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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 275, and 279
Release No. IA-1897; 34-43282; File No. S7-10-00
Electronic Filing by Investment Advisers; Amendments to Form ADV
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
SUMMARY: The Commission is adopting new rules and rule amendments under the Investment Advisers Act of 1940 to require that advisers registered with the Commission make filings under the Act with the Commission electronically through the Investment Adviser Registration Depository (IARD). The Commission is also adopting amendments to Forms ADV and ADV-W that prepare those forms for electronic filing. The new rules implement our statutory mandate to create a one-stop electronic filing system for investment advisers and to provide investors with a readily accessible database of information about investment advisers and persons associated with investment advisers.
EFFECTIVE DATE: October 10, 2000. The transition to electronic filing, beginning in January 2001, is discussed in Section I.B of this Release.
FOR FURTHER INFORMATION: Visit the IARD page on our website at www.sec.gov/divisions/investment/iard.shtml, or email <IARDlive@sec.gov>. Or contact Jennifer B. McHugh, Special Counsel, or Jennifer L. Sawin, Special Counsel, at (202) 942-0691, Office of Investment Adviser Regulation, Division of Investment Management, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0506. We urge interested persons with access to the Internet to review information about the IARD and the new rules on our website before contacting our staff.
SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to rules 30-5 and 30-11 of the SEC's Organization and Program Management rules [17 CFR 200.30-5 and 200.30-11], new rule 203-3 and Form ADV-H; adopting amendments to rules 0-2, 0-7, 203-1, 203-2, 203A-1, 203A-2, and 204-1 [17 CFR 275.0-2, 275.0-7, 275.203-1, 275.203-2, 275.203A-1, 275.203A-2, and 275.204-1]; and Form ADV, Form ADV-W, and Form 4-R [17 CFR 279.1, 279.2, and 279.4] under the Investment Advisers Act of 1940 [15 U.S.C. 80b-1] (the Advisers Act or the Act). The Commission also is withdrawing rule 204-5 [17 CFR 275.204-5] and Forms 5-R, 6-R, 7-R, and ADV-Y2K [17 CFR 279.5, 279.6, 279.7, and 279.9] under the Advisers Act.
Table of Contents
A. The Investment Adviser Registration Depository
B. Transition to Electronic Filing
1. Applicants For Registration as an Investment Adviser
2. Advisers Currently Registered with the Commission
V. SUMMARY OF FINAL REGULATORY FLEXIBILITY ANALYSIS
Text of Rule and Form Amendments
Appendix A: Form ADV (in PDF format)
Appendix B: Form ADV-W (in PDF format)
Appendix C: Form ADV-H (in PDF format)
Appendix D: Form ADV-NR (in PDF format)
The Commission is adopting new rules and rule amendments under the Advisers Act to require registered investment advisers to make filings with us electronically through the Investment Advisers Registration Depository (IARD). The IARD, which will be operated by NASD Regulation, Inc. (NASDR), will permit investment advisers to satisfy their filing obligations under state and federal law with a single electronic filing made over the Internet.
We are also amending Forms ADV and ADV-W to update the forms and prepare them for electronic filing. The amendments to Form ADV primarily affect Part 1 of the form. We are deferring, for later consideration, adoption of amendments to Part 2 of Form ADV and related rules.
An applicant for registration as an adviser after January 1, 2001 must submit its application electronically through the IARD using amended Form ADV. Advisers registered with the Commission must transition to electronic filing by submitting amendments to their Form ADVs through the IARD during the first four months of 2001 in accordance with a transition schedule we are today adopting. After April 2001, the Commission will no longer accept paper filings of Form ADV unless the adviser has been granted a hardship exemption.
In April, the Commission proposed amendments to the filing rules under the Advisers Act as well as amendments to Forms ADV and ADV-W.1 We received over 70 comments on the proposed rules.2 Commenters overwhelmingly supported electronic filing by advisers. Today we are adopting those amendments, but are deferring adoption of amendments to Part 2 of Form ADV for reasons we describe below.3
A. The Investment Adviser Registration Depository
The Commission and the state securities authorities have created an electronic filing system, the IARD, through which investment advisers will make filings with us and the states over the Internet. NASDR is building and will operate the IARD under contracts with the Commission and the North American Securities Administrators Association (NASAA).4 NASDR will be responsible for certain ministerial tasks as operator of the IARD, but will not act as a self-regulatory organization for advisers.5
The IARD will be "rolled out" in a series of releases beginning early next year.
SEC-registered advisers will be able to make notice filings to, and submit filing and other fees to, the states through the IARD after January 1, 2001. The IARD will automatically calculate the amount of the fees due and will remit funds to the states.9 SEC-registered advisers will need to fund their IARD accounts with NASDR because the IARD will not accept filings if there are insufficient funds on account to pay IARD filing fees and state fees. We discuss setting up an IARD account in Section I.B.4 of this Release.
In the Proposing Release, we explained that we would block Internet access to social security numbers and sole proprietors' home addresses reported on Form ADV.11 As urged by some commenters, we will also block Internet disclosure of all private residence addresses identified in the form,12 as well as "contact employee" information reported on the form.13
B. Transition to Electronic Filing
The Commission is adopting, substantially as proposed, amendments to our filing rules to implement electronic filing and create a transition process for advisers currently filing with the Commission on paper. The following sections describe the revised requirements both for applicants for registration under the Advisers Act and for current registrants. Additional guidance may be found in the revised instructions to Form ADV and our web site.
1. Applicants For Registration as an Investment Adviser
Persons applying for registration with the Commission as an investment adviser after January 1, 2001 must file Form ADV, as amended, through the IARD.17 Paper filings on Form ADV will be accepted only if the person has obtained a hardship exemption, described below.18
2. Advisers Currently Registered with the Commission
Each adviser registered with the Commission on January 1, 2001 must re-file its Form ADV with us through the IARD, using amended Form ADV, during one of the first four months of 2001.19 All subsequent amendments must be made electronically, and if the adviser should withdraw its registration, Form ADV-W must be filed electronically.20
To facilitate a smooth transition to electronic filing, we have assigned each adviser registered with us to one of four groups. Members of each group must file amendments to their registration forms by the end of one of the first four months of 2001.21 They must use revised Form ADV, and must file electronically through the IARD unless they have obtained a hardship exemption. We have assigned each adviser with a fiscal year ending in December to one of the first three months by reference to its SEC filing number,22 which will permit those advisers to use the transitional filing to also satisfy their annual updating requirement under our rules.23 We have assigned advisers having fiscal years ending in months other than December to the group that must file no later than the last day of April 2001.24
An adviser may request one of two types of hardship exemptions by submitting Form ADV-H (on paper) to NASDR.25 A temporary hardship exemption permits the adviser to extend the deadline for a filing for seven business days if unexpected difficulties, such as a computer malfunction or electrical outage, prevent it from filing.26 The temporary hardship exemption is available automatically upon filing Form ADV-H. A continuing hardship exemption is available only to an adviser that is a "small business" and can demonstrate that filing electronically would create an undue hardship (e.g., the adviser has no computer and is unable to afford a filing service).27 Although advisers requesting a continuing hardship exemption will submit Form ADV-H to NASDR, the decision whether to grant an exemption will be made by the Commission.28
In order to file electronically, an adviser must first request and obtain access to the IARD and set up an IARD account with NASDR. This fall, we will mail each SEC-registered adviser the forms and instructions needed to set up an IARD user account with NASDR. Advisers must complete these forms, sign them, and mail them back to NASDR. NASDR will then create the adviser's IARD account for fee payments, assign the adviser a CRD number,29 and issue passwords for the adviser's authorized personnel. NASDR will also provide the adviser with instructions on funding its IARD billing account; the adviser must fund its IARD billing account by check or wire transfer before it can make an electronic filing through the IARD.30
We designed the IARD with the assistance of an advisory industry committee whose members represented different types of advisory firms. The committee helped us design the IARD to be easy for advisers to use. Under a pilot program, scheduled to begin next month, a small group of advisers will make filings through the IARD to test the system. Persons completing Form ADV on the IARD will be able to use an on-line help function that our staff will update from time to time with answers to frequently asked questions. We recognize, however, that the IARD and our rule amendments may raise questions for persons filing for the first time. Our staff and the staff of NASDR will provide assistance to advisers during this transition period. We have created a page on our web site to provide information to advisers about electronic filing.31 We will use the IARD web page to post copies of forms, instructions on gaining IARD access, instructions on how to make an electronic filing, and answers to frequently asked questions about the IARD and electronic filing. We have established a hot line to answer questions,32 and the NASDR will operate a help desk for advisers.33 Before calling, we urge advisers and their personnel to consult the instructions to Form ADV and our web site.
