registered firms to produce a relationship summary could result
in increased informational or allocative efficiency for retail
investors by reducing the risk of matching with a firm or financial
professional that is different from the investor's expectations and
preferences. As discussed above, the risk of mismatch potentially
imposes costs on investors, financial professionals, and firms.
Investors may inadvertently, in the absence of information provided by
the relationship summary, select the wrong type of financial
professional or account, leading to increased costs (direct and
indirect) and potentially suboptimal outcomes as it pertains to meeting
the investor's financial goals. For firms and financial professionals,
cultivating relationships with potential investors requires resources
in terms of time and effort. If an investor and financial professional
or firm is mismatched, then both sides of the relationship can incur
costs. For example, the financial professional may devote time and
resources to develop a relationship with a retail investor that is
comparatively costly to maintain because of a mismatch between the
investor's expectations and the services offered by the
professional,\1162\ and the investor incurs costs associated with
obtaining services that do not fit his or her needs. As such, the
relationship summary may reduce the costs associated with mismatch for
investors, firms, and financial professionals and increase the
efficiency of the market for financial advice. We expect these
efficiency gains particularly in the initial matching between investors
and firms and financial professionals. For some retail investors,
receipt of the relationship summary from their existing firm or
financial professional could highlight that they are mismatched in
their current relationship. Those investors may benefit from
terminating the mismatched relationship and looking for a more
appropriate match, but such gains are likely to only be realized to the
extent investors anticipate the long-term benefits from a better match
will be greater that the short-run switching and search costs.
Moreover, these efficiency benefits may be attenuated to the extent
that investors tend to stay in relationships with financial
professionals once investors are committed to the relationship, even if
the relationship is mismatched.
---------------------------------------------------------------------------

    \1162\ However, as discussed previously in, e.g., supra Section
IV.B, a mismatch from the retail investors' perspective may be
advantageous for firms in certain circumstances, in which case firms
may not overall benefit from a decrease in the number of mismatched
investors.
---------------------------------------------------------------------------

    Informational efficiencies could also be enhanced with the
relationship summary because key information is focused on information
that has been previously identified as important to retail investors,
salient and consistently disclosed across broker-dealers and investment
advisers. The relationship summary will provide concise, user-friendly
information which will allow retail investors to better understand the
relationship that they will have with their financial professionals and
will allow them to seek services commensurate with their expectations.
In addition, to the extent the information asymmetry between investors
and financial professionals is reduced, investors may make more
informed investment decisions, or become more able to critically
evaluate any investment advice they receive. Further, the use of
layered disclosure and conversation starters will allow retail
investors to access additional information that may be relevant to them
when selecting their firm or financial professional, further reducing
the risk of mismatch.
    The firm-specific nature of the relationship summary required by
the final rules about a particular firm will enhance retail investors'
information set about each firm, providing them with a more concise and
simple document, which should alleviate potential investor confusion
about the key elements of the relationship that the investor could
expect to have with that firm.
    However, such improved efficiency could be lower than that expected
under the proposal because, unlike the proposed relationship summary,
the adopted relationship summary will include less prescribed language
and greater flexibility. For example, the relationship summary will not
include a comparison between general broker-dealer and investment
adviser standards and services.\1163\ The elimination of this proposed
requirement will likely reduce (relative to the proposal) the
usefulness to retail investors from obtaining this general information
from a single source (e.g., any firm's relationship summary) and
instead will require effort from investors in the form of search costs
to provide an adequate comparison across firms within a given type of
firm (e.g., investment advisers). Moreover, for investors that may not
know which type of firm is likely to best meet their preferences and
expectations with respect to financial services, a less general
relationship summary requires that investors that expend search costs
also select the correct types of firms in order to make such a
comparison. This may be difficult for some retail investors, and could
increase the costs of search and the risk of mismatch. Also, allowing
dual registrants the flexibility to prepare two separate relationship
summaries rather than one combined document may result in some
efficiency loss in terms of less direct comparability. Nonetheless, we
believe that investors having access to specific and tailored
information about the firms, as provided in the final rules, is more
important for reducing investors search costs and risk of mismatch,
thereby justifying the potential efficiency losses (relative to the
proposal) discussed above.
---------------------------------------------------------------------------

    \1163\ See supra Section II.B.6 for why the generalized
comparison discussion was not included in the relationship summary.
---------------------------------------------------------------------------

    Beyond informational efficiencies that could arise, the
relationship summary also may lead to more efficient investor
allocation of assets within their portfolios relative to the baseline.
Some retail investors that previously avoided the market for financial
services because they did not understand the material characteristics
of either broker-dealers or investment advisers may be more

likely to hire a financial professional if the costs associated with
the acquisition of this information are reduced relative to the
baseline. The relationship summary is a simple, concise document
providing investors information about key elements of the investor-
provider relationship that could incent some investors to seek the
services of a financial professional. As such, for some investors that
previously abstained from hiring a financial professional, portfolio
efficiency could be improved, for example, through increased portfolio
diversification.\1164\ Furthermore, because of being provided the
relationship summary, some current investors may realize that other
services provided by their financial professional could be more
appropriate for them. For example, an advisory client of a dual
registrant may learn more about the broker-dealer services offered by
the firm and realize that those services better match his or her
preferences and make a switch, which may ultimately improve portfolio
efficiency for the client.
---------------------------------------------------------------------------

    \1164\ As discussed above, academic studies have identified
several potential benefits to retail investors from seeking
investment advice, including increased diversification; see supra
footnote 1005 and accompanying text.
---------------------------------------------------------------------------

    However, as noted in Regulation Best Interest, certain studies
suggest that for some financial professionals, the improvements to
portfolio efficiency could be limited if the financial professionals
are subject to the same behavioral biases, such as limited attention or
anchoring, as retail investors in their portfolio allocation
decisions.\1165\ Further, to the extent the relationship summary makes
the conflicts of interest of financial professionals more salient to
retail investors relative to the baseline, there is a risk that some
professionals would feel they have a ``moral license'' to act on their
conflicts,\1166\ which could harm the efficiency of retail investors'
portfolio allocations. Despite such potential negative effects related
to conflicts of interest disclosure, we believe that, on balance,
retail investors will benefit from the inclusion of this disclosure in
the relationship summary. In particular, the conflicts of interest
disclosure should enhance investors' ability to evaluate which
relationship is best for them and also help them more critically
evaluate the recommendations or investment advice they receive, which
should ultimately improve the efficiency of their portfolio
allocations.
---------------------------------------------------------------------------

    \1165\ See Regulation Best Interest, Section III.B.3.b.
    \1166\ See supra footnote 1027 and accompanying text.
---------------------------------------------------------------------------

    In addition, and in a modification from the Proposing Release, the
headings on the relationship summary will be machine readable, which
will facilitate third-party data aggregators', as well as the
Commission's, analysis and comparison of certain elements of the
relationship summary across firms to the benefit of retail investors.
Comparability will lead to greater informational efficiency because
retail investors will be better able to choose the right type of firm
or financial professional and the right type of account and services,
thereby increasing the likelihood that they choose what best meets
their needs and reduces the likelihood of mismatch. Providers may
likewise benefit from higher information acquisition efficiency because
firms may be more likely to initially attract retail investors who
prefer their services, thereby potentially reducing customer
acquisition costs, such as time and effort spent on initial engagement
with prospective customers who ultimately do not contract for their
services.
b. Competition
    Beyond increased efficiency for retail investors, the relationship
summary may also increase competition among broker-dealers and
investment advisers. Provision of the relationship summary by firms
could enhance the competitiveness of broker-dealers and investment
advisers by allowing retail investors to better evaluate and compare
firms and financial professionals through increased transparency, and
more generally increase retail investors' understanding of the market
for brokerage and investment advisory services. In particular,
increased transparency may allow investors to better assess the types
of services available and the types of fees and costs associated with
such services. Moreover, and as discussed above, the relationship
summary may facilitate comparisons across firms and lead to reduced
search costs for retail investors, allowing investors to match their
preferences and expectations for certain financial services, possibly
at lower costs relative to the baseline, and may increase
competitiveness between firms to lower prices for some services. We
believe the changes made to the relationship summary in the final rules
have potentially strengthened such competitive effects, for example, by
using less prescribed general language and instead requiring disclosure
of firm-specific information about services, fees, costs, and
conflicts, and by making the headings machine readable, which may
encourage the development of search tools by third party providers. An
increase in competition may apply only between like firms (i.e.,
broker-dealers only or investment advisers only) or may have intra-
industry effects across broker-dealers and investment advisers.
    As discussed above, increased competition both among and between
broker-dealers and investment advisers could reduce the pricing power
of firms, benefitting investors through lower fees. Lower fees could
draw more retail investors that are not currently seeking investment
advice to the market, although some retail investors may be willing to
pay higher prices for other reasons, including enhanced services and
firm reputation. Combined with improved informational efficiency,
increased competition for retail investors resulting from information
provided by the relationship summary may drive prices at the margin to
competitive levels across all types of firms, depending on how price
sensitive retail investors are. Alternatively, and similar to what we
have today, a separating equilibrium may result where investors' demand
for particular services is relatively price insensitive and they cannot
be persuaded to move to a different level of service simply because of
lower prices (e.g., investors seeking ongoing advice may be more likely
to pay higher prices for advisory services provided by investment
advisers, even though a potentially lower cost option could be
available through broker-dealers).
    Further, lower costs of information acquisition and processing due
to the content, format, and structure of the relationship summary may
lead to more people entering the market for brokerage and investment
advisory services and may increase overall retail investor
participation. Such an increase in the number of retail investors in
the market for financial services could raise demand for brokerage and
investments advisory services and mitigate the potential increase in
competition discussed above. However, increased levels of retail
investor participation could also encourage new broker-dealer and
investment adviser entrants to meet the needs of the new pool of
investors, and may increase competition for investor capital through
lower fees and costs.
    How the competitive landscape will shift as a result of the
relationship summary is difficult to determine and the effect on
aggregate level of competition among and between broker-dealers and
investment advisers could be limited. For example, the relationship
summary may not necessarily increase the number of new broker-dealer or
investment adviser

