would result in an increase of two hours in the total hour burden
associated with Form ADV-H.\791\ We did not receive comments on our
estimates. We continue to estimate that exempt reporting advisers will
file approximately two responses to Form ADV-H annually, with each
response requiring an average of one hour, for an estimated annual
burden of two hours.\792\ However, as discussed above, the number of
registered advisers will decrease due to the Dodd-Frank Act's
amendments to sections 203A and 203(b)(3) from 11,500 to 9,750.\793\
Given the reduction in registered advisers, we estimate that Form ADV-H
will receive 10 annual responses from registered advisers.\794\ We
continue to estimate that Form ADV-H will require an average of one
hour to complete, and thus estimate that the total annual burden for
registered advisers to be 10 hours.\795\ Thus, the total burden
associated with Form ADV-H will increase one hour to 12 hours.\796\
---------------------------------------------------------------------------

    \790\ See Implementing Proposing Release, supra note 7, at
section V.F.
    \791\ See id.
    \792\ To estimate the currently approved total burden associated
with Form ADV-H, we estimated that registered advisers file
approximately 11 responses to Form ADV-H per year, which, given the
then-estimated 11,850 advisers registered with the Commission, meant
that approximately 1 response is filed per 1,000 advisers (11,850
registered advisers/11 responses = approximately 1 response per
1,000 registered advisers). We estimate that approximately 2,000
exempt reporting advisers will file reports on Form ADV in
accordance with rule 204-4. Thus, we estimate two responses to Form
ADV-H in accordance with rule 204-4 (2,000 exempt reporting advisers
x 1 response per 1,000 advisers = 2 responses).
    \793\ See supra note 655.
    \794\ 9,750 registered advisers x 1 response per 1,000 advisers
= 9.75 responses.
    \795\ 10 responses x 1 hour = 10 hours.
    \796\ The current approved burden is 11 hours. Our new estimate
is 10 hours for registered advisers + 2 hours for exempt reporting
advisers = 12 hours.
---------------------------------------------------------------------------

G. Rule 204-2

    Rule 204-2 (OMB Control No. 3235-0278) requires investment advisers
registered, or required to be registered under section 203 of the Act,
to keep certain books and records relating to their advisory
business.\797\ The collection of information under rule 204-2 is
necessary for the Commission staff to use in its examination and
oversight program, and the information is generally kept
confidential.\798\ The collection of information is mandatory.
---------------------------------------------------------------------------

    \797\ Rule 204-2.
    \798\ See section 210(b) of the Advisers Act.
---------------------------------------------------------------------------

    We are amending rule 204-2 to update the rule's ``grandfathering
provision'' for investment advisers that are currently exempt from
registration under the ``private adviser'' exemption, but will be
required to register after the Dodd-Frank Act eliminates the ``private
adviser'' exemption on July 21, 2011.\799\ Upon registration, these
advisers will become subject to the recordkeeping requirements of the
Act, including the requirement to keep certain records relating to
performance.\800\ The amendment clarifies that these advisers are not
obligated to keep certain performance-related records for any period
when they were not registered with the Commission; however, to the
extent that these advisers preserved these performance-related records
even though they were not required to keep them, they must continue to
preserve them.\801\ Most, if not all, advisers likely gather the
records and documents necessary to support the calculation of
performance or rate of return as those records or documents are
produced or at the time a calculation is made. Thus, we do not believe
that the amendment to the grandfathering provision will reduce our
current approved average annual hourly burden per adviser under rule
204-2.
---------------------------------------------------------------------------

    \799\ See amended rule 204-2(e)(3)(ii); section II.D.2.b. In
addition, we are amending rule 204-2(e)(3)(ii) to cross-reference
the new definition of ``private fund'' added to the Advisers Act by
the Dodd-Frank Act where that term is used in rule 204-2. This
amendment is technical and will not increase or decrease the
collection burden on advisers. We are also rescinding rule 204-2(l)
because that section was vacated by a Federal appeals court in
Goldstein.
    \800\ See amended rule 204-2(a)(16).
    \801\ See amended rule 204-2(e)(3)(ii) (stating, ``[i]f you are
an investment adviser that was, prior to July 21, 2011, exempt from
registration under section 203(b)(3) of the Act (15 U.S.C. 80b-
3(b)(3)), as in effect on July 20, 2011, [this rule] does not
require you to maintain or preserve books and records that would
otherwise be required to be maintained or preserved under [certain
sections of this rule] to the extent those books and records pertain
to the performance or rate of return of such private fund (as
defined in section 202(a)(29) of the Act (15 U.S.C. 80b-2(a)(29)),
or other account you advise for any period ended prior to your
registration, provided that you continue to preserve any books and
records in your possession that pertain to the performance or rate
of return of such private fund or other account for such period.''
(emphasis added)).
---------------------------------------------------------------------------

    Although we do not anticipate that our amendments to rule 204-2
will affect the per adviser burden imposed by the rule, the Dodd-Frank
Act's amendments to sections 203A and 203(b)(3) will change our
estimates of the total annual burden associated with the rule.\802\ The
current approved burden for rule 204-2 is based on an estimate of
11,658 registered advisers subject to rule 204-2 and an estimated
average burden of 181.45 burden hours each year per adviser, for a
total of 2,115,376 hours. We estimated in the Implementing Proposing
Release that the Dodd-Frank Act will reduce the number of registered
advisers to 9,150.\803\ We did not receive comments on these estimates.
However, based on updated IARD data, we now estimate that the Dodd-
Frank Act will reduce the number of registered advisers to 9,750.\804\
Thus, we estimate that the total burden under amended rule 204-

2 will be 1,769,138 hours,\805\ a reduction of 346,238 hours.\806\
---------------------------------------------------------------------------

    \802\ Exempt reporting advisers are not subject to rule 204-2,
and therefore there is no offsetting increase in the number of
advisers subject to the rule.
    \803\ See Implementing Proposing Release, supra note 7, at n.377
and accompanying text.
    \804\ See supra note 655 and accompanying text.
    \805\ 9,750 registered advisers x 181.45 hours = approximately
1,769,138.
    \806\ 2,115,376 hours-1,769,138 hours = 346,238 hours.
---------------------------------------------------------------------------

    The reduction in the number of advisers subject to the rule will
also reduce the total non-labor cost burden of the rule. The current
approved non-labor cost burden associated with rule 204-2 is
$34,965,063, or an average of approximately $3,000 per adviser.\807\
Due to the reduction in the number of advisers subject to rule 204-2,
we estimate that the new total non-labor cost burden will be
$29,250,000,\808\ a reduction of $5,715,063.\809\
---------------------------------------------------------------------------

    \807\ $34,965,063/11,658 advisers = approximately $3,000.
    \808\ 9,750 x $3,000 = $29,250,000.
    \809\ $34,965,063-$29,250,000 = $5,715,063.
---------------------------------------------------------------------------

VII. Final Regulatory Flexibility Analysis

    The Commission has prepared the following Final Regulatory
Flexibility Analysis (``FRFA''), in accordance with section 4(a) of the
Regulatory Flexibility Act, regarding the rules and rule amendments we
are adopting today to give effect to the Dodd-Frank Act's amendments to
the Advisers Act.\810\ It relates to new rules 203A-5 and 204-4,
amendments to rules 0-7, 203-1, 203A-1, 203A-2, 203A-3, 203A-4, 204-1,
204-2, 206(4)-5, 222-1, 222-2, and amendments to Form ADV, Form ADV-NR
and Form ADV-H under the Advisers Act.\811\ We prepared an Initial
Regulatory Flexibility Analysis (``IRFA'') in conjunction with the
Implementing Proposing Release in November 2010.\812\
---------------------------------------------------------------------------

    \810\ 5 U.S.C. 604(a).
    \811\ We note that the FRFA analysis associated with the
requirement that an accountant's report be filed electronically was
included in our adoption of substantive amendments to Form ADV-E.
Today, we are making only a technical amendment to Form ADV-E to
conform to that prior rulemaking. See 2009 Custody Release, supra
note 310, at section VI.
    \812\ See Implementing Proposing Release, supra note 7, at
section VI.
---------------------------------------------------------------------------

A. Need for and Objectives of the New Rules and Rule Amendments

    The new rules and rule amendments are necessary to give effect to
provisions of the Dodd-Frank Act which, among other things, amend
certain provisions of the Advisers Act, and to respond to a number of
other changes made by the Dodd-Frank Act, including the Commission's
pay to play rule. In addition, in light of our increased responsibility
for oversight of private funds, we are requiring advisers to those
funds to provide us with additional information about the operation of
those funds, which will permit us to better oversee those advisers by
focusing our examination and enforcement resources on those advisers to
private funds that appear to present greater compliance risks. We also
are requiring all registered advisers to provide us with additional
information on their operations to allow us to more efficiently
allocate our examination resources, to better prepare for on-site
examinations, and to provide us with a better understanding of the
investment advisory industry to assist our evaluation of the
implications of policy choices we must make in administering the
Advisers Act.
    Specifically, the new rules and rule amendments give effect to
provisions of Title IV of the Dodd-Frank Act that: (i) Reallocate
responsibility for oversight of investment advisers by delegating
generally to the states responsibility over certain mid-sized advisers;
(ii) repeal the ``private adviser'' exemption contained in section
203(b)(3) of the Advisers Act; and (iii) provide for reporting by
advisers to certain types of private funds that are exempt from
registration.\813\ New rule 203A-5 and amendments to rules 203A-1,
203A-2, 203A-3, and 203A-4 are intended to provide us a means of
identifying advisers that must transition to state regulation, clarify
the application of the new statutory provisions under the Dodd-Frank
Act, and extend certain of the exemptions we have adopted under section
203A of the Act to mid-sized advisers. Rule 203-1(e) is intended to
provide an orderly transition to registration for advisers that
previously relied on the ``private adviser'' exemption in section
203(b)(3) of the Advisers Act. New rule 204-4 and amendments to rule
204-1 are intended to require exempt reporting advisers to submit, and
to update periodically, reports to us by completing several items on
Form ADV. The amendments to rule 204-2 are intended to account for the
Dodd-Frank Act's elimination of the ``private adviser'' exemption under
section 203(b)(3) of the Advisers Act and its addition of a definition
of ``private fund'' to the Advisers Act.\814\ The amendments to Form
ADV will permit the form to serve as a reporting, as well as a
registration, form and to specify the seven items exempt reporting
advisers must complete. The amendments to Form ADV also will provide
additional information on the operations of registered investment
advisers. The amendments to Forms ADV-NR and ADV-H will revise the
forms for use by exempt reporting advisers. Additionally, we are
amending the Advisers Act pay to play rule, rule 206(4)-5, to make it
apply both to exempt reporting advisers and foreign private advisers,
thereby preventing the unintended narrowing of the application of the
rule resulting from the repeal of the ``private adviser''
exemption.\815\ Furthermore, we are amending the rule to add the new
``municipal advisor'' category of registrant created by the Dodd-Frank
Act to the categories of registered entities--referred to as
``regulated persons''--excepted from the rule's prohibition on advisers
paying third parties to solicit government entities.\816\
---------------------------------------------------------------------------