Form ADV consists of two parts. The first part asks for information about the adviser and persons associated with the adviser, which provides us with information we need to make registration decisions and manage our regulatory and examinations program. The second part contains the requirements for a written statement that advisers must provide to prospective clients and annually offer to clients under our rules.34
We proposed substantial revisions to Part 1 to accommodate electronic filing, and to reflect changes in the advisory industry and the laws regulating investment advisers.35 We proposed to reorganize Part 1 using simpler language, and introduce the items with brief explanations of why we need the information. We proposed substantial revisions to the schedules to Part 1, on which advisers must provide information about control persons and details about disciplinary events. Finally, we proposed to divide Part 1 further into two parts, segregating those items to which all advisers must respond (Part 1A) from those additional items to which only state-registered advisers must respond (Part 1B).36
Many of the commenters on Part 1A requested technical changes or suggested that we clarify some of the language. These comments have led us to make several minor changes to the Instructions, Glossary of Terms,37 and Items38 that we believe improve the form. The most significant changes we proposed to Part 1A involved Item 11, which requires disclosure of disciplinary information about the adviser and certain of its advisory personnel. We are adopting this item substantially as proposed with one change urged by commenters.
Item 11 requires that each adviser responding affirmatively to a disciplinary question complete a Disclosure Reporting Page (DRP). Part 1A has three DRPs, one each for criminal, civil, and regulatory actions. Advisers must complete a separate DRP for each reported event; the DRPs elicit details regarding the disciplinary events in a structured format and replace current Schedules D and E. Item 11 includes an expanded list of disciplinary events that must be reported on a DRP. Advisers must now report actions of foreign courts and regulatory authorities,39 cease-and-desist orders issued by the Commission,40 and military court convictions, misdemeanor perjury convictions, and convictions for conspiracy to commit certain offenses.41 Advisers must only report disciplinary events occurring within the last ten years,42 and, by checking a box on the appropriate DRP, advisers can remove from their current Form ADV disciplinary events reported for advisory affiliates no longer associated with the firm.
We proposed to expand the current requirement that advisers report certain pending criminal proceedings to require disclosure of any felony charges, and certain misdemeanor charges, brought against the adviser or an advisory affiliate during the preceding ten years. Many commenters opposed this change, pointing out that it would require disclosure even when the charges were later dropped or the person acquitted.
We have decided to require SEC-registered advisers to disclose only pending charges, as currently required by the form.43
As noted above, we are deferring adoption of amendments to Part 2 of Form ADV. Deferment will allow us time to fully consider the many comments we received on our proposed revisions to Part II. We have left the (old) form, Part II, in place and are also retaining the current rules on delivery of old Part II. As a result, advisers must continue to provide prospective clients with (old) Part II of Form ADV or a brochure containing at least the same required information.44 Advisers also must maintain an updated copy of their (old) Part II in their files, and must provide it to the Commission staff upon request. However, we are not requiring advisers to submit these documents to us until we have acted on the Part 2 amendments and the IARD is ready to accept (new) Part 2 brochures electronically.45 We will notify advisers when the IARD is ready and will provide a grace period before advisers are required to file (new) Part 2 brochures.
A consequence of our decision not to require an adviser to submit its old Part II of Form ADV to us during this interim period is that our updating requirements will no longer apply.46 However, under the Advisers Act's anti-fraud rules, advisers are prohibited from materially misleading their clients, and thus have an obligation not to provide their clients with a materially misleading Part II or brochure.47 Therefore, even though our updating rules may no longer apply, an adviser continues to have an obligation to update the disclosure it provides to clients to avoid misleading them.48
The effective date for the rules and rule amendments is October 10, 2000. Under the Administrative Procedure Act, we may establish an effective date less than 30 days after the publication of these rules if we find good cause to do so.49 Mandatory filing through the IARD system will not begin until January 1, 2001. Until January 1, 2001, the rules will only affect the approximately 100 advisers that have volunteered to participate in the IARD's pilot program and submit their Form ADV through the system before mandatory filing begins. Due to the voluntary nature of use of the new system until January 1, 2001, no investment advisers will be disadvantaged by effectiveness of these rules with less than 30 days' notice.
In the Proposing Release, we carefully analyzed the costs and benefits of our proposals and requested comment and data regarding the costs and benefits of the rule and form amendments on individual advisers and on the industry as a whole. As noted above, most commenters strongly favored electronic filing and several asserted that electronic filing would result in efficiencies and would ease the regulatory burden on advisers. Others, however, disagreed with our cost-benefit analysis in the Proposing Release, and felt that the benefits of electronic filing would not justify the overall costs.50
After reviewing the comments, and evaluating information about the potential costs and benefits that has come to our attention since we proposed these rules, we have concluded that the benefits of electronic filing and the related rule amendments justify their costs.
The amendments revise Forms ADV and ADV-W. We believe SEC-registered advisers will experience few additional costs in completing revised Part 1. The only additional information that new Part 1A requires is information that should be readily available to an adviser. We do not believe the revisions to Form ADV-W impose additional costs on advisers.
Electronic filing will eliminate many costs advisers currently incur in filing their Form ADV. Today, advisers must prepare registration materials on paper, copy them, and submit the paper copies to both the SEC and states. Many of these paper copies must be manually signed and notarized. Correcting a mistake requires the adviser to repeat the entire process. The IARD, in contrast, will permit the adviser to satisfy all of its filing obligations by submitting a single electronic filing prepared using a personal computer in its office. On the IARD, an adviser will be able to correct mistakes by simply typing over incorrect information and re-sending the electronic submission.52 Today, advisers must determine the amount of filing fees due to each state, prepare checks and mail them so that they are delivered in a timely manner.53 Errors can result in penalties or cause disruptions in business. The IARD, in contrast, will eliminate these costs by automatically determining the amount of filing fees owed and debiting the adviser's account when those fees are due. We believe these benefits will justify the filing fees and other expenses for advisers registered with the Commission.54
Revised Form ADV and the IARD system also benefit advisers by offering additional ways to reduce costs. An adviser may save a partially completed form as a "draft" that the adviser can access and complete at a later time. An on-line glossary allows advisers' personnel to refer to explanations of key terms while completing Form ADV, and an on-line "help" function answers frequently-asked questions and provides guidance on completing the form.55 When an adviser prepares an amendment to its Form ADV, the IARD will fill in most of the items from the adviser's previous IARD filings, reducing the adviser's time (and therefore expense) in completing the amendment. Further, the IARD will allow advisers that also are registered as broker-dealers to complete schedules to their Form ADV by "linking" to parallel responses in their Form BD already on file.56 These firms should recognize additional cost savings by avoiding entering certain data twice.
We have adopted a continuing hardship exemption, considering that not all advisers may have Internet access. We have provided the exemption for advisers that are small businesses and are unable to file through the IARD without undue burden and expense.57
The IARD also has the potential to speed the registration process for investment adviser representatives of SEC-registered advisers. Registration of investment adviser representatives on the IARD will be a matter for state securities authorities; we do not register or license investment adviser representatives. Our experience with the CRD system, however, provides an analogy. Our understanding of how broker-dealer agent filings on the CRD system are processed suggests that electronic filings on the IARD for investment adviser representatives are likely to be more efficient and cost effective than the current system of paper filings.
Electronic filing also will produce substantial benefits for investors. First, and most important, the information on these filings will be available for investors to view, quickly and without cost, on a web site.58 Investors will be able to determine, for example, whether a prospective adviser has reported disciplinary events, what types of fees it charges, and whether the types of advisory services it offers are designed to meet their needs. As a result, investors - clients and potential clients -- will be in a better position to make informed decisions.
The added "sunlight" the web disclosure will shine on advisers may have additional, secondary benefits. Information from advisers' filings will be available through a web site, and easy availability of information about advisers and advisory affiliates may, for example, discourage advisers from engaging in certain practices or hiring certain persons (such as those with a disciplinary history or limited qualifications). Facilitating investors' access to information may also result in greater competition among advisers, which may in turn lower prices or encourage the development of different fee structures or different kinds of services that may benefit clients. These types of benefits are difficult to isolate or to quantify, but our experience is that they are real and are often the result of better disclosure.
Electronic filing will also give us better access to information about advisers to administer our regulatory programs. We expect this information will permit us to increase both the efficiency and effectiveness of our programs and thus increase investor protection. The IARD will permit us to better monitor advisers' failure to make required filings, identify advisers whose activities suggest a need for closer scrutiny, and manage our regulatory programs. The IARD will generate reports on the industry, its characteristics and trends. These reports will help us anticipate regulatory problems, allocate and reallocate our resources, and more fully evaluate and anticipate the implications of various regulatory actions we may consider taking.