entrants to the market, but could lead to shifts of investors between
broker-dealers and investment advisers to the extent that some
currently engaged retail investors are mismatched, and that search and
switching costs associated with correcting the mismatch do not justify
the costs associated with the potential mismatch. Moreover, the
incidence of mismatched relationships with retail investors could be
likely for both broker-dealers and investment advisers, so competition
could be relatively unaffected in the aggregate; therefore, any
mismatch corrected as a result of the relationship summary may not
result in a significant net loss of investors for either broker-dealers
or investment advisers. In addition, to the extent currently mismatched
investors are customers of dual registrants, any switch in account type
(brokerage or investment advisory), as a result of the relationship
summary, may take place within a dual registrant rather than between
different firms, further attenuating any competitive impact.
    By reporting legal or disciplinary history, the relationship
summary may provide benefits to retail investors by prompting them to
seek out additional information (e.g., from Investor.gov or
BrokerCheck) on their current or prospective firms and financial
professionals and take that information into account when considering
whom to engage for financial services. Competition between firms may be
enhanced if firms and financial professionals with better disciplinary
records drive out those with worse records. We note, however, that
legal and disciplinary history reported in the relationship summary may
bias firms towards hiring financial professionals with fewer years of
experience (i.e., fewer opportunities for customer complaints) and
against hiring experienced financial professional with some (minor)
complaints. Further, investors may also bias their choice of firm or
financial professional in the same manner. One commenter stated that
reporting of legal and disciplinary history ``imposes an inappropriate
competitive imbalance and inaccurate picture concerning the relative
number of disciplinary actions in sales organizations with large number
of financial professionals.'' \1167\ The expected economic impact of
disciplinary reporting on competition across large and small firms,
however, is generally unclear because small firms may suffer
disproportional reputational penalties from more salient disciplinary
history disclosure. In general, reportable disciplinary history is less
common for smaller firms than for larger firms.\1168\ Thus, small firms
may appear to have better disciplinary history reputation than large
firms solely because of their size of operations, rather than their
actual legal and regulatory compliance or the professional ethics or
integrity of their employees. At the same time, investors may over-
react to generally more frequent disciplinary history disclosure by
larger firms and forego potentially well-matched relationship with the
larger firms as a result.
---------------------------------------------------------------------------

    \1167\ See ACLI Letter.
    \1168\ For example, while only 36% of registered investment
advisers with less than $1 million of AUM disclose at least one
disciplinary action as of January 1, 2019, 71% of registered
investment advisers with more than $50 billion of AUM disclosed at
least one disciplinary action that year. Form ADV. Similarly, while
42% of broker-dealers with less than $1 million in total assets
disclose at least one disciplinary action as of January 1, 2019,
100% of broker-dealers with more than $50 billion total assets
disclosed at least one disciplinary action that year. Form BD.
---------------------------------------------------------------------------

    Disclosing reportable legal and disciplinary history in the
relationship summary may confer a small competitive advantage for
investment advisers over broker-dealers because broker-dealers are more
likely to have to report that they have a disciplinary history due to
broader broker-dealer disclosure obligations. Reporting from Form BD
with respect to broker-dealer disclosures of disciplinary actions taken
by any regulatory agency or SRO show than 308 (86%) out of 318 retail-
facing dual-registered broker-dealers disclosed a disciplinary action.
In contrast, 1,330 (54%) out of 2,448 retail-facing standalone broker-
dealers disclosed a disciplinary action. For investment advisers, Form
ADV requires disclosure of any disciplinary actions taken in the past
10 years, and 284 (79%) of 318 retail-facing dual-registered investment
advisers disclosed a disciplinary action. However, for standalone
investment advisers, only 1,176 (15%) of 7,917 retail-facing investment
advisers disclosed a disciplinary action.\1169\ As broker-dealers have
relatively more reportable legal and disciplinary history than
investment advisers, retail investors may engage investment advisers
with greater frequency than broker-dealers as a result of the
disciplinary history reporting on the relationship summary, potentially
creating a competitive advantage for some investment advisers.
---------------------------------------------------------------------------

    \1169\ Source: Items 11C, 11D, and 11E of Form BD and Items
11.C., 11.D. and 11.E. of Form ADV. Form BD asks if the SEC, CFTC,
other federal, state, or foreign regulatory agency, or a self-
regulatory organization have ever found the applicant broker-dealer
or control affiliate to have (1) made a false statement or omission,
(2) been involved in a violation of its regulations or statues, (3)
been a cause of an investment related business having its
authorization to do business denied, suspended, revoked, or
restricted, or (4) have imposed upon it a civil money penalty or
cease and desist order against the applicant or control affiliate.
Likewise, Form ADV asks similar questions of registered investment
advisers and advisory affiliates.
---------------------------------------------------------------------------

    Although the relationship summary applies to SEC-registered broker-
dealers and SEC-registered investment advisers, it could exhibit some
spillover effects for other categories of firms not affected by the
rule changes such as investment advisers not registered with the SEC
(e.g., state registered investment advisers), bank trust departments,
insurance companies, and others. In particular, the relationship
summary could change the size of the broker-dealer and investment
adviser markets--relative to each other, as well as relative to other
markets. To the extent the relationship summary reduces retail
investors' confusion and makes it easier for them to choose a
relationship in line with their preferences and expectations, this
could attract new retail investors to the broker-dealer and investment
adviser markets from firms in other markets. At the same time, it is
possible that, as a result of conflicts of interest and the existence
of disciplinary history being saliently disclosed in the relationship
summary, some investors may be deterred from seeking services of
registered investment advisers or broker-dealers and instead seek the
services provided by a state registered advisor or another professional
not regulated by the Commission, or forego seeking financial services
altogether.
    Firms' current retail investors also may consider switching to a
different type of firm if the relationship summary makes the different
services provided and the types of fees and costs of investment
advisory and brokerage services more prominent. Such a switch could be
within the market for investment advisory and brokerage services, or to
a financial services provider outside this market (such as a bank or
insurance company). The information disclosed in the relationship
summary may also lead some investors to realize a relationship with any
financial services provider may not be in their best interest, and
therefore withdraw altogether from the market. The exact extent and
direction of substitution among different types of providers' services
is hard to predict and depends on the nature of the current mismatch
between retail investor preferences and expectations and the type of
services for which they have contracted, and the extent to which
investors will digest and use the provided information in firms'
relationship summaries.