    \813\ See supra section I.
    \814\ See supra section II.D.2.b. As discussed above, we are
also rescinding rule 204-2(l), which was vacated by the Federal
appeals court in Goldstein.
    \815\ See amended rule 206(4)-5; supra section II.D.1.
    \816\ See id.
---------------------------------------------------------------------------

B. Significant Issues Raised by Public Comment

    In the Implementing Proposing Release, we requested comment on the
IRFA. In particular, we sought comment on the number of small entities,
particularly small advisers, to which the new rules and rule amendments
would apply and the effect on those entities, including whether the
effects would be economically significant. None of the comment letters
we received specifically addressed the IRFA. A couple of commenters
made specific comments about the proposed rule and rule amendments'
impact on smaller advisers, generally. In response to a question in the
Implementing Proposing Release, one commenter stated that a shortened
deadline, from 90 to 60 days, for filing an annual update to Form ADV
would be particularly burdensome on small advisers because they have
limited resources.\817\ As discussed above, in light of this and
similar concerns raised by other commenters, we are not adopting a
requirement to accelerate the annual updating amendment deadline.\818\
Another commenter asserted that we should retain the rule 203A-4 safe
harbor for state-registered advisers that have a reasonable belief that
they are prohibited from registration with the Commission as there has
been, and continues to be, confusion among small advisers in
calculating assets under management.\819\ We have not retained the safe
harbor, which, as we explain above, was designed for smaller advisory
businesses (with assets under management of less than $30 million)

that may not employ the same tools or otherwise have a need to
calculate assets as precisely as advisers with greater assets under
management.\820\ Moreover, such a safe harbor would no longer apply to
small advisers as it would be used, if at all, by advisers managing
close to the new $100 million threshold for SEC registration and not
the $30 million threshold that existed prior to the Dodd-Frank
amendments to the Advisers Act.
---------------------------------------------------------------------------

    \817\ Pickard Letter.
    \818\ See supra section II.C.7.
    \819\ NRS Letter.
    \820\ See supra section II.A.6.
---------------------------------------------------------------------------

C. Small Entities Subject to Rules and Rule Amendments

    In developing these new rules and rule amendments, we have
considered their potential impact on small entities to which they will
apply. The rules and rule amendments will affect all advisers
registered with the Commission and exempt reporting advisers, including
small entities. Under Commission rules, for the purposes of the
Advisers Act and the Regulatory Flexibility Act, an investment adviser
generally is a small entity if it: (i) Has assets under management
having a total value of less than $25 million; (ii) did not have total
assets of $5 million or more on the last day of its most recent fiscal
year; and (iii) does not control, is not controlled by, and is not
under common control with another investment adviser that has assets
under management of $25 million or more, or any person (other than a
natural person) that had total assets of $5 million or more on the last
day of its most recent fiscal year.\821\
---------------------------------------------------------------------------

    \821\ Rule 0-7(a) [17 CFR 275.0-7(a)].
---------------------------------------------------------------------------

    Our rule and form amendments will not affect most advisers that are
small entities (``small advisers'') because they are generally
registered with one or more state securities authorities and not with
us. Under section 203A of the Advisers Act, most small advisers are
prohibited from registering with the Commission and are regulated by
state regulators.\822\ We estimate that as of April 7, 2011,
approximately 570 advisers that were small advisers were registered
with the Commission.\823\ Because these advisers are registered, they
will be subject to new rule 203A-5 and amendments to rules 0-7, 203-1,
204-2, 203A-1, 203A-2, 203A-3, and 203A-4, and Forms ADV and ADV-NR. In
addition, we estimate that, due to the Dodd-Frank Act's elimination of
the ``private adviser'' exemption in section 203(b)(3), an additional
two small advisers will become subject to these rules.\824\ Further, as
a result of the amendments to rule 203A-2, we estimate that 15
additional multi-state small advisers will register with us and be
subject to these rules,\825\ and 18 pension consultants that are small
advisers will be required to withdraw from registration with us and
will no longer be subject to these rules.\826\ We estimate that four
exempt reporting advisers that are small advisers will be subject to
rule 204-4, and the amendments to rule 204-1, Form ADV, Form ADV-NR and
Form ADV-H to give effect to the Dodd-Frank Act's reporting
requirements by exempt reporting advisers.\827\ We also estimate that
four exempt reporting advisers that are small advisers will be subject
to the amendments to rule 206(4)-5. Finally, all investment advisers,
whether they are small advisers or not, will be subject to the
technical amendments to rules 222-1 and 222-2. The small advisers
subject to these amendments include approximately four exempt reporting
advisers and approximately 14,600 state-registered advisers.\828\
---------------------------------------------------------------------------

    \822\ See supra section II.A.7.a.
    \823\ Based on IARD data as of April 7, 2011, 572 advisers
registered with the Commission were small advisers. We have rounded
this number to 570 for purposes of this analysis.
    \824\ We believe that the only small advisers that would become
subject to registration as a result of the elimination of the
private adviser exemption in section 203(b)(3) would be advisers to
private funds that maintain their principal office and place of
business in Wyoming. Based on IARD data as of April 7, 2011, we
estimate that 28 SEC-registered small advisers are required to be
registered with us because they have a principal office and place of
business in Wyoming, which is 0.2% of all SEC-registered advisers
(28/11,500 SEC-registered advisers = approximately 0.2%). We
estimate that a similar proportion of the approximately 750 advisers
to private funds that will register with the Commission due to the
elimination of the private adviser exemption in section 203(b)(3)
would be Wyoming-based small advisers. As a result, we estimate that
approximately two small advisers to private funds will register with
the Commission (750 private fund advisers x 0.2% = approximately
two).
    \825\ See supra note 555.
    \826\ Based on IARD data as of April 7, 2011, 118 of the
advisers that would be considered small advisers rely on the pension
consultant exemption from registration. We estimate that
approximately 15%, or 18, of these advisers would no longer be
eligible to rely on the exemption as amended. This ratio is
consistent with our estimate for the PRA burden. See supra section
VI.E. and note 783.
    \827\ The only small adviser exempt reporting advisers that
would be subject to the rule and amendments would be exempt
reporting advisers that maintain their principal office and place of
business in Wyoming. The current practical effect of section
203A(a)(1) is to prohibit U.S. advisers with less than $25 million
in assets under management from registering with the Commission
unless they maintain their principal office or place of business in
Wyoming. See NSMIA Adopting Release, supra note 17, at section II.E.
Currently, all U.S. states except Wyoming require certain investment
advisers to register. See Transition Rule for Ohio Investment
Advisers, Investment Advisers Act Release No. 1794, n. 4 (Mar. 25,
1999) [64 FR 15680 (Apr. 1, 1999)]. New rule 204-4 requires an
adviser relying on an exemption under new sections 203(l) or (m) of
the Advisers Act to complete and file reports on Form ADV. See new
rule 204-4; supra section II.B.1. The exemptions from registration
in sections 203(l) and (m) apply to advisers solely to venture
capital funds and advisers solely to private funds with less than
$150 million in assets under management, respectively. Small
Wyoming-based advisers to venture capital funds or private funds may
be required to register with the Commission but for the exemptions
in section 203(l) or (m). Thus, these advisers would be subject to
rule 204-4 and the amendments to rule 204-1, Form ADV, and Form ADV-
H to give effect to the Dodd-Frank Act's mandate for reporting by
exempt reporting advisers. Assuming that the proportion of
registered Wyoming-based small advisers to registered advisers is
similar to the proportion of small Wyoming-based exempt reporting
advisers to exempt reporting advisers generally, we estimate that
approximately four exempt reporting advisers that are small advisers
would be subject to rule 204-4 and the amendments to rule 204-1,
Form ADV, and Form ADV-H (2,000 exempt reporting advisers x 0.2% =
four small Wyoming-based exempt reporting advisers).
    \828\ Based on IARD data as of January 1, 2011, we estimate that
there were approximately 14,600 state-registered advisers. Because
section 203A currently precludes most advisers with less than $25
million in assets under management from registering with the
Commission, we assume that nearly all of the 14,600 state-registered
advisers are small advisers. Therefore, 14,600 small advisers
(registered with the states as of January 1, 2011) + 18 small
advisers (registering with the states due to the amendment to the
pension consultant exemption in rule 203A-2(b))-2 small advisers
(registering with the Commission due to elimination of the private
adviser exemption in section 203(b)(3))-15 small advisers (de-
registering with the states and registering with the Commission due
to the amendment to the multi-state adviser exemption in rule 203A-
2(e)) = approximately 14,600 state-registered advisers that are
small advisers.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    The rules and rule amendments we are adopting today impose certain
reporting, recordkeeping, and compliance requirements on advisers,
including small advisers. The rules and amendments require all of the
small advisers registered with us to file an amended Form ADV, require
some to file Form ADV-W, and require some to file reports as exempt
reporting advisers. The amendments also cause the advisers to be
subject to the existing recordkeeping and compliance requirements for
SEC-registered advisers. These requirements and the burdens on small
advisers are discussed below.\829\
---------------------------------------------------------------------------