The revisions to Form ADV are also likely to benefit advisers. We have re-drafted Part 1A in plain English, improved its organization, and added instructions to clarify some items. The revised schedules make it much simpler for an adviser to provide information about its control persons.59 While smaller advisers may find these benefits limited, larger advisers (particularly advisers that are part of a larger, more intricate corporate structure) should see cost savings from the changes. The new Disclosure Reporting Pages (DRPs) require substantially more detailed information about disciplinary events than is specified in the current form, but the DRPs should serve mainly to clarify existing disclosure obligations, which are worded more generally.60 Moreover, we are only requiring advisers to report disciplinary events occurring in the past ten years,61 and have removed information about the educational and business background of employees. We believe these changes will justify any additional costs associated with amendments to Part 1A.
Advisers will also benefit from the revisions to Form ADV-W. In amended Form ADV-W, the adviser must complete only those items needed to process its withdrawal. Form ADV-W will also become effective immediately, rather than after a sixty-day "waiting period," thereby smoothing the transition period for advisers switching to state registration.
As explained in the Proposing Release, the rule and form amendments (including new rule 203-3 and new Form ADV-H) that we are adopting today contain several "collection of information" requirements within the meaning of the Paperwork Reduction Act of 1995. In the Proposing Release, the Commission published notice soliciting comment on the collection of information requirements. The Commission submitted the collection of information requirements to the Office of Management and Budget ("OMB") for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.62 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. To correct an error in the proposed collection of information for Form ADV, the Commission has submitted a PRA change worksheet to OMB. Modifications made to the amendments as proposed do not affect the collection of information.
We use the information we require from advisers to determine eligibility for registration with us, as well as in managing our regulatory, examinations, and enforcement programs. The information will also form a database, easily accessible to investors, about advisers and their personnel.
Form ADV
As amended, rule 203-1 requires every applicant for investment adviser registration with the Commission to file Form ADV through the IARD. Rule 204-1 requires each registered adviser to file amendments to Form ADV through the IARD at least annually,63 and requires currently registered advisers to transition to the IARD and the revised form. We expect the efficiencies of filing through the IARD to, over time, reduce the initial burdens associated with completing the revised Form ADV.
The total burden for all advisers filing current Form ADV is 19,448 hours.64 There are currently approximately 8,100 advisers registered with us, and, based on recent experience, the Commission staff has now estimated that each year we receive approximately 1,000 new applications for registration as an adviser. As discussed in the Proposing Release, this increase in the number of respondents has increased the collection of information by 3,703 hours, independent of today's amendments.65
The revised burden estimate for the collection of information on Form ADV reflects the amendments to the form as well as the requirement that currently-registered advisers re-file their Form ADV electronically in order to transition to use of the revised form and IARD system. The revised collection of information also incorporates the burden of current Schedule I to Form ADV.66
The Commission staff had estimated an average burden increase for Form ADV of 1.47 hours per adviser per year for a 15-year period.67 This burden increase reflected new registrants' filings of revised Form ADV as well as currently-registered advisers' IARD transition filings. Several commenters expressed concerns that the estimates for initial completion of revised Form ADV were too low, particularly for large firms.68 The estimated hours are averages that take into consideration small advisers as well as those with thousands of employees.
The Commission has submitted a PRA change worksheet to OMB to correct an error in the collection of information, which error may have contributed to commenters' concerns. The increase in burden due to the amendments was presented as the total burden of the collection of information, omitting reference to the current burden to which the incremental hours were added.
As discussed in the Proposing Release, the Commission staff has estimated that advisers will file a total of 13,250 Form ADV amendments with us each year.69 We anticipate that electronic filing will reduce the information collection burden of filing an amendment to Form ADV by approximately thirty percent,70 and the estimated burden for Form ADV amendments is 9,938 hours per year.71
The collection of information burden due to rulemaking for advisers to file and complete the revised Form ADV is approximately 23,315 hours per year.72 The total increase in the collection of information burden therefore is 27,018 hours,73 and the total collection of information burden for Form ADV is therefore 46,466 hours.74
This collection of information appears at 17 CFR 275.203-1, 275.204-1, and 279.1. Responses are not kept confidential. The information collection requirements are required for all advisers registered with us or applying for registration after January 1, 2001.
Form ADV-W and Rule 203-2
The Commission is amending rule 203-2 to (i) require advisers to file Form ADV-W through the IARD and (ii) make adviser withdrawals effective upon filing.75 The Commission is also amending Form ADV-W to permit advisers filing for "partial withdrawals" to omit certain items that we do not need from an adviser continuing in business as a state-registered adviser. The Commission staff has estimated that approximately 50 percent of advisers filing for withdrawal will file for full withdrawal, incurring a burden of approximately 0.75 hours (45 minutes) per response, and the remaining 50 percent will file for partial withdrawal, incurring a burden of approximately 0.25 hours (15 minutes) per response. The weighted average total time for each respondent to complete Form ADV-W as amended is estimated to be 0.5 hours (30 minutes), a decrease from the one hour required for the current form. Based on the Commission's recent experience in processing investment adviser withdrawals, however, the Commission staff has estimated that approximately 1,300 advisers withdraw from SEC registration each year, which is an increase from the current burden.76 The total collection of information burden is estimated to be 650 hours.77
This collection of information is found at 17 CFR 275.203-2 and 17 CFR 279.2. Responses are not kept confidential. The information collection requirements are required for all advisers registered with the Commission once the transition period to electronic filing is complete.
Rule 0-2 and Form ADV-NR
The Commission is amending rule 0-2, adding Form ADV-NR, and deleting Forms 4-R, 5-R, 6-R and 7-R. Rule 0-2 permits service of process on non-resident advisers and on non-resident general partners or managing agents of advisers by service on their agents. The amended Form ADV execution page for non-resident advisers incorporates the substance of Forms 4-R through 6-R, and designates the Secretary of the Commission, among others, as the adviser's agent for service of process; accordingly, the paperwork burdens of Forms 4-R through 6-R have been incorporated into the collection of information requirements for Form ADV, discussed above. The substance of Form 7-R is contained in new Form ADV-NR. Form ADV-NR designates the Secretary of the Commission, among others, as the non-resident general partner's or managing agent's agent for service of process.
The Commission staff has estimated that approximately 380 respondents each year will be subject to rule 0-2. Of these, approximately 285 respondents will be non-resident advisers that will now comply with rule 0-2 simply by executing Form ADV. The remaining 95 respondents will be non-resident general partners or managing agents of SEC-registered investment advisers, and must file Form ADV-NR with the Commission.78 The staff has estimated that preparing and filing Form ADV-NR will continue to require approximately one hour of the non-resident general partner's or managing agent's time.79 The total estimated burden therefore is 95 hours.
This collection of information is found at 17 CFR 275.0-2 and 17 CFR 279.4. Responses are not kept confidential. The information collection requirements are required for each non-resident adviser, and for each non-resident general partner or managing agent of any SEC-registered adviser.
Rule 203-3 and Form ADV-H
We are adopting new rule 203-3 and new Form ADV-H. Rule 203-3 requires advisers requesting either a temporary or continuing hardship exemption to submit the request on Form ADV-H. An adviser requesting a temporary hardship is required to file Form ADV-H, providing a brief explanation of the nature and extent of the temporary technical difficulties. Form ADV-H requires an adviser requesting a continuing hardship exemption to indicate the reasons the adviser is unable to submit electronic filings without undue burden and expense.80 A continuing hardship exemption will be available only to an adviser that is a small entity.81
Commission records indicate that approximately 1,500 SEC-registered advisers are small entities. There are, therefore, approximately 1,500 potential respondents that could apply for a continuing hardship exemption, and approximately 8,100 potential respondents that could apply for a temporary hardship exemption.82 The Commission staff has estimated that, each year, 50 advisers will request a temporary hardship exemption and 20 will apply for a continuing hardship exemption. Form ADV-H and rule 203-3 have been estimated to create a collection of information burden of approximately 60 minutes per respondent, for a total of 70 hours.83 This collection of information is found at 17 CFR 275.203-3 and 17 CFR 279.3. Responses are not kept confidential. The information collection requirements are required only if the adviser seeks an exemption.
V. SUMMARY OF FINAL REGULATORY FLEXIBILITY ANALYSIS
We have prepared a Final Regulatory Flexibility Analysis (FRFA) in accordance with section 3(a) of the Regulatory Flexibility Act (RFA)84 regarding the amendments to Form ADV and other rules and forms under the Advisers Act. We prepared an Initial Regulatory Flexibility Analysis (IRFA) in conjunction with the Proposing Release and made it available to the public. We received no comments specifically on the IRFA.