    To the extent the relationship summary increases competition
between broker-dealers and investment advisers, and between these firms
and other financial services providers, it may result in development of
new products and services, and general innovation by the industry at
large. Competition among firms could provide incentives for firms to
seek alternative ways to attract retail investors and generate profits.
In the process, firms could develop new and better ways of providing
services to retail investors, for example, by utilizing information
technology to deliver information to retail investors at lower costs.
In this way, innovation could improve retail investors' welfare as well
as the profitability of financial service providers.
    Another possible long-term effect of the relationship summary is
that it could decrease the prevalence of third-party selling
concessions in the market by requiring broker-dealers and dual
registrants to include disclosure about indirect fees associated with
investments that compensate the broker-dealer, including mutual fund
loads. Currently, selling concessions constitute a significant part of
the compensation of broker-dealers selling mutual fund products.\1170\
For example, a mutual fund may provide a selling concession, in the
form of a sales charge, some portion of which could be remitted to the
broker-dealer that recommended the product. To the extent the
relationship summary increases the transparency and salience of such
selling concessions and related conflicts of interest, investors may
start to avoid investing in products that provide selling concessions,
encouraging broker-dealers to avoid such arrangements. To compensate
for the potential loss of concession-based revenue, dually registered
firms could try to switch customers from their brokerage account to
their advisory accounts. As noted above, however, if the relationship
summary also increases the competitiveness in the broker-dealer and
investment adviser markets, the increased competitiveness would create
some general downward price pressure in the market which may spillover
to selling concessions.
---------------------------------------------------------------------------

    \1170\ See supra Table 2, Section IV.B.1.a.
---------------------------------------------------------------------------

c. Capital Formation
    As discussed above, the relationship summary may improve retail
investors' understanding about, and confidence in, the market for
brokerage and investment advisory services, which may increase
participation in this market by investors that previously avoided it.
Such additional entry by new investors could increase the level of
total capital across markets and increase the demand for new investment
products and securities, which could precipitate capital formation in
aggregate across the economy. Depending on the magnitude of these
effects, the increased availability of funds could result in lower cost
of capital for companies, which could facilitate economic growth.
    However, to the extent the disclosure of certain information such
as conflicts of interest or disciplinary history decreases some retail
investors' level of confidence in market for brokerage and investment
advisory services, or the information provided makes some investors
believe that they do not benefit from a relationship with a firm or
financial professional, such investors could exit this market, which
could attenuate any effects on capital formation. In addition, to the
extent that the market for financial services is already saturated,
there may only be a redistribution between broker-dealers, investment
advisers, and other financial service providers (such as state-
registered investment advisers, banks, and insurance companies) as a
result of retail investors becoming more informed, and any effects on
capital formation would be attenuated.
4. Alternatives to the Relationship Summary
    To reduce retail investor search costs and costs of potential
mismatch between retail investors and professionals in brokerage and
investment advisory services, we considered various alternative
approaches to the relationship summary, including whether to adopt
additional disclosure requirements. We have previously learned through
public comments, investor testing, and a staff financial literacy study
that industry commenters and survey participants generally supported a
short disclosure document to retail investors that would address firms'
nature and scope of services, fees, and material conflicts of
interest.\1171\ Accordingly, we proposed rules and rule amendments to
require firms to provide retail investors with disclosures designed for
those purposes. In our proposal, we solicited comment on alternatives
to various elements of the relationship summary. As discussed in
Section I above, we also conducted extensive public outreach, including
investor roundtables, specific solicitation of investor comments
through the Feedback Forms, and investor testing.\1172\ We considered
the suggestions and recommendations received through these processes as
alternative approaches in our rulemaking, many of which we discussed in
greater detail in Sections I and II above. In determining the required
scope and level of detail of information in the relationship summary,
we balanced the need for robust disclosures with the risk of investor
information overload and failure to properly process these disclosures,
a recurring theme in both comment letters and investor feedback
received through surveys and studies, roundtables and on Feedback
Forms.
---------------------------------------------------------------------------

    \1171\ See Proposing Release, supra footnote 5, at nn.13-21 and
accompanying text.
    \1172\ See supra footnotes 11-21 and accompanying text.
---------------------------------------------------------------------------

a. Amending Existing Disclosures
    The relationship summary will be a new, separate disclosure, in
addition to other disclosures that firms already must provide.\1173\ As
noted in Section I above, some commenters argued that the relationship
summary is duplicative of other disclosures, for example in Form ADV or
in Form BD, and is thus unnecessary.\1174\ The Commission considered
amending Part 2A of Form ADV to require a brief summary at the
beginning of the brochure in addition to the existing narrative
elements, or changing certain existing Part 2A requirements to reduce
or eliminate redundancy with parts of the relationship summary.
Similarly, the Commission considered whether to amend and require
delivery to retail investors of a revised Form BD to include the same
information as in the relationship summary, and make that information
publicly available.\1175\
---------------------------------------------------------------------------

    \1173\ Broker-dealers and investment advisers have disclosure
and reporting obligations under state and federal laws, including,
but not limited to, obligations under the Exchange Act, the Advisers
Act, and the respective rules thereunder. Broker-dealers are also
subject to disclosure obligations under the rules of SROs.
    \1174\ See supra footnote 33 and accompanying text.
    \1175\ For example, the instructions to Form BD contain a
section on the explanation of terms which could be extended to
include basic (registrant-specific) information on the business
practices of the registrant.
---------------------------------------------------------------------------

    After careful consideration and for the reasons discussed in
Section I above, we believe that a separate summary disclosure will be
more effective to help retail investors to choose from among firms and
investment services than modifying existing disclosures.\1176\ We
believe that a short, standalone relationship summary that facilitates
comparisons across different providers

and types of services is necessary to highlight information that is
relevant to a retail investor before or at the time she is deciding to
select a firm, financial professional, account type, or services. To
that end, the short and succinct relationship summary includes topics
that retail investors indicated would be important to them in selecting
a provider. Specifically, because the relationship summary is a shorter
document and designed to be more of an overview than the existing
investor-facing disclosures, such as Form ADV, and is specifically
targeted to help retail investors obtain certain information before
deciding to enter into a relationship with a financial professional,
retail investors facing that decision can process its information
content more efficiently. The relationship summary facilitates layered
disclosures and highlights where investors can access more detailed
information, including existing documents that investors receive, which
could facilitate review of those documents, such as Form ADV Part 2.
The relationship summary also promotes the investor receiving more
detailed information about the provider and its services, as necessary,
through conversation starters. Furthermore, when compared to other
disclosures that financial professionals may make on, for example, Form
ADV and Form BD, the relationship summary seeks to enhance
comparability across both adviser and broker-dealer provider types for
retail investors.
---------------------------------------------------------------------------

    \1176\ See supra footnotes 42-44 and accompanying text.
---------------------------------------------------------------------------

    Thus, despite some content duplication with other existing
disclosure requirements and firms having to bear the cost of creating
additional disclosures, we believe that retail investors will benefit
from having information relevant to deciding on a firm, financial
professional, and/or accounts and services in one place in a more
succinct, salient and standardized fashion. Overall, we believe that
the relationship summary will enable better-informed decision-making,
reduce risk of mismatch, and reduced search costs by retail investors.
b. Form and Format of the Relationship Summary
    Under the final instructions, firms will be required to describe,
largely in their own wording, different topics related to their
offerings in a question-and-answer format. In comparison, we proposed
instructions providing for standardized, declarative headings for each
section of the relationship summary and a mix of prescribed and firm-
specific language within each section. As discussed in Section I above,
nearly all commenters and investors providing feedback at roundtables
and on Feedback Forms suggested modifications to the sample
relationship summary and proposed instructions, and numerous commenters
submitted alternative sample relationship summaries.\1177\
---------------------------------------------------------------------------

    \1177\ See supra footnotes 36-40 and accompanying text.
---------------------------------------------------------------------------

    Delivery of SEC-authored form. Commenters suggested that the SEC
author a standard industry-wide disclosure to deliver to retail
investors, which could then be supplemented by firm-specific
documents.\1178\ For example, one commenter suggested using as a
potential framework the Buyers Guides developed by the National
Association of Insurance Commissioners that insurance companies must
deliver under certain circumstances.\1179\ Commenters supporting an
SEC-authored educational layer believed that the SEC was better placed
than firms to discuss areas viewed to be educational in nature, such as
comparisons, standard of conduct, and key questions to ask.
---------------------------------------------------------------------------

    \1178\ Primerica Letter.
    \1179\ ACLI Letter.
---------------------------------------------------------------------------

