83 FR 64382 - Proposed Collection; Comment Request
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 240 (December 14, 2018)
Federal Register Volume 83, Issue 240 (December 14, 2018)
| Page Range | 64382-64383 | |
| FR Document | 2018-27094 |
[Federal Register Volume 83, Number 240 (Friday, December 14, 2018)] [Notices] [Pages 64382-64383] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-27094] ----------------------------------------------------------------------- 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. 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'') is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. 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 [[Page 64383]] 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 19,618,731 clients participate each year in investment advisory programs relying on rule 3a-4.\4\ Of that number, the staff estimates that 3,531,372 are new clients and 16,087,359 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 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 41,003,148 hours.\8\ --------------------------------------------------------------------------- \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%. 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%. \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: (16,087,359 continuing clients x 1 hour) + (3,531,372 new clients x 1.5 hours) + (19,618,731 total clients x (0.25 hours x 4 statements)) = 41,003,148 hours. We note that the breakdown of burden hours between professional and staff time discussed below may not equal the estimate of total burden hours due to rounding. --------------------------------------------------------------------------- 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 control number. Written comments are invited on: (a) Whether the collections of information are necessary for the proper performance of the functions of the Commission, including whether the information has practical utility; (b) the accuracy of the Commission's estimate of the burdens of the collections of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burdens of the collections of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to Charles Riddle, Acting Director/Chief Information Officer, Securities and Exchange Commission, C/O Candace Kenner, 100 F Street NE, Washington, DC 20549; or send an email to: [email protected]. Dated: December 10, 2018. Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2018-27094 Filed 12-13-18; 8:45 am] BILLING CODE 8011-01-P
![64382 Federal Register / Vol. 83, No. 240 / Friday, December 14, 2018 / Notices
approved collection of information (collectively ‘‘specified parallel Exchange Commission, c/o Candace
provided for the following rules: Rules provisions’’), instead of being required Kenner, 100 F Street NE, Washington,
3a68–2 and 3a68–4(c) under the to comply with parallel provisions of DC 20549, or by sending an email to:
Securities Exchange Act of 1934 (15 both the CEA and the Exchange Act. PRA_Mailbox@sec.gov. Comments must
U.S.C. 78a et seq.). The SEC expects ten requests be submitted to OMB within 30 days of
Rule 3a68–2 creates a process for pursuant to Rule 3a68–4(c) per year. this notice.
interested persons to request a joint The SEC estimates that nine of these Dated: December 10, 2018.
interpretation by the SEC and the requests will have also been made in a
Eduardo A. Aleman,
Commodity Futures Trading request for a joint interpretation
Commission (‘‘CFTC’’) (together with pursuant to Rule 3a68–2, and one will Deputy Secretary.
the SEC, the ‘‘Commissions’’) regarding not have been. The SEC estimates the [FR Doc. 2018–27089 Filed 12–13–18; 8:45 am]
whether a particular instrument (or total burden for the one request for BILLING CODE 8011–01–P
class of instruments) is a swap, a which the joint interpretation pursuant
security-based swap, or both (i.e., a to 3a68–2 was not requested would be
mixed swap). Under Rule 3a68–2, a 30 hours, and the total burden SECURITIES AND EXCHANGE
person provides to the Commissions a associated with the other nine requests COMMISSION
copy of all material information would be 20 hours per request because
[SEC File No. 270–401, OMB Control No.
regarding the terms of, and a statement some of the information required to be 3235–0459]
of the economic characteristics and submitted pursuant to Rule 3a68–4(c)
purpose of, each relevant agreement, would have already been submitted Proposed Collection; Comment
contract, or transaction (or class pursuant to Rule 3a68–2. The burden in Request
thereof), along with that person’s both cases is evenly divided between
determination as to whether each such the SEC and the CFTC. Upon Written Request, Copies Available
agreement, contract, or transaction (or The SEC estimates that the total costs From: Securities and Exchange
class thereof) should be characterized as resulting from a submission under Rule Commission, Office of FOIA Services,
a swap, security-based swap, or both 3a68–4(c) would be approximately 100 F Street NE, Washington, DC
(i.e., a mixed swap). The Commissions $20,000 for the services of outside 20549–2736
also may request the submitting person attorneys to retrieve, review, and submit Extension:
to provide additional information. the information associated with the Rule 3a–4.