A. Need for the Rule and Form Amendments
As discussed in more detail in the FRFA, and above, the rule and form amendments85 are necessary to: (i) facilitate the development of a system of electronic filing by investment advisers; (ii) update the registration forms for advisers to reflect recent legislative and regulatory developments; and (iii) develop a database of information about advisers that is easily accessible to investors.
B. Significant Issues Raised by Public Comment
The Commission received 70 comment letters in response to the Proposing Release. The commenters generally supported the proposal, although some expressed concerns with specific provisions, and some suggested alternative approaches for addressing particular issues. As discussed above, the Commission has concluded that certain suggestions from commenters are appropriate and has adopted the rule and form amendments with changes to reflect those suggestions.
The Commission specifically requested comment with respect to the IRFA. No comments were received specifically on the IRFA, but one commenter did urge the Commission to disregard any comments from Wyoming advisers if the commenters argued that the rule and form amendments would be burdensome. We did not receive any comments from Wyoming advisers. Some commenters, however, did address aspects of the proposed amendments that could potentially affect small businesses. The comments received concerning those issues are discussed below.
C. Small Entities Subject to the Rules
In developing the rule and form amendments, we have considered their potential effect on small entities that may be affected, which is discussed in the FRFA. The rule and form amendments will not affect most advisers that are small entities86 (small advisers) because those advisers are registered with one or more state securities authorities rather than with us. Congress amended the Advisers Act in 1996 so that small advisers generally are regulated by state regulators and not the Commission.87 Those small advisers that remain registered with us are located in Wyoming (which does not have an investment adviser statute), or are eligible for an exemption that permits SEC registration. Of the approximately 20,000 advisers in the United States, approximately 8,100 (approximately 40%) are registered with us. Of those 8,100, the FRFA estimates that approximately 1,500 (approximately 18%) qualify as small advisers. We have based this estimate on registration information advisers file with the Commission.
D. Projected Reporting, Recordkeeping, and Other Compliance Requirements
The FRFA states that the rule and form amendments impose certain reporting and compliance requirements on small advisers, requiring them (i) to file electronically through the IARD and (ii) to use amended Form ADV when applying for registration (or amending an existing registration). These requirements are discussed more fully in the FRFA and Section II of the Proposing Release, and the burdens on small advisers are discussed below.
1. Electronic Filing Requirements
The FRFA explains that electronic filing is likely to impose two types of burdens on small advisers - filing fees and the time and expense of familiarizing themselves with the system.
Filing Fees. The IARD system operator will charge filing fees to all advisers, including small advisers.88 Small advisers will pay substantially smaller fees than larger advisers. This sliding scale is designed to minimize the burdens of electronic filing on small advisers while maintaining the economic viability of the IARD. It also recognizes that larger advisers, which are more likely to have filing requirements in multiple states, will benefit more from the IARD than small advisers.
Other Burdens. The FRFA explains that, to use the IARD, small advisers must also establish an account with NASDR, familiarize themselves with the IARD's filing rules, and obtain Internet access if they do not already have it. We believe that these burdens are small and that advisers will incur most of the costs when they first begin to use the IARD. Thereafter, using the IARD should actually reduce regulatory burdens for all advisers, including small advisers.
Our information suggests that almost all investment advisers, including small advisers, currently have Internet access, and use the Internet for various purposes.89 Nonetheless, our rule and form amendments provide for a continuing hardship exemption, available only to small advisers. The exemption will permit the adviser to continue submitting paper filings if using the IARD would impose an "unreasonable burden or expense."90 The operator of the IARD will convert the paper filing to electronic format and charge the adviser an additional fee to cover conversion costs. The IARD will also accommodate advisers' use of commercial filing service bureaus, which we understand many small advisers currently use to make regulatory filings. We have included these alternative means of making filings to minimize the burdens the electronic filing rules will have on small advisers.
Many small advisers today use filing services because they cannot hire professional compliance staff, and do not themselves have the knowledge, time, or expertise to understand the details of the various federal and state forms, deadlines, and fees. The IARD will have a number of features designed to make it easy to complete Form ADV, even if the user is unfamiliar with the form. We have written the new instructions in plain English and reorganized the form in a simpler manner. We have re-drafted questions that previously presented interpretive difficulties for small advisers, and have provided for an on-line "help" function that will provide easy access to answers to questions advisers frequently ask about the form. Advisers using the system will also have easy on-line access to the text of the Advisers Act and our rules. Together, these features should substantially benefit small advisers that may not have lawyers or other professional compliance personnel or staff.
The FRFA concludes that, although small advisers will experience some modest start-up costs in using the IARD, over time the system will actually reduce overall costs. As advisers become more familiar with the IARD, use of the system should substantially reduce administrative costs associated with making regulatory filings, and improve advisers' compliance with regulatory requirements, allowing them to reduce their dependence, in more routine matters, on lawyers, compliance firms and others who assist them in meeting their regulatory obligations.
2. Amendments to Form ADV
Part 1. The FRFA explains that the amendments to Part 1A of Form ADV should have a minimal effect on small advisers. None of the new items requests information that should not be readily available to the advisers. For example, advisers must provide the e-mail address of a contact person (if she has one), and the address of any web site the adviser sponsors. Further, because small advisers tend to have simpler business arrangements, fewer control persons, and fewer employees, the burdens of completing Part 1A should be significantly less for small advisers than for larger advisers.
The FRFA acknowledges that small advisers whose control persons have disciplinary histories will likely spend more resources than other advisers in completing the necessary DRPs for reporting of disciplinary events. Based on information filed on current Form ADV, we estimate that only approximately 14% of advisers will be required to report disciplinary information, and thus most small advisers will be unaffected by this requirement.91
Part 2. The Commission proposed significant amendments to Part 2 of Form ADV. These amendments would have imposed additional costs on advisers, including small advisers. The proposed amendments to Part 2 would have required advisers to begin preparing and disseminating narrative brochures. The Commission has elected to defer adoption of Part 2 and related rules until a later date.
E. Agency Action to Minimize Effect on Small Entities
The FRFA discusses the various alternatives that the Commission considered, in adopting the rule and form amendments, that might minimize the effect on small advisers, including (i) establishing different compliance or reporting requirements or timetables that take into account the resources available to small advisers; (ii) clarifying, consolidating, or simplifying compliance and reporting requirements for small advisers; (iii) using performance rather than design standards; and (iv) exempting small advisers from coverage of all or part of the amended rules and forms.
Regarding the first alternative, the Commission considered establishing different compliance or reporting requirements for small advisers. As explained in the FRFA, establishing different compliance or reporting requirements would be inconsistent with our mandate to provide a system of public disclosure of investment adviser information. The FRFA states that a small adviser will, by the nature of its business, likely spend fewer resources in completing the new Form ADV, and will pay lower filing fees, than a larger adviser.
Regarding the second alternative, it does not appear that the rules and forms can be formatted differently for small advisers and still achieve the stated objectives of the amendments. Nonetheless, the amendments clarify and simplify the form for all advisers, including small advisers. As discussed more fully in the FRFA, we are also adding a new item to Form ADV to identify small advisers so we can better assess the number of small advisers registered with us and the burdens our rules impose on them.
Regarding the third alternative, the FRFA explains that the rules and forms would permit advisers to use performance rather than design standards in some instances. In other contexts, however, the use of performance rather than design standards would be inconsistent with our statutory mandate to protect investors, as advisers must provide certain registration information in a uniform and quantifiable manner so that it is useful to our regulatory and examination programs. Design standards, therefore, are necessary to achieve many objectives of the amended rules and forms.
Regarding the fourth alternative, the FRFA states that it would be inconsistent with the purposes of the Advisers Act to exempt small advisers from the amendments. As discussed, the information advisers file will form a publicly-accessible database, allowing investors to obtain information about, among other things, the disciplinary histories of an adviser and its personnel. Clients and potential clients of small advisers are entitled to obtain the same information, with the same ease, as those of larger advisers, and exempting small advisers from any of the rule and form amendments would be inconsistent with a central purpose of the Advisers Act.
We have incorporated several features, such as the "help" function, intended to minimize the burden on small advisers. Small advisers can also apply for a continuing hardship exemption from the electronic filing requirements, as discussed above.
The FRFA states that, having considered the above alternatives in the context of the proposed rule and form amendments, and after taking into account the resources available to small advisers and the potential burden the rule and form amendments could place on investment advisers, the alternatives, except as noted above, would not accomplish the stated objectives of the rule and form amendments.
A copy of the FRFA is available for public inspection in File No. S7-10-00, and a copy may be obtained by contacting Jennifer Sawin, Special Counsel, Securities and Exchange Commission, 450 5th Street, N.W., Washington, DC 20549-0506.
We are adopting new rule 203-3 under sections 203(c)(1) and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1) and 80b-11(a)].