    We have incorporated an element of these commenters' suggestion by
removing the comparisons section, which many commenters viewed as
educational, and adding a link at the beginning of the relationship
summary to Investor.gov/CRS where investors can obtain educational
materials. However, we believe that investors are better served by
keeping certain disclosures that may be viewed as more educational in
nature, such as the standard of conduct and some of the ``conversation
starters'' (replacing the ``Key Questions to Ask''), in the
relationship summary. We believe investors are more likely to
understand how such content will affect them when presented in the
context of the particular firm.
Level of Flexibility in the Disclosure
    As discussed in more detail above, we considered the appropriate
level of prescribed wording and topics in the disclosure. Several
commenters suggested that, as an alternative to the prescriptive
wording in the proposed relationship summary, we provide firms with
more flexibility to craft their responses to items, with or without an
SEC standardized disclosure to accompany the relationship summary or
available on Investor.gov. We considered the relative merits of
prescribed wording and formatting versus allowing firms to use their
own, as well as a mix of prescribed requirements and discretionary
choices. We considered this for different topics and sub-topics in the
relationship summary, as well as for the relationship summary overall.
In some instances, we determined that prescribed wording would provide
targeted benefits that discretionary wording could not, for example,
through the use of standardized headings and a prescribed order of
topics in order to maintain the benefits of comparability and utility
for retail investors.\1180\ For the reasons discussed in Section II,
above, we also determined to prescribe wording for conversation
starters, the standard of conduct, and a factual statement regarding
the effect of fees over time. In the event that prescribed wording is
inapplicable to a firm's business or inaccurate, the firm may omit or
modify that wording. We believe that this approach will allow firms
greater flexibility to tailor their relationship summary disclosures to
reflect their offerings more closely and accurately. However, greater
flexibility in terms of wording could also allow firms to present
disclosures in a more advantageous manner to them, rather than in a
manner that would maximize the benefits to investors from the
disclosures. Nonetheless, we believe retail investors will benefit
under this adopted approach by receiving disclosures that may be more
understandable, and also more informative about a particular firms'
offerings that they are considering.
---------------------------------------------------------------------------

    \1180\ See supra Section II.A.1.
---------------------------------------------------------------------------

c. Summary of Fees, Costs, Conflicts, and Standard of Conduct
    In response to comments and investor feedback through surveys and
studies, roundtable and the Feedback Forms, we are adopting changes
from the proposal to the relationship summary's required discussion of
fees, costs, conflicts of interest, and standard of conduct, as
described above.\1181\
---------------------------------------------------------------------------

    \1181\ See supra Section II.B.3.
---------------------------------------------------------------------------

    In connection with fee disclosure, the Commission considered many
alternative approaches relating to the scope and types of fees firms
must include in their relationship summaries, as well as the
presentation of the fee disclosure.\1182\ As discussed in Section
II.A.4 above, commenters' views varied on the scope and types of fees
that should be disclosed and their level of

detail.\1183\ In addition to what we had proposed and what we have
adopted, the Commission considered other alternatives, such as whether
to require firms to list all fees that retail investors may incur, to
allow firms the flexibility to determine what fees to highlight, and
variations or combinations of these approaches. The final approach is
designed to balance the need to provide a comprehensive view of what
fees retail investors will pay with the need to produce relevant,
succinct and understandable disclosures. The final instructions do not
require firms to disclose every single fee and instead permit firms to
highlight examples of the categories of the most common fees that their
retail investors will pay directly or indirectly.\1184\ We believe this
approach benefits retail investors because they will be able to compare
fee information that is more closely tailored to firms' particular
business practices, but also reflective of common fees that retail
investors are likely to incur.
---------------------------------------------------------------------------

    \1182\ See supra Section II.A.4. In addition, the Commission
considered alternative approaches with respect to the disclosure
regarding a firm's conflicts of interest and standard of conduct. A
discussion of the Commission's consideration may be found in Section
II.A.4.
    \1183\ See supra footnotes 420-423 and accompanying text.
    \1184\ See Item 3.A. of Form CRS.
---------------------------------------------------------------------------

    The Commission also considered alternative ways in which firms
should present their fees, such as whether to require firms to link to
or include a fee schedule directly in the relationship summary,\1185\
or to require firms to include a hypothetical fee example.\1186\ Under
the final instructions, firms must summarize their principal fees and
costs and other fees and also include specific cross-references to more
detailed information about their fees available in other sources.\1187\
The Proposing Release discussed the option of including an example of
the impact of fees in the relationship summary.\1188\ While some
commenters supported the inclusion of various forms of additional
examples of fees calculations,\1189\ after careful consideration of the
comment file and investor feedback received through studies and
surveys, roundtables and Feedback Forms, we are declining to include a
hypothetical fee example in the relationship summary. We do so in light
of commenters who suggested that such an example could be operationally
difficult to implement, and that it could be perceived as
confusing.\1190\ Specifically, we believe the assumptions required to
make a fee example relevant for investors vary for individual investors
to the extent that a standardized example risks increasing investor
confusion.
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    \1185\ See supra footnotes 426-435 and accompanying text.
    \1186\ See supra footnotes 438-435 and accompanying text.
    \1187\ See Item 3.A.(ii) of Form CRS.
    \1188\ Proposing Release, supra footnote 5.
    \1189\ See, e.g., Wahl Letter; AARP Letter; Betterment Letter I.
    \1190\ NSCP Letter; Edward Jones Letter (noting that given the
range of services available, it would be very difficult for
financial professionals to fully address this question at the outset
of the relationship, particularly for investors selecting
transaction-based services); TIAA Letter; LPL Financial Letter;
Primerica Letter; ICI Letter; SIFMA Letter (noting most firms do not
currently have systems in place to allow financial professionals to
answer customer-specific questions).
---------------------------------------------------------------------------

    Instead, to help stimulate this discussion, a firm must include in
the relationship summary the following conversation starter: ``Help me
understand how these fees and costs might affect my investments. If I
give you $10,000 to invest, how much will go to fees and costs, and how
much will be invested for me?'' \1191\ As discussed above,\1192\ this
represents a different wording from the corresponding ``Do the Math for
Me'' Key Question in the proposal, but we expect it to similarly
encourage the retail investor to ask about the amount they would
typically pay per year for the account and what is included in those
fees, while being easier and less costly to answer for firms at the
outset of the relationship.
---------------------------------------------------------------------------

    \1191\ Item 3.A.(iv) of Form CRS.
    \1192\ See supra Sections II.A.4 and II.B.3.a.
---------------------------------------------------------------------------

d. Filing and Delivery
    In connection with filing and delivery, Commission considered
alternatives relating to filing formats, filing systems, and timeframes
for firms' initial relationship summary and subsequent updates. As
discussed in Section II.C. above, firms will file copies of their
relationship summaries with the Commission. The proposed instructions
provided that firms must file their relationship summaries in a text-
searchable format but did not specify one. We solicited comment on
whether the relationship summary should be filed as a text-searchable
PDF, similar to how Form ADV is currently filed, or other enumerated
formats. We also asked about what type of format would facilitate
greater comparability across forms. Two commenters advocated that the
relationship summary should be filed not only in a text-searchable, but
also machine-readable format, in order to facilitate development of
data aggregation tools allowing for comparability of forms across
providers.\1193\ The Commission believes that although a PDF submission
format would not be the most ideal for comparing or aggregating data
across relationship summary filings, it would likely be the easiest and
least costly. A fillable form allowing the firm to enter text, similar
to Form ADV Part 1, also would not be costly, but would not easily
accept formatted tables or other graphical information. The final
instructions, as with the proposed instructions, do not specify a
particular format, but the current filing systems default firms to PDF
format. In a change from the proposal, we are requiring firms to
implement machine-readable headings for their filings. We agree with
the commenters that suggested this change that this approach
facilitates some degree of data aggregation, while imposing limited
costs on registrants.
---------------------------------------------------------------------------

    \1193\ CFA Letter I (``past experience regarding investors'
limited use of existing databases, such as IARD and BrokerCheck,
cautions against placing too much reliance on investors' accessing
the documents directly. We therefore urge the Commission to require
that the documents be filed, not just in a text-searchable format,
but in a machine-readable format.''); Schnase Letter (``the data
contained in the Relationship Summary should be required to be filed
in a structured data format, so the document can be utilized as a
stand-alone human-readable document and serve as the source for a
machine-readable data set'').
---------------------------------------------------------------------------