    \829\ Supra sections I. through II. describe these requirements
in more detail.
---------------------------------------------------------------------------

Transition to State Registration
    Rule 203A-5 imposes costs on all investment advisers, including
small advisers, by requiring each investment adviser registered with us
on January 1, 2012 to file an amendment to its Form ADV no later than
March 30, 2012, and withdraw from Commission registration by June 28,
2012, if no longer eligible.\830\

We estimate that all of the 570 small advisers currently registered
with the Commission will file Form ADV, but none will withdraw
registration because the Dodd-Frank Act does not change the eligibility
requirements for small advisers registered with us since they already
rely on one or more of the exemptions from the prohibition on
registration.\831\
---------------------------------------------------------------------------

    \830\ New rule 203A-5(b)-(c). See supra section II.A.1.
    \831\ See section 410 of the Dodd-Frank Act; rule 203A-2.
---------------------------------------------------------------------------

Switching Between State and Commission Registration
    The amendments to rule 203A-1 eliminate the $5 million buffer in
current rule 203A-1(a), which permits an adviser to register with the
Commission if the adviser has between $25 million and $30 million of
assets under management, and replaces it with a similar buffer for mid-
sized advisers with assets under management of close to $100
million.\832\ By definition, a small adviser under the Advisers Act has
less than $25 million in assets under management; as such, these
amendments should have no impact on small advisers.\833\
---------------------------------------------------------------------------

    \832\ See amended rule 203A-1; supra section II.A.4.
    \833\ See rule 0-7(a)(1).
---------------------------------------------------------------------------

Exemptions From the Prohibition on Registration With the Commission
    The amendments we are adopting to two of the three exemptions from
the prohibition on registration in rule 203A-2 will cause small
advisers to be subject to new reporting, recordkeeping, and other
compliance requirements.\834\ The amendment to the exemption from the
prohibition on registration available to pension consultants in rule
203A-2(b) will increase the minimum value of plan assets on which an
adviser must consult from $50 million to $200 million.\835\ We estimate
that this may cause approximately 18 small adviser pension consultants
to be required to withdraw from registration with us by filing Form
ADV-W and thus no longer be subject to Commission rules.\836\ These
advisers will likely need to register with one or more states, and
comply with the states' recordkeeping and other regulatory
requirements. These additional costs will have a negative impact on
competition for these advisers compared to pension consultants with
more than $200 million of plan assets that will remain registered with
the Commission.
---------------------------------------------------------------------------

    \834\ See amended rule 203A-2; supra section II.A.5. The
elimination of the exemption from the prohibition on Commission
registration for NRSROs in rule 203A-2(a) will not affect small
advisers because, based on IARD data as of April 7, 2011, none of
the advisers registered with us relies on the exemption.
    \835\ We also are renumbering the rule as rule 203A-2(a). See
amended rule 203A-2(a); supra section II.A.5.b.
    \836\ See supra note 826 and accompanying text.
---------------------------------------------------------------------------

    The amendment to the multi-state adviser exemption in rule 203A-
2(e) will permit all investment advisers who are required to register
as an investment adviser with 15 or more states to register with the
Commission, rather than 30 states, as currently required.\837\ An
adviser relying on this exemption will continue to report certain
information on Form ADV \838\ and maintain a record of the states in
which the investment adviser has determined it would, but for the
exemption, be required to register. This will promote competition by
making the standards for the multi-state exemption consistent for small
and mid-sized advisers. We estimate that, in addition to the
approximately 19 small advisers that rely on the exemption
currently,\839\ approximately 15 will begin relying on the exemption,
as amended.\840\ Advisers newly relying on the amended exemption will
incur costs associated with completing and filing Form ADV for purposes
of registration with the Commission, and all of the advisers relying on
the exemption will incur the costs associated with keeping records
sufficient to demonstrate that they would be required to register with
15 or more states. In addition, these advisers will incur costs of
complying with the Advisers Act and our rules, but they may see an
absolute reduction in compliance costs by registering with the
Commission instead of 15 or more states.\841\
---------------------------------------------------------------------------

    \837\ We also are renumbering the rule as rule 203A-2(d). See
amended rule 203A-2(d); supra section II.A.5.c.
    \838\ Advisers will be required to: (i) include a representation
on Schedule D of Form ADV that the investment adviser has concluded
that it must register as an investment adviser with 15 or more
states; and (ii) undertake to withdraw from registration with the
Commission if the adviser indicates on an annual updating amendment
to Form ADV that the investment adviser would be required by the
laws of fewer than 15 states to register as an investment adviser
with those states. See amended rule 203A-2(d)(2).
    \839\ Based on IARD data as of April 7, 2011, 19 advisers
checked Item 12 of Part 1A of Form ADV to indicate that they are
small advisers and checked Item 2.A.(9) to indicate their basis for
SEC registration under the multi-state rule.
    \840\ See supra note 555.
    \841\ See supra section II.A.5.c., note 543 and accompanying
text.
---------------------------------------------------------------------------

Elimination of Safe Harbor
    Eliminating rule 203A-4, which has provided a safe harbor from
Commission registration for an investment adviser that is registered
with state securities authorities based on a reasonable belief that it
is prohibited from registering with the Commission because it does not
have at least $30 million of assets under management, will not create
new requirements for small advisers.\842\ These advisers will not have
at least $30 million of assets under management, and advisers have not,
in our experience, relied on this safe harbor.
---------------------------------------------------------------------------

    \842\ Rule 203A-4. See supra section II.A.6.
---------------------------------------------------------------------------

Mid-Sized Advisers
    Providing in instructions to Form ADV an explanation of whether a
mid-sized adviser is ``required to be registered'' or is ``subject to
examination'' by a particular state securities authority for purposes
of section 203A(a)(2)'s prohibition on mid-sized advisers from
registering with the Commission will not create new reporting
requirements for small advisers.\843\ The mid-sized adviser
requirements will only apply to advisers with assets under management
between $25 million and $100 million and therefore will not apply to
small advisers.
---------------------------------------------------------------------------

    \843\ See amended Form ADV: Instructions for Part 1A, instr.
2.b.; supra section II.A.7.
---------------------------------------------------------------------------

Exempt Reporting Advisers
    Rule 204-4 and the amendments to rules 204-1, Form ADV, and Form
ADV-H require exempt reporting advisers to file reports with the
Commission electronically on Form ADV and impose reporting requirements
on an estimated four small advisers.\844\ As discussed above, we
estimate that completing and filing Form ADV will cost $2,032 for each
exempt reporting adviser.\845\ In addition, small exempt reporting
advisers would be required to pay an estimated filing fee of $225
annually,\846\ for a total of $900 for the estimated four small exempt
reporting advisers.\847\ Finally, under rule 204-4 exempt reporting
advisers that seek a temporary hardship exemption from electronic
filing must complete and file Form ADV-H.\848\ To the extent any of the
four small exempt reporting advisers file Form ADV-H, we have estimated
that it would require one burden hour at a total cost of $189.\849\
---------------------------------------------------------------------------

    \844\ See supra section II.B. and note 827.
    \845\ See supra note 579 and accompanying text. $4,064,000/2,000
= $2,032.
    \846\ See supra notes 567-568 and accompanying text (discussing
the potential filing fee).
    \847\ $225 x 4 small exempt reporting advisers = $900.
    \848\ New rule 204-4(e).
    \849\ See supra note 596 and accompanying text.
---------------------------------------------------------------------------

Amendments to Form ADV
    The amendments to Form ADV that we are adopting today will require
registered advisers to report information

that is different from, or in addition to, what is currently required.
Approximately 570 currently registered small advisers, and two small
advisers currently relying on the private adviser exemption that we
expect will register with us, will be subject to these
requirements.\850\ We expect these 570 advisers will spend, on average,
4.5 hours to respond to the new and amended questions on Form ADV,
other than the private fund reporting requirements.\851\ We expect the
aggregate cost associated with this process will be $651,511.\852\ The
two anticipated newly registering advisers will spend, in the
aggregate, about 101 hours total to complete the form (Part 1 except
for the private fund reporting requirements, and Part 2) as well as to
amend the form periodically, to prepare brochure supplements, and to
deliver codes of ethics to clients,\853\ for a total cost of
$25,655.\854\ In addition, of these approximately 572 registered
advisers, we estimate that 50 advise one or more private funds and will
have to complete the private fund reporting requirements we are
adopting today.\855\ We expect this will take 150 hours,\856\ in the
aggregate, for a total cost of $38,100.\857\ The total estimated labor
costs associated with our Form ADV amendments that we expect will be
borne by small advisers, therefore, are $715,266. Additionally, we
estimate that one of the newly registering advisers will use outside
legal services to assist them in preparing their Part 2 brochure, for a
total non-labor cost of $3,200.\858\
---------------------------------------------------------------------------