We are amending rules 30-5 and 30-11 of our Organization and Program Management rules under sections 4A and 4B of the Securities Exchange Act of 1934 [15 U.S.C. 78d-1 and 78d-2].
We are amending rule 0-2 under section 19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)], section 23(a) of the Securities Exchange Act of 1934 [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 of 1940 [15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].
We are amending rule 0-7 under chapter 6 of title 5 of the United States Code (particularly section 601 of that chapter [5 U.S.C. 601]) and section 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-11(a)].
We are amending rules 203-1 and 203-2 under sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].
We are amending rule 203A-1 under sections 203A(a)(1)(A), 203A(c), and section 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3a(a)(1)(A), 80b-3a(c), and 80b-11(a)].
We are amending rule 203A-2 under section 203A(c) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3a(c)].
We are amending rule 204-1 under sections 203(c)(1) and 204 of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1) and 80b-4].
We are adopting new Form ADV-H under sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].
We are amending rule 279.1, 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 Securities Exchange Act of 1934 [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 of 1940 [15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].
We are amending rule 279.2, Form ADV-W, under sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].
We are amending rule 279.4, Form 4-R, by replacing it with Form ADV-NR under section 19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)], section 23(a) of the Securities Exchange Act of 1934 [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 of 1940 [15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].
We are withdrawing rule 204-5 under section 211(a) under the Investment Advisers Act of 1940 [15 U.S.C. 80b-11(a)].
We are removing and reserving rules 279.5, 279.6, and 279.7 and removing Forms 5-R, 6-R, and 7-R under section 19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)], section 23(a) of the Securities Exchange Act of 1934 [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 of 1940 [15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].
We are removing and reserving rule 279.9 and removing Form ADV-Y2K under section 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-11(a)].
List of Subjects in 17 CFR Part 200
Administrative practice and procedure; Authority delegations (Government agencies)
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 200 - ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS
1. The authority section for Part 200 continues to read in part as follows:
Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 78mm, 79t, 77sss, 80a-37, 80b-11, unless otherwise noted.
* * * * *
2. In Section 200.30-5, the introductory text of paragraph (e) is revised and paragraph (e)(7) is added to read as follows:
§ 200.30-5 Delegation of authority to Director of Division of Investment Management.
* * * * *
(e) With respect to the Investment Advisers Act of 1940 [15 U.S.C. 80b-1 to 80b-22]:
* * * * *
(7) Pursuant to section 203A(d) of the Act [15 U.S.C. 80b-3a(d)], to set the terms of, and grant or deny as appropriate, continuing hardship exemptions under § 275.203-3 of this chapter.
3. Section 200.30-11 is amended by revising paragraph (b)(2) to read as follows:
§ 200.30-11 Delegation of authority to Associate Executive Director of the Office of Filings and Information Services.
* * * * *
(b) * * *
(2) Under section 203(h) of the Act [15 U.S.C. 80b-3(h)], to authorize the issuance of orders canceling registrations of investment advisers, or pending applications for registration, if such investment advisers or applicants for registration are no longer in existence or are not engaged in business as investment advisers.
* * * * *
PART 275 -- RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940
4. The general authority citation for Part 275 is revised to read as follows:
Authority: 15 U.S.C. 80b-2(a)(11)(F), 80b-2(a)(17), 80b-3, 80b-4, 80b-6(4), 80b-6a, 80b-11, unless otherwise noted.
* * * * *
5. Section 275.0-2 is revised to read as follows:
§ 275.0-2 General procedures for serving non-residents.
(a) General procedures for serving process, pleadings, or other papers on non-resident investment advisers, general partners and managing agents. Under Forms ADV and ADV-NR [17 CFR 279.1 and 279.4], a person may serve process, pleadings, or other papers on a non-resident investment adviser, or on a non-resident general partner or non-resident managing agent of an investment adviser by serving any or all of its appointed agents:
(1) A person may serve a non-resident investment adviser, non-resident general partner, or non-resident managing agent by furnishing the Commission with one copy of the process, pleadings, or papers, for each named party, and one additional copy for the Commission's records.
(2) If process, pleadings, or other papers are served on the Commission as described in this section, the Secretary of the Commission (Secretary) will promptly forward a copy to each named party by registered or certified mail at that party's last address filed with the Commission.
(3) If the Secretary certifies that the Commission was served with process, pleadings, or other papers pursuant to paragraph (a)(1) of this section and forwarded these documents to a named party pursuant to paragraph (a)(2) of this section, this certification constitutes evidence of service upon that party.
(b) Definitions. For purposes of this section:
(1) "Managing agent" means any person, including a trustee, who directs or manages, or who participates in directing or managing, the affairs of any unincorporated organization or association other than a partnership.
(2) "Non-resident" means:
(i) An individual who resides in any place not subject to the jurisdiction of the United States;
(ii) A corporation that is incorporated in or that has its principal office and place of business in any place not subject to the jurisdiction of the United States; and
(iii) A partnership or other unincorporated organization or association that has its principal office and place of business in any place not subject to the jurisdiction of the United States.
(3) "Principal office and place of business" has the same meaning as in § 275.203A-3(c) of this chapter.
6. In § 275.0-7, the introductory text of paragraph (a) is republished and paragraphs (a)(1) and (b)(1) are revised to read as follows:
§ 275.0-7 Small entities under the Investment Advisers Act for purposes of the Regulatory Flexibility Act.
(a) For purposes of Commission rulemaking in accordance with the provisions of Chapter Six of the Administrative Procedure Act [5 U.S.C. 601] and unless otherwise defined for purposes of a particular rulemaking proceeding, the term "small business" or "small organization" for purposes of the Investment Advisers Act of 1940 means an investment adviser that:
(1) Has assets under management, as defined under Section 203A(a)(2) of the Act (15 U.S.C. 80b-3a(a)(2)) and reported on its annual updating amendment to Form ADV [17 CFR 279.1], of less than $25 million, or such higher amount as the Commission may by rule deem appropriate under Section 203A(a)(1)(A) of the Act (15 U.S.C. 80b-3a(a)(1)(A));
* * * * *
(b) For purposes of this section:
(1) "Control" means the power, directly or indirectly, to direct the management or policies of a person, whether through ownership of securities, by contract, or otherwise.
(i) A person is presumed to control a corporation if the person:
(A) Directly or indirectly has the right to vote 25 percent or more of a class of the corporation's voting securities; or
(B) Has the power to sell or direct the sale of 25 percent or more of a class of the corporation's voting securities.
(ii) A person is presumed to control a partnership if the person has the right to receive upon dissolution, or has contributed, 25 percent or more of the capital of the partnership.
(iii) A person is presumed to control a limited liability company (LLC) if the person:
(A) Directly or indirectly has the right to vote 25 percent or more of a class of the interests of the LLC;
(B) Has the right to receive upon dissolution, or has contributed, 25 percent or more of the capital of the LLC; or
(C) Is an elected manager of the LLC.
(iv) A person is presumed to control a trust if the person is a trustee or managing agent of the trust.
* * * * *
7. Section 275.203-1 is revised to read as follows:
§ 275.203-1 Application for investment adviser registration.
(a) Form ADV. To apply for registration with the Commission as an investment adviser, you must complete and file Form ADV [17 CFR 279.1] by following the instructions in the Form.
(b) Electronic filing.
(1) If you apply for registration after January 1, 2001, you must file electronically with the Investment Adviser Registration Depository (IARD), unless you have received a hardship exemption under § 275.203-3.
Note to Paragraph (b)(1): Information on how to file with the IARD is available on the Commission's website at www.sec.gov/divisions/investment/iard.shtml.
(2) You are not required to file with the Commission a copy of Part II of Form ADV if you maintain a copy of your Part II (and any brochure you deliver to clients) in your files. The copy maintained in your files is considered filed with the Commission.
Note to Paragraph (b)(2): The Commission has proposed, but not adopted, substantial changes to Part II of Form ADV. Thus, the rules for preparing, delivering, and offering Part II (or a brochure containing at least the information contained in Part II) have not changed. If you are an SEC-registered adviser, however, you no longer have to file Part II with the Commission. Instead, you must keep a copy in your files, and update the information in your Part II whenever it becomes materially inaccurate. If you are a State-registered adviser, State law may continue to require you to file Part II with the appropriate State securities authority on paper, regardless of whether you are filing Part 1 on paper or through the IARD.
(c) When filed. Each Form ADV is considered filed with the Commission upon acceptance by the IARD.
(d) Filing fees. You must pay NASD Regulation, Inc. (NASDR) (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 application for registration will not be accepted by NASDR, and thus will not be considered filed with the Commission, until you have paid the filing fee.