    Furthermore, we requested comments on alternative filing systems
for the relationship summary. In response to comment and upon further
consideration, as discussed in Section II.C.2 above,\1194\ we are
requiring broker-dealers to file their relationship summaries through
Web CRD[supreg], instead of EDGAR, as proposed.
---------------------------------------------------------------------------

    \1194\ See supra footnotes 666-669 and accompanying text.
---------------------------------------------------------------------------

    As discussed in Section II.C.3.a above, we also considered whether
to allow more permissive use of electronic delivery. As proposed, we
are affirming that the relationship summary must be delivered in
accordance with the Commission's electronic delivery guidance. We are
adopting an additional instruction, however, that a firm may deliver
the relationship summary to new or prospective clients or customers in
a manner that is consistent with how the retail investor requested
information about the firm or financial professional, and that this
method of initial delivery for the relationship summary would be
consistent with the Commission's electronic delivery guidance.\1195\
Commenters suggested different approaches to electronic delivery, such
as the ``notice plus access'' model, and a more comprehensive updating
of the Commission's electronic delivery guidance, which we considered
as alternative approaches in this rulemaking. While we recognize the

potential cost savings to firms of allowing greater use of electronic
delivery, we place great importance on how investors prefer to receive
information. Some commenters said that investors prefer to receive
electronic disclosures because they are delivered faster and can be in
more engaging formats, including video and audio. On the other hand,
investor surveys and investor testing show that some investors still
prefer to receive paper disclosures, including in a hybrid approach of
electronic disclosure with the option for paper.\1196\ As discussed in
greater detail in Section II.C.3.a, the adopted approach of encouraging
electronic presentations that are engaging to retail investors, while
preserving the option for paper, within the framework of the
Commission's electronic delivery guidance and in accordance with retail
investors' preferences, is appropriate for the relationship summary.
---------------------------------------------------------------------------

    \1195\ See Proposing Release, supra footnote 5, at nn.344-45 and
accompanying text; see also 2000 Guidance, supra footnote 678, at 65
FR 25845-46; 96 Guidance, supra footnote 678, at 61 FR 24647; and 95
Guidance, supra footnote 678, at 60 FR 53461.
    \1196\ See supra footnotes 682-689 and accompanying text.
---------------------------------------------------------------------------

e. Transition Provisions
    As discussed above, we are adopting an initial date of June 30,
2020 for all firms that are registered, or investment advisers who have
an application for registration pending with, the Commission prior to
June 30, 2020, to file their initial relationship summaries with the
Commission. We considered tiered compliance dates for firms of
different sizes. We believe that the compliance dates, as adopted,
balance the time and resources needed by different firms, as well as
the assets under management and the number of firms that would be
covered within the different compliance periods.

V. Paperwork Reduction Act Analysis

    The amendments that we are adopting here contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\1197\ In the Proposing Release, we
solicited comment on the proposed collection of information
requirements. We also submitted the proposed collection of information
to the Office of Management and Budget (``OMB'') for review in
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The titles for the
collections of information we are amending are (i) ``Form ADV'' (OMB
control number 3235-0049); (ii) ``Rule 204-2 under the Investment
Advisers Act of 1940'' (OMB control number 3235-0278); (iii) ``Rule
17a-3; Records to be Made by Certain Exchange Members, Brokers and
Dealers'' (OMB control number 3235-0033) and (iv) ``Rule 17a-4; Records
to be Preserved by Certain Exchange Members, Brokers and Dealers'' (OMB
control number 3235-0279). The new collections of information we are
adopting \1198\ relate to (i) ``Rule 204-5 under the Investment
Advisers Act of 1940'' (OMB control number 3235-0767); and (ii) ``Form
CRS and rule 17a-14 under the Exchange Act'' (OMB control number 3235-
0766). We are also amending 17 CFR 200.800 to display the control
number assigned to information collection requirements for ``Form CRS
and rule 17a-14 under the Exchange Act'' by OMB pursuant to the PRA. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control OMB number.
---------------------------------------------------------------------------

    \1197\ 44 U.S.C. 3501 et seq.
    \1198\ The Commission is not adopting two other rules in the
Proposing Release that would have contained collections of
information. Proposed rule 211h-1 under the Advisers Act and
proposed rule 15l-3 under the Exchange Act relate to the disclosure
of Commission registration status and financial professional
association. As discussed in Section I above, we have concluded that
the combination of the disclosure requirements in Form CRS and
Regulation Best Interest should adequately address the objectives of
the proposed Affirmative Disclosures.
---------------------------------------------------------------------------

A. Form ADV

    Form ADV (OMB Control No. 3235-0049) is currently a two-part
investment adviser registration form. Part 1 of Form ADV contains
information used primarily by Commission staff, and Part 2A is the
client brochure. We use the information to determine eligibility for
registration with us and to manage our regulatory and examination
programs. Clients use certain of the information to determine whether
to hire or retain an investment adviser. 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.
    We are adopting 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, as discussed in greater detail in Section II
above. Advisers will deliver the relationship summary to both existing
clients and new or prospective clients who are retail investors. As
with Form ADV Parts 1 and 2, we will use the information to determine
eligibility for registration with us and to manage our regulatory and
examination programs. Similarly, clients can use the information
required in Part 3 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 relationships and services the firm offers to retail investors,
fees and costs that the retail investor will pay, specific conflicts of
interest and standards of conduct, legal or disciplinary history, and
how to obtain additional information about the firm. The amendment
requiring investment advisers to deliver the relationship summary is
contained in a new collection of information under new rule 204-5 under
the Advisers Act, for which estimates are discussed below. We did not
propose amendments to Part 1 or 2 of Form ADV.\1199\
---------------------------------------------------------------------------

    \1199\ We are adopting technical amendments to the General
Instructions of Form ADV to add references to the Part 3, but these
amendments would not affect the burden of Part 1 or Part 2. See
amended General Instructions to Form ADV.
---------------------------------------------------------------------------

    As discussed in Sections I and II of this release, we received
comments that addressed whether the relationship summary is duplicative
of other disclosures and necessary for investment advisers, and whether
we could further minimize the burden of the proposed collections of
information. One commenter specifically addressed the accuracy of our
burden estimates for the proposed collection of information, suggesting
that our estimates were too low because compliance professionals
estimated it would take 80-500 hours to

prepare, deliver, and file the relationship summary, depending on the
firm's size and business model.\1200\ Another commenter said the
current Form ADV requirements are a burden to smaller firms and that
the currently approved burdens of 23.77 hours and $6,051 are too
low.\1201\ Others commented more broadly that certain costs to prepare
and file the relationship summary would be higher than we estimated in
the proposal.\1202\ We have considered these comments and are
increasing our PRA burden estimates from 5 hours to 20 hours for
investment advisers to prepare and file the relationship summary. We
also modified several substantive requirements to mitigate some of
these estimated increased costs relative to the proposal.
---------------------------------------------------------------------------

    \1200\ See NSCP Letter.
    \1201\ See Marotta Letter.
    \1202\ See, e.g., MarketCounsel Letter. Others argued that the
cost of Form CRS and Regulation Best Interest would be high. See,
e.g., Raymond James Letter; CCMC Letter (investor polling results);
SIFMA Letter.
---------------------------------------------------------------------------

1. Respondents: Investment Advisers and Exempt Reporting Advisers
    The respondents to current Form ADV are investment advisers
registered with the Commission or applying for registration with the
Commission and exempt reporting advisers.\1203\ Based on the IARD
system data as of December 31, 2018, approximately 13,299 investment
advisers were registered with the Commission, and 4,280 exempt
reporting advisers file reports with the Commission.
---------------------------------------------------------------------------

    \1203\ 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. An exempt reporting adviser is not a registered
investment adviser and therefore would not be subject to the
relationship summary requirements.
---------------------------------------------------------------------------

    As discussed above, we are adopting amendments to Form ADV that
will add a new Part 3, requiring certain registered investment advisers
to prepare and file a short and accessible relationship summary for
retail investors. Based on IARD system data as of December 31, 2018,
the Commission estimates that 8,235 investment advisers have some
portion of their business dedicated to retail investors, including
either individual high net worth clients or individual non-high net
worth clients,\1204\ which is higher relative to the estimate in the
Proposing Release.\1205\
---------------------------------------------------------------------------