    \850\ See supra notes 823 and 824 and accompanying text.
    \851\ See supra text preceding note 679. We are calculating
costs only of the increased burden because we have previously
assessed the costs of the other items of Form ADV for registered
advisers and for new advisers attributed to annual growth. The
amendments to Form ADV increase neither the burden associated with
these items on Form ADV, nor the external costs associated with
certain Part 2 requirements.
    \852\ We expect that the 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 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, suggest that costs for these positions are
$235 and $273 per hour, respectively. 570 advisers x 4.5 hours =
2,565 hours. (1,282.5 hours x $235 = $301,388) + (1,282.5 hours x
$273 = $350,123) = $651,511.
    \853\ 2 advisers x (40.74 hours per adviser to complete entire
form (except private fund reporting requirements)) + (1 annual
updating amendment x 6.0 hours) + (1 interim updating amendment per
year x 0.5 hours) + (1 hour on new brochure supplements) + (1 hour
on interim amendments to brochure supplements) + (1.3 hours
delivering codes of ethics to clients)) = 101 hours. See supra notes
679, 709, 710 and accompanying text.
    \854\ (50.5 hours x $235 = $11,868) + (50.5 hours x $273 =
$13,787) = $25,655. As noted above, we expect that the performance
of this function will most likely be equally allocated between a
senior compliance examiner and a compliance manager. See supra note
618.
    \855\ Based on IARD data as of April 7, 2011. Form ADV currently
asks an adviser to report about investment-related partnerships and
limited liability companies advised by the adviser and its related
persons. As a result, the data we have obtained from IARD over-
estimates the average number of funds as a result of reporting of
the same fund multiple times by affiliated registered advisers. We
note the decrease in the estimated number of small advisers to
private funds in the Implementing Proposing Release is primarily
attributable to an increase in these advisers' assets under
management, rendering them no longer ``small'' for purposes of FRFA.
See Implementing Proposing Release, supra note 7 at n.516 and
accompanying text.
    \856\ We expect these advisers are likely to advise 3 funds
each. See text accompanying note 698. We estimated above that
private fund reporting would take an adviser approximately 1 hour
per fund to complete. 50 advisers x 3 hours = 150 hours.
    \857\ (75 hours x $235 = $17,625) + (75 hours x $273 = $20,475)
= $38,100. As noted above, we expect that the performance of this
function will most likely be equally allocated between a senior
compliance examiner and a compliance manager. See supra note 522.
    \858\ The currently approved burden associated with Form ADV
already accounts for similar estimated costs to be incurred by
current registrants. The non-labor costs for Form ADV are based on
an estimate that 50% of small advisers will retain either legal
services (at $3,200) or compliance consulting services (at $3,000)
to assist in the preparation of Form ADV. See supra notes 668 and
669 and accompanying text.
---------------------------------------------------------------------------

Amendments To Pay To Play Rule
    Our amendment to the pay to play rule to make it apply to exempt
reporting advisers and foreign private advisers will not create new
reporting, recordkeeping, or other compliance requirements for these
advisers.\859\ Rather, we are adopting this amendment to assure that
the rule continues to apply to these advisers and to prevent the
unintended narrowing of the rule.\860\ Our amendment to the pay to play
rule to add registered municipal advisors to the definition of
``regulated persons'' (i.e., those excepted from the rule's ban on
third-party solicitation) may create new recordkeeping and compliance
requirements on investment advisers that are small advisers subject to
the rule to the extent that they have to verify and document that
persons that they hire to solicit government entities are indeed
registered municipal advisors, if these solicitors do not otherwise
meet the ``regulated person'' definition.\861\
---------------------------------------------------------------------------

    \859\ See supra section II.D.1 (discussing this amendment).
    \860\ See id.
    \861\ See id.
---------------------------------------------------------------------------

Other Amendments
    Our amendments to rule 204-2's grandfathering provision are meant
to assure that private fund advisers that are required to register as a
result of the Dodd-Frank Act's elimination of the private fund
exemption in section 203(b)(3) will not face a retroactively imposed
recordkeeping requirement.\862\ We are also making a technical
amendment to rule 204-2(e)(3)(ii) to a cross-reference to the new
definition of a private fund in section 202(a)(29) of the Advisers
Act.\863\ These amendments will not create reporting, recordkeeping,
and other compliance requirements for small advisers independent of the
reporting, recordkeeping, and other compliance requirements imposed by
current rule 204-2.\864\
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    \862\ See supra section II.D.2.b.
    \863\ See id.
    \864\ The Dodd-Frank Act's removal of the private adviser
exemption in section 203(b)(3) may require additional small advisers
to register with the Commission. Therefore, these small advisers
would become subject to rule 204-2 with its reporting,
recordkeeping, and other compliance burdens. However, subjecting
these entities to rule 204-2 is a function of the Dodd-Frank Act's
removal of the private adviser exemption in section 203(b)(3), not
our amendments to rule 204-2.
---------------------------------------------------------------------------

    We do not believe that our technical amendments to rules 0-7 and
222-1 will impose reporting, recordkeeping, and other compliance
requirements on small advisers. Our amendment to rule 203-1 will not
impose reporting, recordkeeping, and other compliance requirements on
small advisers. Rather, it delays reporting, recordkeeping, and other
compliance requirements on such advisers to the extent that they
currently rely on the ``private adviser'' exemption in section
203(b)(3).\865\ Because our amendments to rule 222-2 will require
advisers to count clients from whom they do not receive compensation
for purposes of the national de minimis standard, some small advisers
may be required to register with one or more states, and comply with
the states' recordkeeping and other regulatory requirements.\866\
---------------------------------------------------------------------------

    \865\ See supra section III.B.2.
    \866\ See supra section II.D.2.e (discussing the amendments to
rule 222-2).
---------------------------------------------------------------------------

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs the Commission to consider
significant alternatives that would accomplish the stated objective,
while minimizing any significant adverse impact on small advisers. In
considering whether to adopt the new rules and rule amendments, the
Commission considered the following alternatives: (i) the establishment
of differing compliance or reporting requirements or timetables that
take into account the resources available to small advisers; (ii)

the clarification, consolidation, or simplification of compliance and
reporting requirements under the rules for such small advisers; (iii)
the use of performance rather than design standards; and (iv) an
exemption from coverage of the rules, or any part thereof, for such
small advisers.
    Regarding the first and fourth alternatives, we do not believe that
differing compliance or reporting requirements or an exemption from
coverage of the new rules or rule amendments, or any part thereof, for
small advisers would be appropriate or consistent with investor
protection or with Congress's mandate in the Dodd-Frank Act, to the
extent the new rule or amendment is being adopted due to a
Congressional mandate. Because the protections of the Advisers Act are
intended to apply equally to clients of both large and small advisory
firms, it would be inconsistent with the purposes of the Act to specify
different requirements for small advisers under the new rules and
amendments unless expressly required to do so by Congress.
    Regarding the second alternative, rule 203A-5 will enable small
advisers to easily and efficiently identify whether they are subject to
our regulatory authority after the Dodd-Frank Act's amendment to
section 203A becomes effective, and will also help minimize any
potential uncertainty about the effects of the Dodd-Frank Act on their
registration status by providing a simple, efficient means of
determining their post-Dodd-Frank registration status as of a specific
date. The amendments to rule 203A-1 eliminate the $5 million buffer
because it seems unnecessary in light of Congress's determination
generally to require most advisers having between $30 million and $100
million of assets under management to be registered with the
states,\867\ and makes the registration requirements for advisers with
assets under management between $25 million and $30 million uniform
with the requirements for advisers with assets under management between
$30 million and $100 million. The buffer for advisers with close to
$100 million of assets under management will prevent advisers from
frequently having to switch to and from Commission registration due to
market fluctuations and will eliminate the additional associated costs
they would therefore incur.\868\ Amending the multi-state adviser
exemption in rule 203A-2(e) also will consolidate and simplify
compliance for small advisers by aligning the rule with the multi-state
exemption Congress built into the mid-sized adviser provision under
section 410 of the Dodd-Frank Act and by requiring one standard for
advisers relying on the exemption.\869\ This amendment also will reduce
the compliance burdens on advisers required to be registered with at
least 15 states, but less than 30, by allowing them to register with a
single securities regulator--the Commission. Furthermore, requiring the
use of an existing form, Form ADV, and an existing filing system, the
IARD, for reporting and registration purposes will clarify and simplify
the processes of registering and/or reporting for small advisers
because: (i) All of the information collection requirements for both
registration and reporting will be consolidated in a single form; (ii)
a small exempt reporting adviser will be able to use the same form and
filing system both for reporting and for purposes of registering with
one or more state securities authorities; and (iii) a small exempt
reporting adviser may find that it can no longer rely on an exemption
from registration with the Commission and will be able to register
simply by filing an amendment to its current Form ADV to apply for
registration.\870\
---------------------------------------------------------------------------

    \867\ See supra note 426 and accompanying text.
    \868\ See supra note 427 and accompanying text.
    \869\ See amended rule 203A-2(d); supra section V.A.1. Under
rule 203A-2(e), the prohibition on registration with the Commission
does not apply to an investment adviser that is required to register
with 30 or more states. Once registered with the Commission, the
adviser remains eligible for Commission registration as long as it
would be obligated, absent the exemption, to register with at least
25 states. We are amending rule 203A-2(e) to permit all investment
advisers required to register as an investment adviser with 15 or
more states to register with the Commission.
    \870\ See supra section II.C.
---------------------------------------------------------------------------

    Regarding the third alternative, we do not consider using
performance rather than design standards to be consistent with
Congress's mandate in the Dodd-Frank Act.

VIII. Effects on Competition, Efficiency and Capital Formation

    The Commission is adopting certain new rules and amending others
pursuant to its authority under sections 204(a) and 206A of the
Advisers Act,\871\ and sections 23(a) and 28(e)(2) of the Exchange
Act.\872\ Section 204(a) of the Advisers Act and section 28(e)(2) of
the Exchange Act require the Commission, when engaging in rulemaking
under the authority provided in those sections, to consider whether the
rule is ``necessary or appropriate in the public interest or for the
protection of investors.'' \873\ Section 202(c) of the Advisers Act
requires that whenever the Commission is engaged in rulemaking and is
required, pursuant to the Advisers Act, to consider or determine
whether an action is necessary or appropriate in the public interest,
the Commission must also consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.\874\ Section 3(f) of the Exchange Act imposes the
same requirements on the Commission's Exchange Act rulemakings.\875\
Section 23(a) of the Exchange Act requires the Commission, in adopting
rules under the Exchange Act, to consider the impact that any new rule
would have on competition, and prohibits the Commission from adopting
any rule that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\876\
---------------------------------------------------------------------------