8. Section 275.203-2 is revised to read as follows:
§ 275.203-2 Withdrawal from investment adviser registration.
(a) Form ADV-W. You must file Form ADV-W [17 CFR 279.2] to withdraw from investment adviser registration with the Commission (or to withdraw a pending registration application).
(b) Electronic filing. Once you have filed your Form ADV [17 CFR 279.1] (or any amendments to Form ADV) electronically with the Investment Adviser Registration Depository (IARD), any Form ADV-W you file must be filed with the IARD, unless you have received a hardship exemption under § 275.203-3.
(c) Effective date - upon filing. Each Form ADV-W filed under this section is effective upon acceptance by the IARD, provided however that your investment adviser registration will continue for a period of sixty days after acceptance solely for the purpose of commencing a proceeding under section 203(e) of the Act [15 U.S.C. 80b-3(e)].
(d) Filing fees. You do not have to pay a fee to file Form ADV-W through the IARD.
(e) Form ADV-W is a report. Each Form ADV-W required to be filed under this section is a "report" within the meaning of sections 204 and 207 of the Act [15 U.S.C. 80b-4 and 80b-7].
9. Section 275.203-3 is added to read as follows:
§ 275.203-3 Hardship exemptions.
This section provides two "hardship exemptions" from the requirement to make Advisers Act filings electronically with the Investment Adviser Registration Depository (IARD).
(a) Temporary hardship exemption.
(1) Eligibility for exemption. If you are registered with the Commission as an investment adviser and submit electronic filings on the Investment Adviser Registration Depository (IARD) system, but have unanticipated technical difficulties that prevent you from submitting a filing to the IARD system, 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 with NASD Regulation, Inc. (NASDR) 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 with NASDR.
(b) Continuing hardship exemption.
(1) Eligibility for exemption. If you are a "small business" (as described in paragraph (b)(5) of this section), you may apply for a continuing hardship exemption. The period of the exemption may be no longer than one year after the date on which you apply for the exemption.
(2) Application procedures. To apply for a continuing hardship exemption, you must file Form ADV-H with NASDR at least ten business days before a filing is due. The Commission will grant or deny your application within ten business days after you file Form ADV-H.
(3) Effective date -- upon approval. You are not exempt from the electronic filing requirements until and unless the Commission approves your application. If the Commission approves your application, you may submit your filings to NASDR in paper format for the period of time for which the exemption is granted.
(4) Criteria for exemption. Your application will be granted only if you are able to demonstrate that the electronic filing requirements of this chapter are prohibitively burdensome or expensive.
(5) Small business. You are a "small business" for purposes of this section if you are required to answer Item 12 of Form ADV [17 CFR 279.1] and checked "no" to each question in Item 12 that you were required to answer.
Note to Paragraphs (a) and (b): NASDR will charge you an additional fee covering its cost to convert to electronic format a filing made in reliance on a continuing hardship exemption.
10. Section 275.203A-1 is revised to read as follows:
§ 275.203A-1 Eligibility for SEC registration; switching to or from SEC registration.
(a) Eligibility for SEC registration.
(1) Threshold for SEC registration -- $30 million of assets under management. If the State where you maintain your principal office and place of business has enacted an investment adviser statute, you are not required to register with the Commission, unless:
(i) You have assets under management of at least $30,000,000, as reported on your Form ADV [17 CFR 279.1]; or
(ii) You are an investment adviser to an investment company registered under the Investment Company Act of 1940 [15 U.S.C. 80a-1].
(2) Exemption for investment advisers having between $25 and $30 million of assets under management. If the State where you maintain your principal office and place of business has enacted an investment adviser statute, you may register with the Commission if you have assets under management of at least $25,000,000 but less than $30,000,000, as reported on your Form ADV [17 CFR 279.1]. This paragraph (a)(2) shall 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-1 to 80a-64]; or
(ii) You are eligible for an exemption described in § 275.203A-2 of this chapter.
Note to Paragraphs (a)(1) and (a)(2):
Paragraphs (a)(1) and (a)(2) of this section together make SEC registration optional for certain investment advisers that have between $25 and $30 million of assets under management.
(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 have at least $30 million of assets under management.
(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 no longer have $25 million of assets under management (or are not otherwise eligible for SEC registration), 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 have at least $25 million of assets under management or are otherwise eligible for SEC registration). During this period while you are registered with both the Commission and one or more State securities authorities, the Investment Advisers Act of 1940 and applicable State law will apply to your advisory activities.
11. Section 275.203A-2 is amended as follows:
(a) the introductory text is republished;
(b) in paragraph (b)(3), the phrase "Schedule I" is revised to read "an annual updating amendment";
(c) the introductory text to paragraph (d) is republished;
(d) paragraphs (d)(2) and (d)(3) are revised;
(e) the introductory text to paragraph (e) is republished; and
(f) paragraphs (e)(2), (e)(3) and (e)(4) are revised to read as follows:
§ 275.203A-2 Exemptions from prohibition on SEC registration.
The prohibition of section 203A(a) of the Act [15 U.S.C. 80b-3a(a)] does not apply to:
* * * * *
(b) Pension consultants.
* * * * *
(d) Investment advisers expecting to be eligible for SEC registration within 120 days. An investment adviser that:
* * * * *
(2) Indicates on Schedule D of its Form ADV [17 CFR 279.1] that it will withdraw from registration with the Commission if, on the 120th day after the date the investment adviser's registration with the Commission becomes effective, 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; and
(3) Notwithstanding § 275.203A-1(b)(2) of this chapter, files a completed Form ADV-W [17 CFR 279.2] withdrawing from registration with the Commission within 120 days after the date the investment adviser's registration with the Commission becomes effective.
(e) Multi-State investment advisers. An investment adviser that:
* * * * *
(2) Indicates 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 30 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 25 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;
(3) Undertakes 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 25 States to register as an investment adviser with the securities commissioners (or any agencies or officers performing like functions) 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 has at least $25 million of assets under management or is otherwise eligible for SEC registration); and
(4) Maintains in an easily accessible place a record of the States in which the investment adviser has determined it would, but for the exemption, be required to register for a period of not less than five years from the filing of a Form ADV that includes a representation that is based on such record.
12. Section 275.204-1 is revised to read as follows:
§ 275.204-1 Amendments to application for registration.
(a) When amendment is required. You must amend your Form ADV [17 CFR 279.1]:
(1) At least annually, within 90 days of the end of your fiscal year; and
(2) More frequently, if required by the instructions to Form ADV.
(b) Transition to electronic filing.
(1) If you are an investment adviser registered with the Commission on December 31, 2000, you must amend your Form ADV by electronically filing a completed Part 1A of Form ADV (as amended effective October 10, 2000) with the Investment Adviser Registration Depository (IARD) according to the following schedule:
(i) If your fiscal year ends in December, and
(A) your SEC registration number is 801-1 through 801-36806, you must file no later than January 31, 2001;
(B) your SEC registration number is 801-36807 through 801-54145, you must file no later than February 28, 2001;
(C) your SEC registration number is 801-54146 or higher, you must file no later than March 30, 2001.
(ii) If your fiscal year ends in any month other than December (i.e., January through November), you must file no later than April 30, 2001.
Note to Paragraphs (a) and (b): Information on how to file with the IARD is available on our website at www.sec.gov/divisions/investment/iard.shtml
(2) If you are an investment adviser whose registration application (filed on paper) was pending on January 1, 2001 and became effective after that date, you must amend your Form ADV by electronically filing a completed Part 1A of Form ADV (as amended effective October 10, 2000) with the IARD by April 30, 2001.
(3) If you have received a continuing hardship exemption under § 275.203-3, you must file a completed Part 1A of Form ADV on paper with NASD Regulation, Inc. (NASDR) when you are required to amend your Form ADV by the schedule in subparagraph (1) of this paragraph.
(4) If you have filed Part 1A of Form ADV with the IARD under paragraphs (1) or (2) of this section, you must file all subsequent amendments to Part 1A of your Form ADV with the IARD.
(c) Special rule for Part II. You are not required to file with the Commission a copy of Part II of Form ADV if you maintain a copy of your Part II (and any brochure you deliver to clients) in your files. The copy maintained in your files is considered filed with the Commission.
Note to Paragraph (c): The Commission has proposed, but not adopted, substantial changes to Part II of Form ADV. Thus, the rules for preparing, delivering, and offering Part II (or a brochure containing at least the information contained in Part II) have not changed. If you are an SEC-registered adviser, however, you no longer have to file Part II with the Commission. Instead, you must keep a copy in your files, and update the information in your Part II whenever it becomes materially inaccurate. If you are a State-registered adviser, State law may continue to require you to file Part II with the appropriate State securities authority on paper, regardless of whether you are filing Part 1 on paper or through the IARD.