    \1204\ Proposing Release, supra footnote 5, at Section V.A.1.
Based on responses to Item 5.D. of Form ADV, these advisers
indicated that they advise either high net worth individuals or
individuals (other than high net worth individuals), which includes
trusts, estates, and 401(k) plans and IRAs of individuals and their
family members, but does not include businesses organized as sole
proprietorships in Item 5.D.(a)(1) of Form ADV or have regulatory
assets attributable to either high net worth individuals or
individuals other than high net worth individuals in Item 5.D.(a)(3)
of Form ADV. The definition of retail investor will include the
legal representatives of natural persons who seek to receive or
receive services primarily for personal, family, or household
purposes. As discussed in Section II.C.1 above, a legal
representative of a natural person will cover only non-professional
legal representatives (e.g., a non-professional trustee that
represents the assets of a natural person and similar
representatives such as executors, conservators, and persons holding
a power of attorney for a natural person). We are not able to
determine, based on responses to Form ADV, exactly how many advisers
provide investment advice to these types of legal representatives or
trustees; however, we believe that these advisers most likely also
advise individuals and are therefore included in our estimate.
    \1205\ We estimated in the Proposing Release that approximately
7,625 registered investment advisers of the 12,721 registered
investment advisers would be subject to the relationship summary
requirements, based on IARD system data as of December 31, 2017. See
Proposing Release, supra footnote 5 at Section V.A.
---------------------------------------------------------------------------

    This will leave 5,064 registered investment advisers that do not
provide advice to retail investors \1206\ and 4,280 exempt reporting
advisers that will not be subject to Form ADV Part 3 requirements, but
are included in the PRA analysis for purposes of updating the overall
Form ADV information collection.\1207\ We also note that these figures
include the burdens for 318 registered broker-dealers that are dually
registered as investment advisers as of December 31, 2018.\1208\ We did
not receive comments related to the methodology used for estimating the
number of investment advisers that will be subject to Form ADV Part 3
requirements. We are maintaining the methodology we used in the
Proposing Release and are updating our estimates to reflect the
increased number of investment advisers and exempt reporting advisers
since the last burden estimate.
---------------------------------------------------------------------------

    \1206\ 13,299 registered investment advisers--8,235 = 5,064
registered investment advisers not providing advice to retail
investors.
    \1207\ Based on IARD system data.
    \1208\ See supra footnote 863.
---------------------------------------------------------------------------

2. Changes in Average Burden Estimates and New Burden Estimates
    Based on the prior revision of Form ADV,\1209\ the currently
approved total aggregate annual hour burden estimate for all advisers
of completing, amending, and filing Form ADV (Part 1 and Part 2) with
the Commission is 363,082 hours, or a blended average of 23.77 hours
per adviser,\1210\ with a monetized total of $92,404,369, or $6,051 per
adviser.\1211\ The currently approved annual cost burden is
$13,683,500. This burden estimate is based on: (i) The total annual
collection of information burden for SEC-registered advisers to file
and complete Form ADV (Part 1 and Part 2); and (ii) the total annual
collection of information burden for exempt reporting advisers to file
and complete the required items of Part 1A of Form ADV. Broken down by
adviser type, the current approved total annual hour burden is 29.22
hours per SEC-registered adviser and 3.60 hours per exempt reporting
adviser.\1212\ The amendments will increase the current burden estimate
due in part to the amendments to Form ADV to add Form ADV Part 3: Form
CRS (the relationship summary) and the increased number of investment
advisers and exempt reporting advisers since the last burden estimate.
We did not propose amendments to Part 1 or Part 2 of Form ADV.
---------------------------------------------------------------------------

    \1209\ See Form ADV and Investment Advisers Act Rules, Final
Rule, Investment Advisers Act Release No. 4509 (Aug. 25, 2016) [81
FR 60418 (Sept. 1, 2016)] (``2016 Form ADV Paperwork Reduction
Analysis'').
    \1210\ 363,082 hours/(12,024 registered advisers + 3,248 exempt
reporting advisers) = 23.77 hours.
    \1211\ $92,404,369 hours/(12,024 registered advisers + 3,248
exempt reporting advisers) = $6,051.
    \1212\ See 2016 Form ADV Paperwork Reduction Analysis, supra
footnote 1209, at 81 FR 60454.
---------------------------------------------------------------------------

    The amendments to Form ADV to add Part 3 will increase the
information collection burden for registered investment advisers with
retail investors. As discussed above in Sections I and II of this
release, registered investment advisers providing services to retail
investors will be required to prepare and file a relationship summary
with the Commission electronically through IARD in the same manner as
they currently file Form ADV Parts 1 and 2. We are also requiring that
all relationship summaries be filed in a text-searchable format with
machine-readable headings. These investment advisers also will be
required to amend and file an updated relationship summary within 30
days whenever any information becomes materially inaccurate.
    As noted above, not all investment advisers will be required to
prepare and file the relationship summary. For those investment
advisers, the per adviser annual hour burden for meeting their Form ADV
requirements will remain the same, in particular, 29.22 hours per
registered investment adviser without relationship summary obligations.
Similarly, because exempt reporting advisers also will not have
relationship

summary obligations, the annual hour burden for exempt reporting
advisers to meet their Form ADV obligations will remain the same, at
3.60 hours per exempt reporting adviser. However, although we did not
propose amendments to Form ADV Part 1 and Part 2, and the per adviser
information collection burden will not increase for those without the
obligation to prepare and file the relationship summary, the
information collection burden attributable to Parts 1 and 2 of Form ADV
will increase due to an increase in the number of registered investment
advisers and exempt reporting advisers since the last information
collection burden estimate. We discuss below the increase in burden for
Form ADV overall attributable to the adopted amendments, i.e., new Form
ADV Part 3: Form CRS, and the increase due to the updated number of
respondents that will not be subject to the adopted amendments.
a. Initial Preparation and Filing of Relationship Summary
    As discussed above in Section II, investment advisers will be
required to prepare and file a relationship summary summarizing
specific aspects of their investment advisory services that they offer
to retail investors. Much of the required information overlaps with
that required by Form ADV Part 2A and therefore should be readily
available to registered investment advisers because of their existing
disclosure obligations. Investment advisers also already file the Form
ADV Part 2A brochure on IARD, and we have considered this factor in
determining our estimate of the additional burden to prepare and file
the relationship summary.
    In the Proposing Release, we estimated that the initial first year
burden for preparing and filing the relationship summary, for
investment advisers that provide advice to retail investors, would be 5
hours per registered adviser.\1213\ Some commenters said that these
estimated burdens were too low,\1214\ and one argued that the current
burden estimates for Form ADV are too low.\1215\ One commenter
specifically argued that preparing, delivering, and filing the
relationship summary would take from 80 to 500 hours, based on input
from compliance professionals, and noted there would be additional
costs that are hard to quantify, including human resources and
information technology programming.\1216\ Commenters also said more
broadly that the relationship summary would be burdensome for
investment advisers \1217\ and would result in additional compliance
burdens including training.\1218\
---------------------------------------------------------------------------

    \1213\ See Proposing Release, supra footnote 5, at nn.356 -367
and accompanying text.
    \1214\ See, e.g., NSCP Letter; see also CCMC Letter (costs to
implement the proposal were underestimated and greater than 40% of
firms surveyed anticipate having to spend a moderate or substantial
amount to implement Regulation Best Interest and Form CRS); SIFMA
Letter (stating that implementation costs of Regulation Best
Interest and Form CRS would be significant).
    \1215\ See Marotta Letter.
    \1216\ See NSCP Letter.
    \1217\ See MarketCounsel Letter.
    \1218\ See NSCP Letter (stating that a minimum of two hours of
firm level training or two hours of training per independent
registered representative will be required prior to implementation
and delivery of the relationship summary).
---------------------------------------------------------------------------

    We are revising our estimate of the time that it would take each
adviser to prepare and file the relationship summary in the first year
from 5 hours in the proposal to 20 hours in light of these comments and
the changes we are making to the proposed relationship summary.\1219\
For example, as discussed in the Proposing Release, we estimated that
it would take firms a shorter amount of time to prepare the
relationship summary than to prepare more narrative disclosures due to
the standardized nature and prescribed language of the relationship
summary. As discussed above, the final instructions require less
prescribed wording relative to the proposal and require firms to draft
their own summaries for most of the sections. In addition and in a
change from the proposal, we are now requiring that all relationship
summaries be filed with machine-readable headings, as well as in a
text-searchable format as proposed. We acknowledge that these changes
will increase cost burdens because advisers will have to develop their
own wording and design, as well as implement machine-readable headings,
to comply with these requirements.
---------------------------------------------------------------------------