    \871\ 15 U.S.C. 80b-4(a), 80b-6A.
    \872\ 15 U.S.C. 78w(a) and 78bb(e)(2).
    \873\ 15 U.S.C. 80b-4(a) and 78bb(e)(2).
    \874\ 15 U.S.C. 80b-2(c).
    \875\ 15 U.S.C. 78c(f).
    \876\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission is adopting rule 204-4 and amending rules 203-1,
204-1, and 204-2 and Forms ADV, ADV-NR, and ADV-H.\877\ The new rule
and rule amendments are designed to give effect to provisions of Title
IV of the Dodd-Frank Act.\878\ We are adopting new rule 204-4 to
require exempt reporting advisers to file reports with the Commission
electronically on Form ADV.\879\ We are adopting amendments to Form ADV
to improve our risk-assessment capabilities and so that it can serve
the dual purpose of an SEC reporting form for exempt reporting advisers
and, as it is used today, a registration form for both state and SEC-
registered firms.\880\ In addition to requiring that exempt reporting
advisers use Form ADV, rule 204-4 will require these advisers to submit
reports through

the IARD and to pay a filing fee.\881\ We are also amending rule 204-1,
which addresses when and how advisers must amend their Form ADV, to add
a requirement that exempt reporting advisers file updating amendments
to reports filed on Form ADV.\882\ Finally, we are amending rule 203-1
to allow an adviser that was relying on, and was permitted to rely on,
the ``private adviser'' exemption in section 203(b)(3) on July 20,
2011, to delay registering with the Commission until March 30,
2012.\883\
---------------------------------------------------------------------------

    \877\ In contrast, we are adopting new rule 203A-5 and
amendments to rules 203A-1, 203A-2, 203A-3, and 203A-4 pursuant to
our authority set forth in sections 203A(a)(2), 203A(c) and 211(a),
amendments to rules 0-7, 222-1, and 222-2 pursuant to our authority
set forth in section 211(a), and amendments to rule 206(4)-5
pursuant to our authority set forth in sections 206(4) and 211(a).
For a discussion of the effects of this new rule and rule amendments
on competition, efficiency, and capital formation, see supra
sections V., VI., and VII. We note that our analysis of the effects
on competition, efficiency, and capital formation associated with
the requirement that an accountant's report be filed electronically
was included in our adoption of substantive amendments to that form.
Today, we are making only a technical amendment to Form ADV-E to
conform to that prior rulemaking. See 2009 Custody Release, supra
note 310 at section VII.
    \878\ For a discussion of the overall objectives of our rules
and rule amendments, see supra section I.
    \879\ New rule 204-4. See supra section II.B.1.
    \880\ See supra sections II.B. and II.C.
    \881\ New rule 204-4(b). New rule 204-4(e) also allows exempt
reporting advisers having unanticipated technical difficulties that
prevent submission of a filing to the IARD system to request a
temporary hardship exemption from electronic filing requirements by
filing Form ADV-H. We are also adopting technical amendments to Form
ADV-H for this purpose.
    \882\ See amended rule 204-1; supra section II.B.3.
    \883\ See amended rule 203-1(e); supra section III.B.2.
---------------------------------------------------------------------------

    In the Implementing Proposing Release, we solicited comment on
whether the proposed rule and rule amendments would, if adopted,
promote efficiency, competition, and capital formation. We further
encouraged commenters to provide empirical data to support their views.
We did not receive any empirical data in this regard concerning the
proposed amendments. We received some comments, addressing competition
and efficiency generally, which are addressed below.

A. Exempt Reporting Adviser Reporting Requirements

    The Dodd-Frank Act provides for the Commission to require reporting
by exempt reporting advisers, but it does not indicate the information
we should collect or the filing method by which it should be collected.
Our choices, in adopting rule 204-4 to require these advisers to
complete a subset of items contained in Form ADV and to file through
the IARD, and in amending rule 204-1 to impose periodic updating
requirements of those filings, will impose costs on exempt reporting
advisers.\884\ However, as we asserted in the Implementing Proposing
Release, our choices also will create efficiencies that benefit both us
and filers by taking advantage of an established and proven adviser
filing system and avoiding the expense and delay of developing a new
form and filing system. Commenters widely agreed with us,\885\ with one
stating that, in its view, there is ``no reason to create a new form or
filing system when the existing ones have been designed for use by
advisers and are suitable for that purpose.'' \886\ In addition,
because an exempt reporting adviser may be required to register on Form
ADV with one or more state securities authorities, use of the existing
form and filing system (which is shared with the states) should reduce
regulatory burdens for them because they can satisfy multiple filing
obligations through a uniform reporting instrument.\887\ Several
commenters agreed and also expressed the view that use of Form ADV and
the IARD for exempt reporting advisers would be efficient, because the
system is familiar to many advisers.\888\ Similarly, commenters agreed
with our expectation that regulatory burdens would be diminished for an
exempt reporting adviser that later finds it can no longer rely on an
exemption and would be required to register with us because the adviser
would simply file an amendment to its current Form ADV to apply for
Commission registration.\889\ Finally, certain items in Form ADV Part 1
are also linked to Form BD, which would create efficiencies if the
exempt reporting adviser were to apply for broker-dealer registration.
---------------------------------------------------------------------------

    \884\ For a discussion of the costs of the reporting obligations
we are applying to exempt reporting advisers, see section V.B.2.
    \885\ Two commenters urged that we create a separate reporting
system. Merkl Implementing Letter; Seward Letter. See also Shearman
Letter (making arguments regarding the potential for investor
confusion, but not advocating use of a different form or reporting
system). However, as we stated above, the expense and delay of
developing a system with adequate functionality, which neither
commenter addressed, argues against these commenters'
recommendations for a new form and electronic filing system. See
supra section II.B.1.
    \886\ ABA Committees Letter. See also AFL-CIO Letter; NRS
Letter; Better Markets Letter; NASAA Letter; ABA Committees Letter.
We anticipate that the IARD's ability to pre-populate prior
responses and allow drop-down boxes for common responses will also
save time for advisers.
    \887\ See supra note 170 and accompanying text.
    \888\ See Better Markets Letter; NRS Letter; NASAA Letter.
Responding to our request for comment regarding the possible use of
EDGAR in place of the IARD, one commenter argued that ``[s]uch an
approach would be confusing and burdensome for any adviser that
transitions between [exempt reporting adviser] and Commission-
registered status.'' ABA Committees Letter.
    \889\ See ABA Committees Letter; Better Markets Letter; NRS
Letter; NASAA Letter. Form ADV, as amended, permits an adviser to
transition from filing reports with us to applying for registration
under the Act by simply amending its Form ADV; the adviser would
check the box to indicate it is filing an initial application for
registration, complete the items it did not have to answer as an
exempt reporting adviser, and update the pre-populated items that it
already has on file. See amended Form ADV: General Instruction 15
(providing procedural guidance to advisers that no longer meet the
definition of exempt reporting adviser).
---------------------------------------------------------------------------

    Using Form ADV and the IARD also will enable investors to access
information on our Web site that may have previously been unavailable
or not easily attainable, such as whether a prospective exempt
reporting adviser has reported disciplinary events and whether its
relationships with affiliates present conflicts of interest or
potential efficiencies. Indeed, commenters indicated that an investor
would be better able to perform due diligence if the information was
made available to the public,\890\ and could make an informed decision
regarding the integrity of a prospective adviser if he or she were able
to review the disciplinary history of the exempt reporting adviser and
its employees.\891\ As we asserted in the Implementing Proposing
Release, public access to this information, which may previously have
been undisclosed, may promote competition to the extent that it will
allow private fund investors to make informed decisions about these
advisers, avoiding the burdens and costs associated with selling
private funds to switch advisers at a later date, and thereby
potentially creating efficiency gains in the marketplace and enhancing
allocative efficiency of client assets among investment advisers.\892\
The availability of disciplinary information, in particular, about
these advisers and their supervised persons may also enhance
competition if, for example, firms and personnel with better
disciplinary records outcompete those with worse records. Greater
competition among advisers may, in turn, benefit clients. Access to the
information we are requiring exempt reporting advisers to report may
also increase clients' and prospective clients' trust in investment
advisers, which may encourage them to seek professional investment
advice and encourage them to invest their financial assets. This may
enhance capital formation by making more assets available for
investment and enhancing the allocation of capital generally.
---------------------------------------------------------------------------

    \890\ Merkl Implementing Letter.
    \891\ CII Letter.
    \892\ See Implementing Proposing Release, supra note 7, at
section VII.A.
---------------------------------------------------------------------------

    Several commenters, however, stated that public availability of the
information we proposed to be reported would impose costs on advisers
(and in some cases their supervised persons or owners) including the
potential loss of business to competitors, as the information was not
typically made available to others previously and may not be required
of unregistered competitors.\893\ Some commenters

expressed concerns that some of the information we proposed to require
also could include proprietary or competitively sensitive information
regarding private funds.\894\ We have responded to some of these
concerns by declining to adopt certain questions that commenters
suggested could require particularly proprietary or competitively
sensitive information, such as certain data about beneficial
owners.\895\ Nonetheless, as discussed above in greater detail, based
on section 210 of the Act, which presumes reports submitted to us by
advisers will be publicly available, together with the Freedom of
Information Act, which generally supports disclosure of such documents,
we decline to deny the public access to all of this information at this
time.\896\
---------------------------------------------------------------------------

    \893\ See BCLBE Letter; NRS Letter; Seward Letter (claiming that
the reporting may be valuable to the Commission, but making the
information publicly available would provide little benefit to
investors, and asserting that the benefits were insufficient to
justify the costs).
    \894\ See, e.g., MFA Letter; NVCA Letter; O'Melveny Letter.
Another commenter, however, refuted these competitive concerns,
stating that none of the items that exempt reporting advisers would
complete would require the disclosure of proprietary or
competitively sensitive information. Merkl Implementing Letter.
    \895\ See supra notes 245-247 and accompanying text.
    \896\ See supra section II.B.3.
---------------------------------------------------------------------------

    Finally, to the extent that the information we collect and the
filing method by which we collect it impose costs on exempt reporting
advisers that are then passed on to clients, this may deter clients
from seeking professional investment advice and investing their
financial assets. As we acknowledged in the Implementing Proposing
Release, this may result in inefficiencies in the market for advisory
services and hinder capital formation.\897\
---------------------------------------------------------------------------

    \897\ See Implementing Proposing Release, supra note 7, at
section VII.A.
---------------------------------------------------------------------------