(d) Filing fees. You must pay NASDR (the operator of the IARD) an initial filing fee when you first electronically file Part 1A of Form ADV pursuant to sub-paragraph (b) of this section. After you pay the initial filing fee, you must pay an annual filing fee each time you file your annual updating amendment. No portion of either fee is refundable. The Commission has approved the filing fees. Your amended Form ADV will not be accepted by NASDR, and thus will not be considered filed with the Commission, until you have paid the filing fee.
(e) Amendments to Form ADV are reports. Each amendment required to be filed under this section is a "report" within the meaning of sections 204 and 207 of the Act [15 U.S.C. 80b-4 and 80b-7].
13. Section 275.204-5 is removed and reserved.
PART 279 -- FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 1940
14. The authority citation for Part 279 continues to read as follows:
Authority: 15 U.S.C. 80b-1 to 80b-22.
15. Form ADV (referenced in § 279.1) is revised.
Note: The text of Form ADV does not and the amendments will not appear in the Code of Federal Regulations. Form ADV is attached as Appendix A.
16. Form ADV-W (referenced in § 279.2) is revised.
Note: The text of Form ADV-W does not and the amendments will not appear in the Code of Federal Regulations. Form ADV-W is attached as Appendix B.
17. Section 279.3 and Form ADV-H are added as follows:
Note: The text of Form ADV-H will not appear in the Code of Federal Regulations. Form ADV-H is attached as Appendix C.
§ 279.3 Form ADV-H, application for a temporary or continuing hardship exemption.
An investment adviser must file this form under § 275.203-3 of this chapter to request a temporary hardship exemption or apply for a continuing hardship exemption.
18. Form 4-R (referenced in § 279.4) is removed.
19. Section 279.4 is revised and Form ADV-NR is added as follows:
Note: Form ADV-NR will not appear in the Code of Federal Regulations. Form ADV-NR is attached as Appendix D.
§ 279.4 Form ADV-NR, appointment of agent for service of process by non-resident general partner and non-resident managing agent of an investment adviser.
Each non-resident general partner or managing agent of an investment adviser must file this form under § 275.0-2 of this chapter.
20. Section 279.5 and Form 5-R are removed and reserved.
Note: Form 5-R does not appear in the Code of Federal Regulations.
§ 279.5 [Removed and Reserved]
21. Section 279.6 and Form 6-R are removed and reserved.
Note: Form 6-R does not appear in the Code of Federal Regulations.
§ 279.6 [Removed and Reserved]
22. Section 279.7 and Form 7-R are removed and reserved.
Note: Form 7-R does not appear in the Code of Federal Regulations.
§ 279.7 [Removed and Reserved]
23. Section 279.9 and Form ADV-Y2K are removed and reserved.
Note: Form ADV-Y2K does not appear in the Code of Federal Regulations.
§ 279.9 [Removed and Reserved]
By the Commission.
Jonathan G. Katz
Secretary
September 12, 2000
[Note: Appendixes A, B, C, and D will not appear in the Code of Federal Regulations]
Footnotes
1 Investment Advisers Act Release No. 1862. (Apr. 5, 2000) [65 FR 20524 (Apr. 17, 2000)] ("Proposing Release").
2 A summary of comments prepared by our staff is available in our Public Reference Room in File No. S7-10-00, and on our web site at www.sec.gov/rules/extra/iardsumm.htm.
3 We changed the numbering of the parts of Form ADV from Roman (Part I and II) to Arabic (Part 1 and Part 2) numbers. In this Release, however, we use Arabic numbers to refer to the parts of Form ADV before and after amendment. At some points, we refer separately to old Part II and proposed Part 2 in order to clarify which rules advisers must follow during an interim period.
4 NASDR is a wholly-owned subsidiary of the National Association of Securities Dealers (NASD), a self-regulatory organization which supervises broker-dealers that conduct a public business in securities other than on an exchange of which the broker-dealer is a member. NASAA represents the 50 U.S. state securities authorities responsible for the administration of state securities laws, also known as "blue sky laws." Currently, 49 states (all except Wyoming) and the District of Columbia, Guam, and Puerto Rico have investment adviser statutes. See www.nasaa.org/search/memberslinks.html.
5 In July, we formally designated NASDR as operator of the IARD. Investment Advisers Act Release No. 1888 (July 28, 2000) [65 FR 47807 (Aug. 3, 2000)].
6 The following other forms under the Advisers Act will continue to be submitted to us on paper: Form ADV-E (Certificate of Accounting of Client Securities and Funds in the Possession or Custody of an Investment Adviser); ADV-NR (Appointment of Agent for Service of Process by Non-Resident General Partner and Non-Resident Managing Agent of an Investment Adviser); and ADV-H (Application for a Temporary or Continuing Hardship Exemption). In addition, advisers that are institutional investment managers will continue to make Form 13F filings through our EDGAR system. Form 13F filings are made by many firms other than investment advisers, and it would not be feasible to include these filings on the IARD.
7 In Investment Advisers Act Release No. 1888, supra note 5, we approved a schedule of filing fees NASDR will charge. The fee schedule is available on our web site at www.sec.gov/divisions/investment/iard.shtml.
8 Rule 204-1(b) [17 CFR 275 204-1(b)].
9 An SEC-registered adviser must indicate in Item 2.B of Part 1A the states in which it has notice filing obligations. IARD will determine the amount of state fees due from the adviser based on its response.
10 In this Release, we refer to both applicants for registration as an adviser with a state securities authority and persons registered as an adviser with a state securities authority as "state-registered advisers."
11 As we explained in the Proposing Release, Form ADV will continue to request social security numbers of persons who have not been assigned a CRD number. NASDR needs this information when assigning a CRD number to distinguish between persons having the same name. Proposing Release, supra note 1, at note 77.
12 We have revised each item and schedule of Form ADV that requires an address to inquire whether the address reported is a private residence. Items 1.F and 1.G of Part 1A and Sections 1.F, 1.K and 10 of Schedule D.
13 The contact employee information is provided in response to Item 1.J of Form ADV. Commenters expressed concern that the contact employee might be inundated with phone calls that would more appropriately be directed elsewhere in the advisory firm.
14 Rule 204-3 [17 CFR 204-3].
15 Rules 203-1(b)(2) and 204-1(c) [17 CFR 275.203-1(b)(2) and .204-1(c)].
16 Rule 203-1(b)(2). As a result, state securities authorities may continue to require SEC-registered advisers to file with them a paper copy of the adviser's Part II of Form ADV. See section 307 (a) of The National Securities Markets Improvement Act of 1996 (NSMIA), (Pub. L. No. 104-290, 110 Stat. 3438) (1996). Several commenters objected to this rule, arguing that states have no interest in the brochures of SEC-registered advisers. We believe that states should continue to be able to require Part II during this hiatus in our requirements. Under our rule, a state is free to require Part II from all advisers that meet its jurisdictional requirements, from no advisers, or upon request.
17 Rule 203-1(b)(1) [17 CFR 275.203-1(b)(1)]. The Advisers Act provides that, within 45 days after a person files an application for registration with us, we must either grant registration under the Act or institute a proceeding to determine whether registration should be denied. Section 203(c)(2) [15 U.S.C. 80b-3(c)(2)]. Under our rules, as today amended, an application for registration under the Act is considered filed with us on the date that the application is accepted by the IARD. Rule 203-1(c) [17 CFR 275.203-1(c)]. The IARD will only accept filings that are complete and for which filing fees are paid.
Some affiliated advisers have filed a single Form ADV to register all or some of the affiliates. Our experience is that such joint registrations do not work well since each adviser may have different responses to the same items. We will no longer accept joint registration; each affiliate must file a separate application for registration.
18 See infra Section I.B.3.
19 Rule 204-1(b).
20 Rules 204-1(b)(4) and 203-2(b) [17 CFR 275.204-1(b)(4) and 203-2(b)]. Form ADV-W is in Appendix B to this Release.
21 Until an adviser makes its first electronic filing it must comply with the updating requirements of our rules by making paper filings of Part 1 of Form ADV with us, using "old" Form ADV, i.e., Form ADV that does not reflect the current amendments. If an adviser should withdraw its registration before making its first electronic filing on Form ADV, it must file its Form ADV-W with us on paper. It may use either "old" Form ADV-W or Form ADV-W as we are amending it today.
22 If an adviser's fiscal year (as reported in its current Form ADV) ends in December, the adviser must transition to electronic filing by submitting an amendment to its Form ADV through the IARD no later than:
(i) January 31, 2001, if the adviser's SEC file number is 801-1 through 801-36806;
(ii) February 28, 2001, if the adviser's SEC file number is 801-36807 through 801-54145; and
(iii) March 30, 2001, if the adviser's SEC file number is 801-54146 or higher.