    \1219\ See infra footnote 1221.
---------------------------------------------------------------------------

    The relationship summary will also require more layered disclosures
relative to the proposal and will encourage the use of electronic
formatting and graphical, text, online features to facilitate access to
other disclosures that provide additional detail. Although much of the
information that will be summarized in the relationship summary is
contained in other disclosures that firms already provide, firms will
bear the cost of preparing a new relationship summary and cross-
referencing or hyperlinking to additional information. The higher
estimated burden estimate also reflects our acknowledgement that it
will take firms longer to draft certain disclosures than we estimated
in the Proposing Release, such as answers to ``conversation starters''
that advisers providing automated investment advisory without a
particular individual with whom a retail investor can discuss these
questions must include on their website. We believe these factors and
the other changes we made to the proposal will increase the burden to
prepare a relationship summary relative to the proposal.
    We are estimating the same hourly burden for investment advisers
and investment advisers that are dually registered as broker-dealers
because we are counting dually registered firms in the burden
calculation for Form ADV and the Exchange Act rule that requires the
relationship summary for broker-dealers.\1220\ We recognize that the
burden for some advisers will exceed our estimate, and the burden for
others will be less due to the nature of their business, but we do not
believe that the range could be as high as some commenters
suggested.\1221\ After consideration of comments and changes we made to
the requirements relative to the proposal and in light of the current
approved burden for Part 2 of Form ADV, which requires more disclosures
than the relationship summary, we are increasing the estimated burden
relative to the proposal to 20 hours in the first year.\1222\ We
therefore estimate that the

total burden of preparing and filing the relationship summary will be
164,700 hours.\1223\
---------------------------------------------------------------------------

    \1220\ The burden estimates for dual registrants to prepare and
file the relationship summary are accounted for in the burden
estimates for Form ADV and under Exchange Act rule 17a-14. For
example, a dual registrant that prepares an initial relationship
summary that covers both its advisory business and broker-dealer
business has an estimated burden of 60 hours amortized (20 hours to
prepare and file relationship summary related to the advisory
business + 40 hours to prepare and file relationship summary related
to the broker-dealer business).
    \1221\ See NSCP Letter (estimating that the time required to
prepare, deliver and file the relationship summary would be anywhere
from 80 to 500 hours). In estimating the cost for the initial
preparation of Form ADV Part 2, we estimated that small, medium, and
large advisers would require 15, 97.5, and 1989 hours respectively
to prepare Form ADV Parts 1 and 2, for investment advisers overall,
and the per adviser annual hour burden for meeting their Form ADV
Parts 1 and 2 requirements is 36.24 hours. See Brochure Adopting
Release, supra footnote 576, at 75 FR at 49257. In comparison, as
discussed above, the relationship summary is limited to two pages in
length for standalone investment advisers and four pages in length
for dual registrants in paper format (or equivalent in electronic
format). While we recognize that different firms may require
different numbers of hours to prepare and file the relationship
summary, we believe that a first year average of 20 hours for
investment advisers with relationship summary obligations is an
appropriate estimate for purposes of calculating an aggregate burden
for the industry, for purposes of the PRA analysis, particularly
given our experience with the burdens for Form ADV Parts 1 and 2.
    \1222\ We believe that much of the information required in the
relationship summary overlaps with that required by Form ADV Part 2
and therefore should be readily available to investment advisers
because of their existing disclosure obligations. Accordingly,
although these new requirements will cause an increase in the
information collected, the increased burden should largely be
attributable to data entry and not data collection.
    \1223\ 20.0 hours x 8,235 investment advisers = 164,700 total
aggregate initial hours.
---------------------------------------------------------------------------

    As with the Commission's prior Paperwork Reduction Act estimates
for Form ADV, we believe that most of the paperwork burden will be
incurred in advisers' initial preparation and filing of the
relationship summary, and that over time this burden will decrease
substantially because the paperwork burden will be limited to updating
information.\1224\ The estimated initial burden associated with
preparing and filing the relationship summary will be amortized over
the estimated period that advisers will use the relationship summary,
i.e., over a three-year period.\1225\ The annual hour burden of
preparing and filing the relationship summary will therefore be
54,900.\1226\ In addition, based on IARD system data, the Commission
estimates that 1,227 new investment advisers will file Form ADV with us
annually; of these, 656 will be required to prepare and file the
relationship summary.\1227\ Therefore, the aggregate initial burden for
newly registered advisers to prepare and file the relationship summary
will be 13,120 \1228\ and, amortized over three years, 4,373 on an
annual basis.\1229\ In sum, the annual hour burden for existing and
newly registered investment advisers to prepare and file a relationship
summary will be 59,273 hours,\1230\ or approximately 6.67 hours per
adviser,\1231\ for an annual monetized cost of $16,181,529, or $1,965
per adviser.\1232\
---------------------------------------------------------------------------

    \1224\ We discuss the burden for advisers making annual updating
amendments to Form ADV in Section V.A.2.c below.
    \1225\ See 2016 Form ADV Paperwork Reduction Analysis, supra
footnote 1209. Amortizing the 20 hour burden imposed by the
relationship summary over a three-year period will result in an
average annual burden of 6.67 hours per year for each of the 8,235
investment advisers with relationship summary obligations.
    \1226\ 20.0 hours x 8,235 investment advisers/3 = 54,900 total
annual aggregate hours.
    \1227\ The number of new investment advisers is calculated by
looking at the number of new advisers in 2017 and 2018 and then
determining the number each year that serviced retail investors.
(644 for 2017 + 668 for 2018)/2 = 656.
    \1228\ 656 new RIAs required to prepare relationship summary x
20.0 hours = 13,120 hours for new RIAs to prepare relationship
summary.
    \1229\ 656 x 20.0 hours/3 = 4,373.
    \1230\ (164,700 + 13,120)/3 years = 59,273 annual hour burden
for existing and new advisers to prepare and file relationship
summary.
    \1231\ 59,273 hours/(8,235 existing advisers + 656 new advisers)
= 6.67 hours per year.
    \1232\ 59,273 is the total aggregate initial hour burden for
preparing and filing a relationship summary. We believe that
performance of this function will most likely be equally allocated
between a senior compliance examiner and a compliance manager. Data
from the Securities Industry Financial Markets Association's
Management & Professional Earnings in the Securities Industry 2013
(``SIFMA Management and Professional Earnings Report''), modified by
Commission staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 (professionals) or 2.93 (office)
to account for bonuses, firm size, employee benefits, and overhead,
suggest that costs for these positions are $237 and $309 per hour,
respectively. (59,273 hours x 50% x $237) + (59,273 hours x 50% x
$309 = $16,181,529). $16,181,529/8,235 investment advisers = $1,965
per investment adviser. The SIFMA Management and Professional
Earnings Report was updated in 2019 to reflect inflation. The
numbers in the report are higher than the numbers we used in the
Proposing Release and, along with the higher hourly burden, result
in higher cost estimates in this release, relative to the proposal.
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b. Estimated External Costs for Investment Advisers Preparing the
Relationship Summary
    The currently approved total annual collection of information
burden estimate for Form ADV anticipates that there will be external
costs, including (i) a one-time initial cost for outside legal and
compliance consulting fees in connection with the initial preparation
of Part 2 of Form ADV, and (ii) the cost for investment advisers to
private funds to report the fair value of their private fund
assets.\1233\ We do not anticipate that the amendments to add a new
Part 3 will affect the per adviser cost burden for those existing
requirements but anticipate that some advisers may incur a one-time
initial cost for outside legal and consulting fees in connection with
the initial preparation of the relationship summary. We do not
anticipate external costs to investment advisers in the form of website
set-up, maintenance, or licensing fees because they will not be
required to establish a website for the sole purpose of posting their
relationship summary if they do not already have a website. We also do
not expect other ongoing external costs for the relationship summary.
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    \1233\ See 2016 Form ADV Paperwork Reduction Analysis, supra
footnote 1209, at 81 FR 60452. The estimated external costs of
outside legal and consulting services for the relationship summary
are in addition to the estimated hour burden discussed above.
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    In the Proposing Release, we estimated that an external service
provider would spend 3 hours helping an adviser prepare an initial
relationship summary. While we received no specific comments on our
estimate regarding external costs in the Proposing release, one
commenter suggested that there would be additional implementation costs
such as legal advice, but that these costs are difficult to
quantify.\1234\ Another argued that that the current burden estimates
for Form ADV did not take into consideration the time spent on learning
about the complexities of what is needed to comply with similar
requirements.\1235\ Based on the concerns expressed by these commenters
and the changes we are making to the relationship summary, we are
increasing the estimate relative to the proposal from 3 to 5 hours.
While we recognize that different firms may require different amounts
of external assistance in preparing the relationship summary, we
believe that this is an appropriate average number for estimating an
aggregate amount for the industry purposes of the PRA analysis,
particularly given our experience with the burdens for Form ADV.\1236\
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    \1234\ See NSCP Letter.
    \1235\ See Marotta Letter.
    \1236\ In estimating the external cost for the initial
preparation of Form ADV Part 2, we estimated that small, medium, and
large advisers would require 8, 11, and 26 hours of outside
assistance, respectively, to prepare Form ADV Part 2. See Brochure
Adopting Release, supra footnote 576, at 75 FR at 49257. In
comparison, as discussed above, the relationship summary is limited
to two pages in length for standalone investment advisers and four
pages in length for dual registrants in paper format (or equivalent
in electronic format).
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    Although advisers that will be subject to the relationship summary
requirement may vary widely in terms of the size, complexity, and
nature of their advisory business, we believe that the strict page
limits will make it unlikely that the amount of time, and thus cost,
required for outside legal and compliance review will vary
substantially among those advisers who elect to obtain outside
assistance.
    Most of the information required in the relationship summary is
readily available to investment advisers from Form ADV Part 2A, and the
narrative descriptions are concise, brief, and at a summary level. As a
result, we continue to anticipate, as discussed in the proposal, that
only 25% of investment advisers will seek the help of outside legal
services and 50% of investment advisers will seek the help of
compliance consulting services in connection with the initial
preparation of the relationship summary.\1237\ We estimate that the
initial per existing adviser cost for legal services related to