The SEC expects 25 requests pursuant submission of the one request for which
to Rule 3a68–2 per year. The SEC a request for a joint interpretation Notice is hereby given that, pursuant
estimates the total paperwork burden pursuant to Rule 3a68–2 was not to the Paperwork Reduction Act of 1995
associated with preparing and previously made (1 request × 50 hours/ (44 U.S.C. 350l–3520), the Securities
submitting each request would be 20 request × $400). For the nine requests and Exchange Commission (the
hours to retrieve, review, and submit the for which a request for a joint ‘‘Commission’’) is soliciting comments
information associated with the interpretation pursuant to Rule 3a68–2 on the collection of information
submission. This 20 hour burden is was previously made, the SEC estimates summarized below. The Commission
divided between the SEC and the CFTC, the total costs associated with preparing plans to submit this existing collection
with 10 hours per response regarding and submitting a party’s request of information to the Office of
reporting to the SEC and 10 hours of pursuant to Rule 3a68–4(c) would be Management and Budget for extension
response regarding third party $6,000 less per request because, as and approval.
disclosure to the CFTC.1 The SEC discussed above, some of the Rule 3a–4 (17 CFR 270.3a–4) under
estimates this would result in an information required to be submitted the Investment Company Act of 1940
aggregate annual burden of 500 hours pursuant to Rule 3a68–4(c) already (15 U.S.C. 80a) (‘‘Investment Company
(25 requests × 20 hours/request). would have been submitted pursuant to Act’’ or ‘‘Act’’) provides a nonexclusive
The SEC estimates that the total costs Rule 3a68–2. The SEC estimates this safe harbor from the definition of
resulting from a submission under Rule would result in an aggregate cost each investment company under the Act for
3a68–2 would be approximately $12,000 year of $126,000 for the services of certain investment advisory programs.
for outside attorneys to retrieve, review, outside attorneys (9 requests × 35 hours/ These programs, which include ‘‘wrap
and submit the information associated request × $400). fee’’ programs, generally are designed to
with the submission. The SEC estimates An agency may not conduct or provide professional portfolio
this would result in aggregate costs each sponsor, and a person is not required to management services on a discretionary
year of $300,000 (25 requests × 30 respond to, a collection of information basis to clients who are investing less
hours/request × $400). under the PRA unless it displays a than the minimum investments for
Rule 3a68–4(c) establishes a process currently valid OMB control number. individual accounts usually required by
for persons to request that the The public may view background the investment adviser but more than
Commissions issue a joint order documentation for this information the minimum account size of most
permitting such persons (and any other collection at the following website: mutual funds. Under wrap fee and
person or persons that subsequently www.reginfo.gov. Comments should be similar programs, a client’s account is
lists, trades, or clears that class of mixed directed to: (i) Desk Officer for the typically managed on a discretionary
swap) to comply, as to parallel Securities and Exchange Commission, basis according to pre-selected
provisions only, with specified parallel Office of Information and Regulatory investment objectives. Clients with
amozie on DSK3GDR082PROD with NOTICES1
provisions of either the Commodity Affairs, Office of Management and similar investment objectives often
Exchange Act (‘‘CEA’’) or the Securities Budget, Room 10102, New Executive receive the same investment advice and
Exchange Act of 1934 (‘‘Exchange Act’’), Office Building, Washington, DC 20503, may hold the same or substantially
and related rules and regulations or by sending an email to: similar securities in their accounts.
Lindsay.M.Abate@omb.eop.gov; and (ii) Because of this similarity of
1 The burdens imposed by the CFTC are included Charles Riddle, Acting Director/Chief management, some of these investment
in this collection of information. Information Officer, Securities and advisory programs may meet the
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![Federal Register / Vol. 83, No. 240 / Friday, December 14, 2018 / Notices 64383
definition of investment company under personnel of the client’s account the costs of Commission rules and
the Act. manager who know about the client’s forms. An agency may not conduct or
In 1997, the Commission adopted rule account and its management must be sponsor, and a person is not required to
3a–4, which clarifies that programs reasonably available to consult with the respond to a collection of information
organized and operated in accordance client. Each client also must retain unless it displays a currently valid
with the rule are not required to register certain indicia of ownership of all control number.
under the Investment Company Act or securities and funds in the account. Written comments are invited on: (a)
comply with the Act’s requirements.1 The Commission staff estimates that Whether the collections of information
These programs differ from investment 19,618,731 clients participate each year are necessary for the proper
companies because, among other things, in investment advisory programs relying performance of the functions of the
they provide individualized investment on rule 3a–4.4 Of that number, the staff Commission, including whether the
advice to the client. The rule’s estimates that 3,531,372 are new clients information has practical utility; (b) the
provisions have the effect of ensuring and 16,087,359 are continuing clients.5 accuracy of the Commission’s estimate
that clients in a program relying on the The staff estimates that each year the of the burdens of the collections of
rule receive advice tailored to the investment advisory program sponsors’ information; (c) ways to enhance the
client’s needs. staff engage in 1.5 hours per new client quality, utility, and clarity of the
For a program to be eligible for the and 1 hour per continuing client to information collected; and (d) ways to
rule’s safe harbor, each client’s account prepare, conduct and/or review minimize the burdens of the collections
must be managed on the basis of the interviews regarding the client’s of information on respondents,
client’s financial situation and financial situation and investment including through the use of automated
investment objectives and in accordance objectives as required by the rule.6 collection techniques or other forms of
with any reasonable restrictions the Furthermore, the staff estimates that information technology. Consideration
client imposes on managing the each year the investment advisory will be given to comments and
account. When an account is opened, program sponsors’ staff spends 1 hour suggestions submitted in writing within
the sponsor 2 (or its designee) must per client to prepare and mail quarterly 60 days of this publication.