B. Risk-Assessment Amendments to Form ADV

    The amendments to Form ADV we are adopting today are designed to
improve advisers' disclosure of their business practices (particularly
those relating to advising private funds), non-advisory activities,
financial industry affiliations, and conflicts of interest. Private
fund reporting, in particular, will benefit private fund investors and
other market participants and will provide us and other policy makers
with better data. Better data will enhance our ability to form and
frame regulatory policies regarding the private fund industry and fund
advisers and to evaluate the effect of our policies and programs on
this industry. Private fund reporting will provide us with important
information about this rapidly growing segment of the U.S. financial
system. Additionally, data about which advisers have $1 billion or more
in total balance sheet assets will enable us to identify the advisers
that are covered by section 956 of the Dodd-Frank Act, which addresses
certain incentive-based compensation arrangements.
    As acknowledged above with respect to exempt reporting advisers,
there may also be a competitive impact among registered investment
advisers as a result of the collection of the additional information on
Form ADV in connection with the amendments we are adopting today. We
raised several examples of competitive impacts in the Implementing
Proposing Release.\898\ For instance, information regarding the amount
of assets under management by specific types of clients could be used
by competitors when marketing their own advisory services.\899\ We are
adopting a modified version of this item as it was proposed, which we
expect will alleviate commenters' concerns about the costs and burdens
of the proposed item,\900\ but which we do not expect will alter this
competitive impact. Another example we noted in the Implementing
Proposing Release includes the information concerning private funds
that registered and exempt reporting advisers are required to submit on
Form ADV, which could assist private fund investors in assessing
investment choices or screening funds based on certain parameters, such
as the identification of certain fund service providers or gatekeepers.
Amendments we are adopting to Form ADV will not prevent this
information from being used by other financial service providers (such
as banks or broker-dealers) that do not provide similar information
publicly.
---------------------------------------------------------------------------

    \898\ See id. at section VII.B.
    \899\ See supra section II.C.2. (discussing Item 5.D.(2)).
    \900\ See id. See IAA General Letter.
---------------------------------------------------------------------------

    We continue to believe that increased competition among investment
advisers (both exempt reporting and registered) and other financial
service providers will result in capital being allocated more
efficiently, benefiting clients and certain advisers. Commenters did
not address the above examples or provide empirical data about the
competitive effects of the proposal.
    Finally, as noted above and in the Implementing Proposing Release,
better disclosure may increase clients' and prospective clients' trust
in investment advisers, which may encourage them to seek professional
investment advice and encourage them to invest their financial
assets.\901\ This also may enhance capital formation by making more
assets available for investment and enhancing the allocation of capital
generally. On the other hand, if the rule amendments we are adopting
increase costs for investment advisers and these cost increases are
passed on to clients, this may deter clients from seeking professional
investment advice and investing their financial assets. This may result
in inefficiencies in the market for advisory services and hinder
capital formation.
---------------------------------------------------------------------------

    \901\ See Implementing Proposing Release, supra note 7, at
section VII.B.
---------------------------------------------------------------------------

C. Other Amendments

    Finally, we are amending rule 203-1 to allow an adviser that was
relying on, and was permitted to rely on, the ``private adviser''
exemption in section 203(b)(3) on July 20, 2011, to delay registering
with the Commission until March 30, 2012. We believe that this
temporary extension of the registration deadline will assure an orderly
transition to registration and thus will promote efficiency. We believe
that this temporary extension will have minimal, if any, effects on
competition or capital formation.
    We are also amending rule 204-2 to cross-reference the new
definition of private fund and add a grandfathering provision relieving
firms that were exempt from registration prior to the effectiveness of
the Dodd-Frank Act's elimination of the ``private adviser'' exemption
from certain recordkeeping obligations applicable to registered
advisers.\902\ Finally, we are amending Forms ADV-NR and Form ADV-H to
provide for their use by exempt reporting advisers. The amendments to
rule 204-2, Form ADV-NR, and Form ADV-H are technical in nature. We do
not anticipate that they will have any bearing on efficiency,
competition, or capital formation.
---------------------------------------------------------------------------

    \902\ See supra section II.D.2.b.
---------------------------------------------------------------------------

IX. Statutory Authority

    The Commission is removing rules 202(a)(11)-1, 203(b)(3)-1, and
203(b)(3)-2 under the Investment Advisers Act of 1940 pursuant to the
authority set forth in section 211(a) of the Investment Advisers Act of
1940 [15 U.S.C. 80b-11(a)], adopting new rule 203A-5 and amendments to
rules 203A-2, 203A-3, and 203A-4 under the Advisers Act pursuant to the
authority set forth in sections 203A(c) and 211(a) of the Advisers Act
[15 U.S.C. 80b-3A(c) and 80b-11(a)]; amendments to rule 203A-1 under
the Advisers Act pursuant to the authority set forth in

sections 203A(a)(2)(B)(ii) (as amended by section 410 of the Dodd-Frank
Act), 203A(c), and 211(a) of the Advisers Act [15 U.S.C. 80b-
3A(a)(2)(B)(ii), 80b-3A(c), and 80b-11(a)]; amendments to rule 203-1
under the Advisers Act pursuant to the authority set forth in section
206A of the Advisers Act [15 U.S.C. 80b-6A]; new rule 204-4 and
amendments to rules 204-1 and 204-2 under the Advisers Act pursuant to
the authority set forth in sections 204 and 211(a) of the Advisers Act
[15 U.S.C. 80b-4 and 80b-11(a)]; amendments to rule 206(4)-5 under the
Advisers Act pursuant to authority set forth in sections 206(4) and
211(a) of the Advisers Act [15 U.S.C. 80b-6(4) and 80b-11(a)];
amendments to rules 0-7, 222-1, and 222-2 under the Advisers Act
pursuant to authority set forth in section 211(a) of the Advisers Act
[15 U.S.C. 80b-11(a)]; and to amend Form ADV under section 19(a) of the
Securities Act of 1933 [15 U.S.C. 77s(a)], sections 23(a) and 28(e)(2)
of the Exchange Act [15 U.S.C. 78w(a) and 78bb(e)(2)], section 319(a)
of the Trust Indenture Act of 1939 [15 U.S.C. 77sss(a)], section 38(a)
of the Investment Company Act [15 U.S.C. 78a-37(a)], and sections
203(c)(1), 204, and 211(a) of the Advisers Act [15 U.S.C. 80b-3(c)(1),
80b-4, and 80b-11(a)]; Form ADV-NR under section 19(a) of the
Securities Act of 1933 [15 U.S.C. 77s(a)], section 23(a) of the
Exchange Act [15 U.S.C. 78w(a)], section 319(a) of the Trust Indenture
Act of 1939 [15 U.S.C. 77sss(a)], section 38(a) of the Investment
Company Act [15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and
211(a) of the Advisers Act [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-
11(a)]; Form ADV-H pursuant to the authority set forth in sections
203(c)(1), 204, and 211(a) of the Advisers Act [15 U.S.C. 80b-3(c)(1),
80b-4, 80b-11(a)]; and Form ADV-E pursuant to authority set forth in
sections 204, 206(4), and 211(a) of the Advisers Act [15 U.S.C. 80b-4,
80b-6(4), and 80b-11(a)].

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements; Securities.

Text of Rule and Form Amendments

    For the reasons set out in the preamble, Title 17 Chapter II of the
Code of Federal Regulations is amended as follows.

PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940

0
1. The authority citation for Part 275 is amended by revising the
general authority and by adding authority for sections 275.203A-3,
275.203A-5, 275.204-1 and 275.204-4 in numerical order to read as
follows:

    Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-
2(a)(17), 80b-3, 80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless
otherwise noted.
* * * * *
    Section 275.203A-3 is also issued under 15 U.S.C. 80b-3a.
    Section 275.203A-5 is also issued under 15 U.S.C. 80b-3a.
* * * * *
    Section 275.204-1 is also issued under sec. 407 and 408, Pub. L.
111-203, 124 Stat. 1376.
* * * * *
    Section 275.204-4 is also issued under sec. 407 and 408, Pub. L.
111-203, 124 Stat. 1376.
* * * * *

Sec.  275.0-7  [Amended]

0
2. Section 275.0-7 is amended by revising the reference to ``Section
203A(a)(2)'' in paragraph (a)(1) to read ``Section 203A(a)(3).''

Sec.  275.202(a)(11)-1  [Removed]

0
3. Section 275.202(a)(11)-1 is removed.

0
4. Section 275.203-1 is amended by adding paragraph (e) to read as
follows:

Sec.  275.203-1  Application for investment adviser registration.

* * * * *
    (e) ``Private adviser'' transition rule. If you are exempt from
registration with the Commission as an investment adviser under, and
are not registered in reliance on, section 203(b)(3) of the Act (15
U.S.C. 80b-3(b)(3)) on July 20, 2011, you are exempt from registration
with the Commission as an investment adviser until March 30, 2012,
provided that you:
    (1) During the course of the preceding twelve months, have had
fewer than fifteen clients; and
    (2) Neither hold yourself out generally to the public as an
investment adviser nor act as an investment adviser to any investment
company registered under the Investment Company Act of 1940 (15 U.S.C.
80a), or a company which has elected to be a business development
company pursuant to section 54 of that Act (15 U.S.C. 80a-54) and has
not withdrawn its election.

Sec.  275.203(b)(3)-1  [Removed]

0
5. Section 275.203(b)(3)-1 is removed.

Sec.  275.203(b)(3)-2  [Removed]

0
6. Section 275.203(b)(3)-2 is removed.

0
7. Section 275.203A-1 is revised to read as follows:

Sec.  275.203A-1  Eligibility for SEC registration; Switching to or
from SEC registration.