the preparation of the relationship summary will be $2,485.\1238\ We
estimate that the initial per existing adviser cost for compliance
consulting services related to the preparation of the relationship
summary will be $3,705.\1239\ Thus, the incremental external cost
burden for existing investment advisers is estimated to be $20,371,331,
or $6,790,444 annually when amortized over a three-year period.\1240\
In addition, we estimate that 1,227 new advisers will register with us
annually, 656 of which will be required to prepare a relationship
summary. For these 656 new advisers, we estimate that they will require
$1,622,780 in external costs to prepare the relationship summary, or
$540,927 amortized over three years.\1241\ In summary, the annual
external legal and compliance consulting cost for existing and new
advisers relating to obligations to prepare the relationship summary is
estimated to total $7,331,370, or $825 per adviser.\1242\
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    \1237\ See Proposing Release, supra footnote 5 at Section V.A.
We did not receive comments on these estimates. While we recognize
that the instructions have changed, we continue to believe that only
25% of advisers will seek help of outside legal services and 50% of
advisers will seek compliance consulting services, and that these
estimates are appropriate for purposes of the PRA analysis,
particularly given our experience with the external burdens for Form
ADV Parts 1 and 2.
    \1238\ External legal fees are in addition to the projected hour
per adviser burden discussed above. Data from the SIFMA Management
and Professional Earnings Report suggest that outside legal services
cost approximately $497 per hour. $497 per hour for legal services x
5 hours per adviser = $2,485. The hourly cost estimate of $497 is
based on an inflation-adjusted figure and our consultation with
advisers and law firms who regularly assist them in compliance
matters.
    \1239\ External compliance consulting fees are in addition to
the projected hour per adviser burden discussed above. Data from the
SIFMA Management and Professional Earnings Report, modified to
account for an 1,800-hour work year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits, and overhead, and
adjusted for inflation, suggest that outside management consulting
services cost approximately $741 per hour. $741 per hour for outside
consulting services x 5 hours per adviser = $3,705.
    \1240\ 25% x 8,235 existing advisers x $2,485 for legal services
= $5,115,994 for legal services. 50% x 8,235 existing advisers x
$3,705 for compliance consulting services = $15,255,338. $5,115,994
+ $15,255,338 = $20,371,331 in external legal and compliance
consulting costs for existing advisers. $20,371,333/3 = $6,790,444
annually.
    \1241\ 25% x 656 new advisers x $2,485 for legal services =
$407,540. 50% x 656 new advisers x $3,705 for compliance consulting
services = $1,215,240. $407,540 + $1,215,240 = $1,622,780 in
external legal and compliance consulting costs for new advisers.
$1,622,780/3 = $540,927.annually in external legal and compliance
consulting costs for newly registered advisers.
    \1242\ $6,790,444 in annual external legal and compliance
consulting costs for existing advisers + $540,927 annually for new
advisers = $7,331,370 annually for existing and new advisers.
$7,331,370/(8,235 existing advisers + 656 new advisers) = $825 per
adviser.
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c. Amendments to the Relationship Summary and Filing of Amendments
    The current approved information collection burden for Form ADV
also includes the hour burden associated with annual and other
amendments to Form ADV, among other requirements. In the Proposing
Release, we estimated that the relationship summary would increase the
annual burden associated with Form ADV by 0.5 hours \1243\ due to
amendments to the relationship summary, for those advisers required to
prepare and file a relationship summary. We did not receive comments
regarding hour burdens associated with preparing and filing amendments
to the relationship summary. As discussed in section II.C.4 above, in a
change from the proposal, we are adding a requirement that firms
preparing updated relationship summaries to existing clients also
highlight the most recent changes by, for example, marking the revised
text or including a summary of material changes.\1244\ To account for
this change, we are increasing the annual burden to 1 hour per year to
amend and file a relationship summary.\1245\
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    \1243\ We have previously estimated that investment advisers
would incur 0.5 hours to prepare an interim (other-than-annual)
amendment to Form ADV. See 2016 Form ADV Paperwork Reduction
Analysis, supra footnote 1209, at 81 FR at 60452.
    \1244\ Additionally, we are requiring that the additional
disclosure showing the revised text or summarizing the material
changes be attached as an exhibit to the unmarked relationship
summary.
    \1245\ We believe that the time estimated to prepare and file an
amendment to the relationship summary is closer to the amount of
time to prepare an interim-other-than-annual amendment to Form ADV.
See, e.g., Brochure Adopting Release, supra footnote 576, at 75 FR
at 49257.
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    We do not expect amendments to be frequent, but based on the
historical frequency of amendments made on Form ADV Parts 1 and 2, we
estimate that on average, each adviser preparing a relationship summary
will likely amend and file the disclosure an average of 1.71 times per
year.\1246\ We therefore estimate that for making and filing amendments
to their relationship summaries, advisers will incur an estimated total
paperwork burden of 14,082 hours per year,\1247\ or approximately 1.58
hours per adviser,\1248\ for an annual monetized cost of $3,844,386, or
$467 per adviser.\1249\
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    \1246\ Based on IARD data as of December 31, 2018, 8,235
investment advisers with retail clients filed 14,118 other-than-
annual amendments to Form ADV. 14,118 other-than-annual amendments/
8,235 investment advisers = 1.71 amendments per investment adviser.
We estimated in the Proposing Release that advisers with
relationship summary obligations will amend and file disclosures on
average of 1.8 times per year, based on IARD system data as of
December 31, 2017. See Proposing Release, supra footnote 5 at
Section V.A.
    \1247\ 8,235 investment advisers amending relationship summaries
x 1.71 amendments per year x 1 hour = 14,082 hours.
    \1248\ 14,082 hours/(8,235 existing advisers + 656 new advisers)
= 1.58 hours per year.
    \1249\ 14,082 is the total aggregate initial hour burden for
amending relationship summaries. We believe that performance of this
function will most likely be equally allocated between a senior
compliance examiner and a compliance manager. Data from the SIFMA
Management and Professional Earnings Report suggest that costs for
these positions are $237 and $309 per hour, respectively. (14,082
hours x 50% x $237 + 14,082 hours x 50% x $309 = $3,844,386.
$3,844,386/8,235 investment advisers = $467 per investment adviser.
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    Although advisers will be required to amend the relationship
summary within 30 days whenever any information becomes materially
inaccurate, we expect that amendments will require relatively minimal
wording changes, given the relationship summary's page limitation and
summary nature. We believe that investment advisers will be more
knowledgeable about the information to include in the amended
relationship summaries than outside legal or compliance consultants and
will be able to make these revisions in-house. Therefore, we do not
estimate that investment advisers will need to incur ongoing external