Proposed Collection; Comment Request

CourtSecurities And Exchange Commission
Citation87 FR 13778
Record Number2022-05015
Published date10 March 2022
Federal Register, Volume 87 Issue 47 (Thursday, March 10, 2022)
[Federal Register Volume 87, Number 47 (Thursday, March 10, 2022)]
                [Notices]
                [Pages 13778-13779]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2022-05015]
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                SECURITIES AND EXCHANGE COMMISSION
                [SEC File No. 270-401, OMB Control No. 3235-0459]
                Proposed Collection; Comment Request
                Upon Written Request, Copies Available From: Securities and Exchange
                Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
                20549-2736
                Extension:
                 Rule 3a-4
                 The prior 30-day notice was issued in error and this new one allows
                a new 30 days to comment.
                 Notice is hereby given that, pursuant to the Paperwork Reduction
                Act of 1995 (44 U.S.C. 350l-3520), the Securities and Exchange
                Commission (the ``Commission'') has submitted to the Office of
                Management and Budget a request for extension of the previously
                approved collection of information discussed below.
                 Rule 3a-4 (17 CFR 270.3a-4) under the Investment Company Act of
                1940 (15 U.S.C. 80a) (``Investment Company Act'' or ``Act'') provides a
                nonexclusive safe harbor from the definition of investment company
                under the Act for certain investment advisory programs. These programs,
                which include ``wrap fee'' programs, generally are designed to provide
                professional portfolio management services on a discretionary basis to
                clients who are investing less than the minimum investments for
                individual accounts usually required by the investment adviser but more
                than the minimum account size of most mutual funds. Under wrap fee and
                similar programs, a client's account is typically managed on a
                discretionary basis according to pre-selected investment objectives.
                Clients with similar investment objectives often receive the same
                investment advice and may hold the same or substantially similar
                securities in their accounts. Because of this similarity of management,
                some of these investment advisory programs may meet the definition of
                investment company under the Act.
                 In 1997, the Commission adopted rule 3a-4, which clarifies that
                programs organized and operated in accordance with the rule are not
                required to register under the Investment Company Act or comply with
                the Act's requirements.\1\ These programs differ from investment
                companies because, among other things, they provide individualized
                investment advice to the client. The rule's provisions have the effect
                of ensuring that clients in a program relying on the rule receive
                advice tailored to the client's needs.
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                 \1\ Status of Investment Advisory Programs Under the Investment
                Company Act of 1940, Investment Company Act Rel. No. 22579 (Mar. 24,
                1997) [62 FR 15098 (Mar. 31, 1997)] (``Adopting Release''). In
                addition, there are no registration requirements under section 5 of
                the Securities Act of 1933 for programs that meet the requirements
                of rule 3a-4. See 17 CFR 270.3a-4, introductory note.
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                 For a program to be eligible for the rule's safe harbor, each
                client's account must be managed on the basis of the client's financial
                situation and investment objectives and in accordance with any
                reasonable restrictions the client imposes on managing the account.
                When an account is opened, the sponsor \2\ (or its designee) must
                obtain information from each client regarding the client's financial
                situation and investment objectives, and must allow the client an
                opportunity to impose reasonable restrictions on managing the
                account.\3\ In addition, the sponsor (or its designee) must contact the
                client annually to determine whether the client's financial situation
                or investment objectives have changed and whether the client wishes to
                impose any reasonable restrictions on the management of the account or
                reasonably modify existing restrictions. The sponsor (or its designee)
                must also notify the client quarterly, in writing, to contact the
                sponsor (or its designee) regarding changes to the client's financial
                situation, investment objectives, or restrictions on the account's
                management.
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                 \2\ For purposes of rule 3a-4, the term ``sponsor'' refers to
                any person who receives compensation for sponsoring, organizing or
                administering the program, or for selecting, or providing advice to
                clients regarding the selection of, persons responsible for managing
                the client's account in the program.
                 \3\ Clients specifically must be allowed to designate securities
                that should not be purchased for the account or that should be sold
                if held in the account. The rule does not require that a client be
                able to require particular securities be purchased for the account.