    (a) Eligibility for SEC registration of mid-sized investment
advisers--If you are an investment adviser described in section
203A(a)(2)(B) of the Act (15 U.S.C. 80b-3a(a)(2)(B)):
    (1) Threshold for SEC registration and registration buffer. You
may, but are not required to register with the Commission if you have
assets under management of at least $100,000,000 but less than
$110,000,000, and you need not withdraw your registration unless you
have less than $90,000,000 of assets under management.
    (2) Exceptions. This paragraph (a) does not apply if:
    (i) You are an investment adviser to an investment company
registered under the Investment Company Act of 1940 (15 U.S.C. 80a) or
to a company which has elected to be a business development company
pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C.
80a-54), and has not withdrawn the election; or
    (ii) You are eligible for an exemption described in Sec.  275.203A-
2 of this chapter.
    (b) Switching to or from SEC registration--
    (1) State-registered advisers--switching to SEC registration. If
you are registered with a state securities authority, you must apply
for registration with the Commission within 90 days of filing an annual
updating amendment to your Form ADV reporting that you are eligible for
SEC registration and are not relying on an exemption from registration
under sections 203(l) or 203(m) of the Act (15 U.S.C. 80b-3(l), (m)).
    (2) SEC-registered advisers--switching to State registration. If
you are registered with the Commission and file an annual updating
amendment to your Form ADV reporting that you are not eligible for SEC
registration and are not relying on an exemption from registration
under sections 203(l) or 203(m) of the Act (15 U.S.C. 80b-3(l), (m)),
you must file Form ADV-W (17 CFR 279.2) to withdraw your SEC
registration within 180 days of your fiscal year end (unless you then
are eligible for SEC registration). During this period while you are
registered with both the Commission and one or more state securities
authorities, the Act and applicable State law will apply to your
advisory activities.

0
8. Section 275.203A-2 is amended by:
0
a. Removing paragraph (a);
0
b. Redesignating paragraphs (b) through (f) as paragraphs (a) through
(e);
0
c. Revising newly designated paragraph (a)(1);
0
d. Revising the reference to ``paragraph (b) of this section'' in the
introductory text of newly designated paragraph (a)(2) to read
``paragraph (a) of this section'';
0
e. Revising newly designated paragraph (c)(1);
0
f. Revising newly designated paragraph (d)(1);
0
g. Further redesignating newly designated paragraphs (d)(2) and (d)(3)
as paragraphs (d)(2)(i) and (d)(2)(ii);
0
h. Adding new introductory text to paragraph (d)(2) and revising newly
designated paragraphs (d)(2)(i) and (d)(2)(ii);
0
i. Further redesignating newly designated paragraph (d)(4) as paragraph
(d)(3);
0
j. Revising the reference to ``paragraph (f) of this section'' in newly
designated paragraphs (e)(1)(ii), (e)(1)(iii), and (e)(2) to read
``paragraph (e) of this section'';
0
k. Revising the reference to ``paragraph (f)(1)(i) of this section'' in
newly designated paragraphs (e)(1)(ii) and (e)(3) to read ``paragraph
(e)(1)(i) of this section'';
0
l. Revising the reference to ``paragraph (c) of this section'' in newly
designated paragraph (e)(1)(iii) to read ``paragraph (b) of this
section''; and
0
m. Revising the reference ``Sec.  275.203(b)(3)-1'' in newly designated
paragraph (e)(3) to read ``Sec.  275.202(a)(30)-1''.
    The revisions and additions read as follows:

Sec.  275.203A-2  Exemptions from prohibition on Commission
registration.

    (a) Pension Consultants. (1) An investment adviser that is a
``pension consultant,'' as defined in this section, with respect to
assets of plans having an aggregate value of at least $200,000,000.
* * * * *
    (c) * * *
    (1) Immediately before it registers with the Commission, is not
registered or required to be registered with the Commission or a state
securities authority of any State and has a reasonable expectation that
it would be eligible to register with the Commission within 120 days
after the date the investment adviser's registration with the
Commission becomes effective;
* * * * *
    (d) * * *
    (1) Upon submission of its application for registration with the
Commission, is required by the laws of 15 or more States to register as
an investment adviser with the state securities authority in the
respective States, and thereafter would, but for this section, be
required by the laws of at least 15 States to register as an investment
adviser with the state securities authority in the respective States;
    (2) Elects to rely on paragraph (d) of this section by:
    (i) Indicating on Schedule D of its Form ADV that the investment
adviser has reviewed the applicable State and federal laws and has
concluded that, in the case of an application for registration with the
Commission, it is required by the laws of 15 or more States to register
as an investment adviser with the state securities authorities in the
respective States or, in the case of an amendment to Form ADV, it would
be required by the laws of at least 15 States to register as an
investment adviser with the state securities authorities in the
respective States, within 90 days prior to the date of filing Form ADV;
and
    (ii) Undertaking on Schedule D of its Form ADV to withdraw from
registration with the Commission if the adviser indicates on an annual
updating amendment to Form ADV that the investment adviser would be
required by the laws of fewer than 15 States to register as an
investment adviser with the state securities authority in the
respective States, and that the investment adviser would be prohibited
by section 203A(a) of the Act (15 U.S.C. 80b-3a(a)) from registering
with the Commission, by filing a completed Form ADV-W within 180 days
of the adviser's fiscal year end (unless the adviser then is eligible
for SEC registration); and
* * * * *

0
9. Section 275.203A-3 is amended by revising paragraph (a)(4) and
adding paragraphs (d) and (e) to read as follows:

Sec.  275.203A-3  Definitions.

* * * * *
    (a) * * *
    (4) Supervised persons may rely on the definition of ``client'' in
Sec.  275.202(a)(30)-1 to identify clients for purposes of paragraph
(a)(1) of this section, except that supervised persons need not count
clients that are not residents of the United States.
* * * * *
    (d) Assets under management. Determine ``assets under management''
by calculating the securities portfolios with respect to which an
investment adviser provides continuous and regular supervisory or
management services as reported on the investment adviser's Form ADV
(17 CFR 279.1).
    (e) State securities authority. ``State securities authority''
means the securities commissioner or commission (or any agency, office
or officer performing like functions) of any State.

Sec.  275.203A-4  [Removed and reserved]

0
10. Section 275.203A-4 is removed and reserved.

0
11a. Effective July 21, 2011, Sec.  275.203A-5 is added to read as
follows:

Sec.  275.203A-5  Transition rules.

    (a) Temporary exemption from prohibition on Commission registration
for mid-sized investment advisers. Until January 1, 2012, the
prohibition of section 203A(a)(2) of the Act (15 U.S.C. 80b-3a(a)(2))
does not apply to an investment adviser registered with the Commission
on July 21, 2011.
    (b) [Reserved]

0
11b. Effective September 19, 2011, Sec.  275.203A-5 is amended by
adding paragraphs (b) and (c) to read as follows:

Sec.  275.203A-5  Transition rules.

* * * * *
    (b) SEC-registered advisers--Form ADV filing. Every investment
adviser registered with the Commission on January 1, 2012 shall file an
amendment to Form ADV (17 CFR 279.1) no later than March 30, 2012 and
shall determine its assets under management based on the current market
value of the assets as determined within 90 days prior to the date of
filing the Form ADV.
    (c) Mid-sized investment advisers--withdrawing from Commission
registration.
    (1) If an investment adviser registered with the Commission on
January 1, 2012 would be prohibited from registering with the
Commission under section 203A(a)(2) of the Act (15 U.S.C. 80b-
3a(a)(2)), and is not otherwise exempted by Sec.  275.203A-2 from such
prohibition, such investment adviser shall withdraw from registration
with the Commission by filing Form ADV-W (17 CFR 279.2) no later than
June 28, 2012. During this period while an investment adviser is
registered with both the Commission and one or more state securities
authorities, the Act and applicable State law will apply to the
investment adviser's advisory activities.
    (2) If, prior to the effective date of the withdrawal from
registration of an investment adviser on Form ADV-W, the Commission has
instituted a proceeding pursuant to section 203(e) of the Act (15
U.S.C. 80b-3(e)) to suspend or revoke registration, or pursuant to
section 203(h) of the Act (15 U.S.C. 80b-3(h)) to impose terms or
conditions upon withdrawal, the withdrawal from

registration shall not become effective except at such time and upon
such terms and conditions as the Commission deems necessary or
appropriate in the public interest or for the protection of investors.

0
12. Section 275.204-1 is amended by revising the heading, paragraph
(b), the Note to paragraphs (a) and (b), and paragraph (c), to read as
follows:

Sec.  275.204-1  Amendments to Form ADV.

* * * * *
    (b) Electronic filing of amendments.
    (1) Subject to paragraph (c) of this section, you must file all
amendments to Part 1A of Form ADV and Part 2A of Form ADV
electronically with the IARD, unless you have received a continuing
hardship exemption under Sec.  275.203-3. You are not required to file
with the Commission amendments to brochure supplements required by Part
2B of Form ADV.
    (2) If you have received a continuing hardship exemption under
Sec.  275.203-3, you must, when you are required to amend your Form
ADV, file a completed Part 1A and Part 2A of Form ADV on paper with the
SEC by mailing it to FINRA.

    Note to paragraphs (a) and (b): Information on how to file with
the IARD is available on our Web site at http://www.sec.gov/iard.
For the annual updating amendment: Summaries of material changes
that are not included in the adviser's brochure must be filed with
the Commission as an exhibit to Part 2A in the same electronic file;
and if you are not required to prepare a brochure, a summary of
material changes, or an annual updating amendment to your brochure,
you are not required to file them with the Commission. See the
instructions for Part 2A of Form ADV.

    (c) Transition to electronic filing. If you are required to file a
brochure and your fiscal year ends on or after December 31, 2010, you
must amend your Form ADV by electronically filing with the IARD one or
more brochures that satisfy the requirements of Part 2A of Form ADV (as
amended effective October 12, 2010) as part of the next annual updating
amendment that you are required to file.
* * * * *

0
13. Section 275.204-2 is amended by:
0
a. Removing paragraph (l);
0
b. In paragraph (a)(14)(ii), revising the reference to ``assets under
management'' to read ``regulatory assets under management''; and
0
c. Revising paragraph (e)(3)(ii) to read as follows:

Sec.  275.204-2  Books and records to be maintained by investment
advisers.