obtain information from each client client account statements, including Please direct your written comments
regarding the client’s financial situation notices to update information.7 Based to Charles Riddle, Acting Director/Chief
and investment objectives, and must on the estimates above, the Commission Information Officer, Securities and
allow the client an opportunity to estimates that the total annual burden of Exchange Commission, C/O Candace
impose reasonable restrictions on the rule’s paperwork requirements is Kenner, 100 F Street NE, Washington,
managing the account.3 In addition, the 41,003,148 hours.8 DC 20549; or send an email to: PRA_
sponsor (or its designee) must contact The estimate of average burden hours Mailbox@sec.gov.
the client annually to determine is made solely for the purposes of the
Dated: December 10, 2018.
whether the client’s financial situation Paperwork Reduction Act. The estimate
or investment objectives have changed is not derived from a comprehensive or Eduardo A. Aleman,
and whether the client wishes to impose even a representative survey or study of Deputy Secretary.
any reasonable restrictions on the [FR Doc. 2018–27094 Filed 12–13–18; 8:45 am]
management of the account or 4 These estimates are based on an analysis of the BILLING CODE 8011–01–P
reasonably modify existing restrictions. number of individual clients from Form ADV Item
5D(a)(1) and (b)(1) of advisers that report they
The sponsor (or its designee) must also provide portfolio management to wrap programs as
notify the client quarterly, in writing, to indicated in Form ADV Item 5I(2)(b) and (c), and
SECURITIES AND EXCHANGE
contact the sponsor (or its designee) the number of individual clients of advisers that COMMISSION
regarding changes to the client’s identify as internet advisers in Form ADV Item
2A(11). From analysis comparing reported SEC File No. 270–774, OMB Control No.
financial situation, investment individual client assets in Form ADV Item 5D(a)(3) 3235–0726]
objectives, or restrictions on the and 5D(b)(3) to reported wrap portfolio manager
account’s management. assets in Form ADV Item 5I(2)(b) and (c), we Proposed Collection; Comment
Additionally, the sponsor (or its discount the estimated number of individual clients Request
designee) must provide each client with of non-internet advisers providing portfolio
management to wrap programs by 10%. These Upon Written Request, Copies Available
a quarterly statement describing all estimates are based on the number of new clients From: Securities and Exchange
activity in the client’s account during expected due to average year-over-year growth in
Commission, Office of FOIA Services,
the previous quarter. The sponsor and individual clients from Form ADV Item 5D(a)(1)
and (b)(1) (about 8%) and an assumed rate of yearly 100 F Street NE, Washington, DC
1 Status of Investment Advisory Programs Under
client turnover of 10%. 20549–2736
5 These estimates are based on the number of new
the Investment Company Act of 1940, Investment Extension:
Company Act Rel. No. 22579 (Mar. 24, 1997) [62 FR clients expected due to average year-over-year
growth in individual clients from Form ADV Item Rules 300–304 of Regulation
15098 (Mar. 31,1997)] (‘‘Adopting Release’’). In Crowdfunding (Intermediaries).
addition, there are no registration requirements 5D(a)(1) and (b)(1) (about 8%) and an assumed rate
under section 5 of the Securities Act of 1933 for of yearly client turnover of 10%. Notice is hereby given that pursuant
6 These estimates are based upon consultation
programs that meet the requirements of rule 3a–4. to the Paperwork Reduction Act of 1995
See 17 CFR 270.3a–4, introductory note. with investment advisers that operate investment
2 For purposes of rule 3a–4, the term ‘‘sponsor’’ advisory programs that rely on rule 3a–4. (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
refers to any person who receives compensation for 7 The staff bases this estimate in part on the fact Securities and Exchange Commission
sponsoring, organizing or administering the that, by business necessity, computer records (‘‘Commission’’) is soliciting comments
program, or for selecting, or providing advice to already will be available that contain the on the collection of information
amozie on DSK3GDR082PROD with NOTICES1
clients regarding the selection of, persons information in the quarterly reports.
responsible for managing the client’s account in the 8 This estimate is based on the following provided for Rule 17Ab2–1 (17 CFR
program. calculation: (16,087,359 continuing clients × 1 240.17Ab2–1) and Form CA–1:
3 Clients specifically must be allowed to designate hour) + (3,531,372 new clients × 1.5 hours) + Registration of Clearing Agencies (17
securities that should not be purchased for the (19,618,731 total clients × (0.25 hours × 4 CFR 249b.200) under the Securities
account or that should be sold if held in the statements)) = 41,003,148 hours. We note that the
account. The rule does not require that a client be breakdown of burden hours between professional
Exchange Act of 1934 (‘‘Exchange Act’’)
able to require particular securities be purchased for and staff time discussed below may not equal the (15 U.S.C. 78a et seq.). The Commission
the account. estimate of total burden hours due to rounding. plans to submit this existing collection
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Document Created: 2018-12-14 03:49:51
Document Modified: 2018-12-14 03:49:51
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 64382 |
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