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                 Additionally, the sponsor (or its designee) must provide each
                client with a quarterly statement describing all activity in the
                client's account during the previous quarter. The sponsor and personnel
                of the client's account manager who know about the client's account and
                its management must be reasonably available to consult with the client.
                Each client also must retain certain indicia of ownership of all
                securities and funds in the account.
                 The Commission staff estimates that 27,979,460 clients participate
                each year in investment advisory programs relying on rule 3a-4.\4\ Of
                that number, the staff
                [[Page 13779]]
                estimates that 2,127,147 are new clients and 25,852,313 are continuing
                clients.\5\ The staff estimates that each year the investment advisory
                program sponsors' staff engage in 1.5 hours per new client and 1 hour
                per continuing client to prepare, conduct and/or review interviews
                regarding the client's financial situation and investment objectives as
                required by the rule.\6\ Furthermore, the staff estimates that each
                year the investment advisory program sponsors' staff spends 1 hour per
                client each year to prepare and mail quarterly client account
                statements, including notices to update information.\7\ Based on the
                estimates above, the Commission estimates that the total annual burden
                of the rule's paperwork requirements is 57,022,493 hours.\8\
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                 \4\ These estimates are based on an analysis of the number of
                individual clients from Form ADV Item 5D(a)(1) and (b)(1) of
                advisers that report they provide portfolio management to wrap
                programs as indicated in Form ADV Item 5I(2)(b) and (c), and the
                number of individual clients of advisers that identify as internet
                advisers in Form ADV Item 2A(11). From analysis comparing reported
                individual client assets in Form ADV Item 5D(a)(3) and 5D(b)(3) to
                reported wrap portfolio manager assets in Form ADV Item 5I(2)(b) and
                (c), we discount the estimated number of individual clients of non-
                internet advisers providing portfolio management to wrap programs by
                10%.
                 \5\ These estimates are based on the number of new clients
                expected due to average year-over-year growth in individual clients
                from Form ADV Item 5D(a)(1) and (b)(1) (about 8%) and an assumed
                rate of yearly client turnover of 10%.
                 \6\ These estimates are based upon consultation with investment
                advisers that operate investment advisory programs that rely on rule
                3a-4.
                 \7\ The staff bases this estimate in part on the fact that, by
                business necessity, computer records already will be available that
                contain the information in the quarterly reports.
                 \8\ This estimate is based on the following calculation:
                (25,852,313 continuing clients x 1 hour) + (2,127,147 new clients x
                1.5 hours) + (27,979,460 total clients x (0.25 hours x 4
                statements)) = 57,022,493 hours.
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                 The estimate of average burden hours is made solely for the
                purposes of the Paperwork Reduction Act. The estimate is not derived
                from a comprehensive or even a representative survey or study of the
                costs of Commission rules and forms. An agency may not conduct or
                sponsor, and a person is not required to respond to, a collection of
                information unless it displays a currently valid OMB control number.
                 The public may view background documentation for this information
                collection at the following website: www.reginfo.gov. Find this
                particular information collection by selecting ``Currently under 30-day
                Review--Open for Public Comments'' or by using the search function.
                Written comments and recommendations for the proposed information
                collection should be sent within 30 days of publication of this notice
                by April 11, 2022 to (i) [email protected] and
                (ii) David Bottom, Director/Chief Information Officer, Securities and
                Exchange Commission, c/o John Pezzullo , 100 F Street NE, Washington,
                DC 20549, or by sending an email to: [email protected].
                 Comments must be submitted to OMB within 30 days of this notice to
                www.reginfo.gov/public/do/PRAMain. Find this particular information
                collection by selecting ``Currently under 30-day Review--Open for
                Public Comments'' or by using the search function.
                 Dated: March 4, 2022.
                J. Matthew DeLesDernier,
                Assistant Secretary.
                [FR Doc. 2022-05015 Filed 3-9-22; 8:45 am]
                BILLING CODE 8011-01-P
                

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