* * * * *
    (e) * * *
    (3) * * *
    (ii) Transition rule. If you are an investment adviser that was,
prior to July 21, 2011, exempt from registration under section
203(b)(3) of the Act (15 U.S.C. 80b-3(b)(3)), as in effect on July 20,
2011, paragraph (e)(3)(i) of this section does not require you to
maintain or preserve books and records that would otherwise be required
to be maintained or preserved under the provisions of paragraph (a)(16)
of this section to the extent those books and records pertain to the
performance or rate of return of such private fund (as defined in
section 202(a)(29) of the Act (15 U.S.C. 80b-2(a)(29)), or other
account you advise for any period ended prior to your registration,
provided that you continue to preserve any books and records in your
possession that pertain to the performance or rate of return of such
private fund or other account for such period.
* * * * *

0
14. Section 275.204-4 is added to read as follows:

Sec.  275.204-4  Reporting by exempt reporting advisers.

    (a) Exempt reporting advisers. If you are an investment adviser
relying on the exemption from registering with the Commission under
section 203(l) or (m) of the Act (15 U.S.C. 80b-3(l) or 80b-3(m)), you
must complete and file reports on Form ADV (17 CFR 279.1) by following
the instructions in the Form, which specify the information that an
exempt reporting adviser must provide.
    (b) Electronic filing. You must file Form ADV electronically with
the Investment Adviser Registration Depository (IARD) unless you have
received a hardship exemption under paragraph (e) of this section.

    Note to paragraph (b): Information on how to file with the IARD
is available on the Commission's Web site at http://www.sec.gov/iard.

    (c) When filed. Each Form ADV is considered filed with the
Commission upon acceptance by the IARD.
    (d) Filing fees. You must pay FINRA (the operator of the IARD) a
filing fee. The Commission has approved the amount of the filing fee.
No portion of the filing fee is refundable. Your completed Form ADV
will not be accepted by FINRA, and thus will not be considered filed
with the Commission, until you have paid the filing fee.
    (e) Temporary hardship exemption.
    (1) Eligibility for exemption. If you have unanticipated technical
difficulties that prevent submission of a filing to the IARD, you may
request a temporary hardship exemption from the requirements of this
chapter to file electronically.
    (2) Application procedures. To request a temporary hardship
exemption, you must:
    (i) File Form ADV-H (17 CFR 279.3) in paper format no later than
one business day after the filing that is the subject of the ADV-H was
due; and
    (ii) Submit the filing that is the subject of the Form ADV-H in
electronic format with the IARD no later than seven business days after
the filing was due.
    (3) Effective date--upon filing. The temporary hardship exemption
will be granted when you file a completed Form ADV-H.
    (f) Final report. You must file a final report in accordance with
instructions in Form ADV when:
    (1) You cease operation as an investment adviser;
    (2) You no longer meet the definition of exempt reporting adviser
under paragraph (a); or
    (3) You apply for registration with the Commission.

    Note to paragraph (f): You do not have to pay a filing fee to
file a final report on Form ADV through the IARD.

0
15. Section 275.206(4)-5 is amended by:
0
a. In paragraph (f)(2)(i), removing the term ``individual'' and adding
in its place the term ``person''; and
0
b. Revising paragraphs (a)(1), (a)(2) introductory text, (a)(2)(i),
(d), and (f)(9) to read as follows:

Sec.  275.206(4)-5  Political contributions by certain investment
advisers.

    (a) * * *
    (1) For any investment adviser registered (or required to be
registered) with the Commission, or unregistered in reliance on the
exemption available under section 203(b)(3) of the Advisers Act (15
U.S.C. 80b-3(b)(3)), or that is an exempt reporting adviser, as defined
in section 275.204-4(a), to provide investment advisory services for
compensation to a government entity within two years after a
contribution to an official of the government entity is made by the
investment adviser or any covered associate of the investment adviser
(including a person who becomes a covered associate within two years
after the contribution is made); and
    (2) For any investment adviser registered (or required to be
registered) with the Commission, or unregistered in reliance on the
exemption available under section 203(b)(3) of the Advisers

Act (15 U.S.C. 80b-3(b)(3)), or that is an exempt reporting adviser, or
any of the investment adviser's covered associates:
    (i) To provide or agree to provide, directly or indirectly, payment
to any person to solicit a government entity for investment advisory
services on behalf of such investment adviser unless such person is:
    (A) A regulated person; or
    (B) An executive officer, general partner, managing member (or, in
each case, a person with a similar status or function), or employee of
the investment adviser; and
* * * * *
    (d) Further prohibition. As a means reasonably designed to prevent
fraudulent, deceptive or manipulative acts, practices, or courses of
business within the meaning of section 206(4) of Advisers Act (15
U.S.C. 80b-6(4)), it shall be unlawful for any investment adviser
registered (or required to be registered) with the Commission, or
unregistered in reliance on the exemption available under section
203(b)(3) of the Advisers Act (15 U.S.C. 80b-3(b)(3)), or that is an
exempt reporting adviser, or any of the investment adviser's covered
associates to do anything indirectly which, if done directly, would
result in a violation of this section.
* * * * *
    (f) * * *
    (9) Regulated person means:
    (i) An investment adviser registered with the Commission that has
not, and whose covered associates have not, within two years of
soliciting a government entity:
    (A) Made a contribution to an official of that government entity,
other than as described in paragraph (b)(1) of this section; and
    (B) Coordinated or solicited any person or political action
committee to make any contribution or payment described in paragraphs
(a)(2)(ii)(A) and (B) of this section;
    (ii) A ``broker,'' as defined in section 3(a)(4) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) or a ``dealer,'' as defined
in section 3(a)(5) of that Act (15 U.S.C. 78c(a)(5)), that is
registered with the Commission, and is a member of a national
securities association registered under 15A of that Act (15 U.S.C. 78o-
3), provided that:
    (A) The rules of the association prohibit members from engaging in
distribution or solicitation activities if certain political
contributions have been made; and
    (B) The Commission, by order, finds that such rules impose
substantially equivalent or more stringent restrictions on broker-
dealers than this section imposes on investment advisers and that such
rules are consistent with the objectives of this section; and
    (iii) A ``municipal advisor'' registered with the Commission under
section 15B of the Exchange Act and subject to rules of the Municipal
Securities Rulemaking Board, provided that:
    (A) Such rules prohibit municipal advisors from engaging in
distribution or solicitation activities if certain political
contributions have been made; and
    (B) The Commission, by order, finds that such rules impose
substantially equivalent or more stringent restrictions on municipal
advisors than this section imposes on investment advisers and that such
rules are consistent with the objectives of this section.
* * * * *

Sec.  275.222-1  [Amended]

0
16. Section 275.222-1 is amended by revising the phrase ``Principal
place of business'' to read ``Principal office and place of business''
in both the heading and the first sentence of paragraph (b).

0
17. Section 275.222-2 is revised to read as follows:

Sec.  275.222-2  Definition of ``client'' for purposes of the national
de minimis standard.

    For purposes of section 222(d)(2) of the Act (15 U.S.C. 80b-
18a(d)(2)), an investment adviser may rely upon the definition of
``client'' provided by Sec.  275.202(a)(30)-1, without giving regard to
paragraph (b)(4) of that section.

PART 279--FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF
1940

0
18. The authority citation for Part 279 continues to read as follows:

    Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b.

Sec.  279.1  [Amended]

0
19. Form ADV [referenced in Sec.  279.1] is amended by:
0
a. In the instructions to the form, revising the section entitled
``Form ADV: General Instructions.'' The revised version of Form ADV:
General Instructions is attached as Appendix A;
0
b. In the instructions to the form, revising the section entitled
``Form ADV: Instructions for Part 1A.'' The revised version of Form
ADV: Instructions for Part 1A is attached as Appendix B;
0
c. In the instructions to the form, revising the section entitled
``Form ADV: Glossary of Terms.'' The revised version of Form ADV:
Glossary of Terms is attached as Appendix C;
0
d. In the form, revising Part 1A. The revised version of Form ADV, Part
1A is attached as Appendix D;
0
e. In the form, revising the reference to ``proceeding'' in Item 3.D.
of Part 2B to read ``hearing or formal adjudication'';
0
f. In the form, revising the reference to ``assets under management''
in the Note to Item 4.E of Part 2A to read ``regulatory assets under
management''; and
0
g. In the form, revising the section entitled ``Form ADV: Domestic
Investment Adviser Execution Page.'' The revised version of Form ADV:
Domestic Investment Adviser Execution Page is attached as Appendix E.
    The revisions read as follows:

    Note: The text of Form ADV does not and the amendments will not
appear in the Code of Federal Regulations.

* * * * *
    Form ADV: Part 2B
* * * * *
    Item 3. * * *
    D. Any other hearing or formal adjudication in which a professional
attainment, designation, or license of the supervised person was
revoked or suspended because of a violation of rules relating to
professional conduct. If the supervised person resigned (or otherwise
relinquished the attainment, designation, or license) in anticipation
of such a hearing or formal adjudication (and the adviser knows, or
should have known, of such resignation or relinquishment), disclose the
event.
* * * * *

Sec.  279.3  [Amended]

0
20. Form ADV-H [referenced in Sec.  279.3] is amended by revising the
form. The revised version of Form ADV-H is attached as Appendix F.

    Note: The text of Form ADV-H does not and the amendments will
not appear in the Code of Federal Regulations.

Sec.  279.4  [Amended]

0
21. Form ADV-NR [referenced in Sec.  279.4] is amended by revising the
form. The revised version of Form ADV-NR is attached as Appendix G.

    Note: The text of Form ADV-NR does not and the amendments will
not appear in the Code of Federal Regulations.

Sec.  279.8  [Amended]

0
22. Form ADV-E [referenced in Sec.  279.4] is amended by revising the
form. The revised version of Form ADV-E is attached as Appendix H.

    Note: The text of Form ADV-E does not and the amendments will
not appear in the Code of Federal Regulations.

    Dated: June 22, 2011.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
BILLING CODE 8011-01-P

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[FR Doc. 2011-16318 Filed 7-18-11; 8:45 am]
BILLING CODE 8011-01-C