Proposed Collection; Comment Request
| Published date | 10 March 2022 |
| Citation | 87 FR 13778 |
| Record Number | 2022-05015 |
| Section | Notices |
| Court | Securities And Exchange Commission |
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