Rule 204-1(b)(1) [17 CFR 275.204-1(b)(1)].
23 An adviser is required to update its registration forms at least annually within 90 days of the end of its fiscal year. Rule 204-1(a)(1). [17 CFR 204-1(a)(1)].
24 Rule 204-1(b)(1)(ii) [17 CFR 275.204-1(b)(1)(ii)]. Advisers are free to file as soon as they complete the entitlement process with NASDR as described below. As a result, some advisers may have filing options. An adviser having a fiscal year ending on October 31, for example, could submit an annual updating amendment to us on paper in January 2001 and then make subsequent electronic filing by the end of April 2001, or could transition to electronic filing early, by the end of January.
25 Form ADV-H is in Appendix C to this Release.
26 See rule 203-3(a) [17 CFR 275.203-3(a)]. Some commenters on the proposed rule argued that seven days was inadequate. We are adopting the rule as proposed. As we noted in the Proposing Release, advisers facing a persistent filing impediment should make alternative filing arrangements, such as hiring a service bureau.
27 Rule 203-3(b) [17 CFR 275.203-3(b)]. An investment adviser generally is a small business if it (a) manages assets of less than $25 million, (b) has total assets of $5 million or less, and (c) is not in a control relationship with another investment adviser that is not a small business. Rule 0-7 [17 CFR 275.0-7]. Since SEC-registered advisers are primarily larger firms, we expect that few will qualify for a continuing hardship exemption.
28 We are delegating authority to grant or deny a continuing hardship exemption to our Division of Investment Management. See rule 30-5(e)(7) of our Organization and Program Management Rules. [17 CFR 200.30e-5(e)(7)].
29 Advisers that already have a CRD account with NASDR will use that account. These firms, however, must still complete the entitlement forms and return them to NASDR in order to obtain IARD access.
30 New applicants for SEC registration can obtain copies of the entitlement forms from NASDR at www.iard.com
31 The site address is www.sec.gov/divisions/investment/iard.shtml.
32 Advisers registered with the Commission or applying for registration with the Commission can call the Commission staff at (202) 942-0691 with legal and regulatory questions relating to Forms ADV and ADV-W.
33 Advisers should call NASDR's help desk at (240) 386-4848 with questions about filling out entitlement forms, setting up an IARD account, and using the IARD system.
34 Rule 204-3. Form ADV, as amended, is in Appendix A to this Release
35 Form ADV will exist in both an electronic and a paper version. We have appended to this release the paper version, which will only be filed by advisers that have received a continuing hardship exemption. The electronic version of the form, which will be available only through the IARD, will elicit the same information but will have minor differences necessary to reflect and, in some cases take advantage of, an electronic environment.
36 Part 1B was prepared by NASAA on behalf of state securities authorities. Completion of this part of Form ADV is a requirement of state law (and not SEC rules).
37 We deleted terms that would have been used only in new Part 2 and added a definition of "employee," which is used in Item 5. As noted, infra note 38, we omitted the reference to "independent contractors" in Item 5 because the term could be construed to include persons who did not provide advice on the adviser's behalf. Instead, the item relies on the defined term "employee," which includes independent contractors that perform advisory functions on behalf of the adviser. In addition, we modified the definitions of "advisory affiliate" and "related person," which are used in Items 7, 8, 9, and 11. These modifications do not change from current Form ADV the persons and firms that are "advisory affiliates" and "related persons" of advisers; the modifications only clarify the definitions.
38 We have revised (i) Item 1.I to clarify which web addresses must be provided on Schedule D; (ii) Item 5 to delete references to "independent contractors"; (iii) Item 5.B.(3) to ask only for the number of solicitors that are not employees of the adviser; and (iv) Item 7 to ask whether the adviser or a related person is a general partner of a limited partnership or a manager of a limited liability company and to limit the item to investment-related limited partnerships and investment-related limited liability companies.
39 Items 11.A, 11.B, and 11.D of Part 1A.
40 Item 11.C(5) of Part 1A.
41 Item 11.A.(1) and 11.B. These changes further conform Form ADV's disciplinary questions to those of Form BD. See Form BD Amendments, Securities Exchange Act Release No. 35224 (Jan. 12, 1995) [60 FR 4040 (Jan. 19, 1995)] (proposing), and Form BD Amendments, Securities Exchange Act Release No. 37431 (July 12, 1996) [61 FR 37357 (July 18, 1996)] (adopting). Advisers need not report a finding by a self-regulatory organization that the adviser violated a "minor" rule if the sanction imposed consists of a fine of $2,500 or less and the sanctioned person does not contest the fine. Item 11.E.(2). See Securities Exchange Act Release No. 30958 (July 27, 1992) [57 FR 34028 (July 31, 1992)] (making a similar change to Form BD). The rule must have been designated as "minor" under a plan approved by the Commission.
42 Each DRP contains a box where the adviser can indicate that the DRP should be removed from the ADV record because the event or proceeding occurred more than ten years ago. Checking this item will remove the DRP from the adviser's current Form ADV. The ten-year limit applies only to disciplinary information required by Item 11 of Part 1A. Under the Advisers Act's anti-fraud rules, advisers may be required to inform clients about disciplinary events that occurred more than ten years ago. See rule 206(4)-4(a)(2) [17 CFR 275.206(4)-4(a)(2)]. In addition, state securities authorities will continue to require state-registered advisers to report some events that are more than ten years old.
43 Each DRP contains a box where the adviser can indicate that the DRP should be removed from the adviser's current Form ADV if the "pending" event is no longer pending because it was resolved in the adviser's or the advisory affiliate's favor. The state securities authorities have decided to require state-registered advisers to report criminal charges.
44 Rule 204-3. Sponsors of wrap fee programs must also continue to prepare and deliver (and offer) wrap fee brochures in accordance with rule 204-3 and Schedule H of Form ADV.
45 Rules 203-1(b)(2) and 204-1(c).
46 Currently, the updating requirements appear in the text of rule 204-1, and specify that an adviser is required to amend its Form ADV if any response to old Part II becomes materially inaccurate. Rule 204-1(b)(1). Today's amendments, however, remove most of those requirements from rule 204-1 to Form ADV itself. Rule 204-1(a)(2), as amended, [17 CFR 275.204-1(a)(2)]. The updating requirements contained in Form ADV, as we are adopting it today, apply to new Part 1A but not old Part II. The Form ADV instructions do not address updating Part 2.
47 Section 206 [15 U.S.C. 80b-6].
48 See Note to paragraph (b)(2) of rule 203-1 and Note to paragraph (c) of rule 204-1.
49 5 U.S.C. 553(d)(3).
50 All of the commenters disagreeing with our cost-benefit analysis raised concerns with our proposed revisions to advisers' disclosure requirements. As discussed earlier, we are not adopting those proposals at this time. One commenter suggested that the cost savings of one-stop filing would be $100 or less per adviser, and would therefore be outweighed by the IARD filing fees.
51 Section 306 of NSMIA, supra, note 16.
52 The IARD will also benefit advisers by preventing them from making incomplete filings. Submitting an incomplete filing is a common error by new advisers applying for registration, and is one that can substantially delay the registration process and thus the business plans of applicants.
53 Postage expenses alone can cost an SEC-registered firm $750 per year. This estimate assumes an average overnight mail cost of $10 per mailing in each of 50 states and an average of 1.5 amendments filed per year ($10 x 50 x 1.5) = $750.
54 We recognize that not every adviser will experience net cost savings from one-stop electronic filing. In several areas, such as the sliding filing fee scale, we have recognized that some larger advisers may benefit more from using the IARD than other, smaller firms. In balancing the costs and benefits of the amendments we are adopting today, we must look at the expected costs to all SEC-registered firms, and we must also consider the benefits to investors.
55 See discussion of electronic filing help features supra at Section I.B.5 of this Release.
56 Approximately 900 SEC-registered advisers also are registered with us as broker-dealers.
57 See discussion of hardship exemptions supra at Section I.B.3 of this Release.
58 Investment adviser information is publicly available from us, but until now we have been unable to provide this information to the public without charge. We currently charge $.24 per page for copies and, upon receipt of the required fee, mail the Form ADV to the requester.
59 An adviser generally will no longer be required to report an indirect owner unless the indirect owner owns 25% of a direct owner. See Section II.D.1 of the Proposing Release, supra note 1.
60 Moreover, most advisers do not have disciplinary events to report.
61 See discussion of disciplinary disclosure requirements supra at Section C.1 of this Release. As discussed earlier, we also are no longer requiring advisers to report unsatisfied judgments or liens; bankruptcies; bond denials, payouts, or revocations; or any "minor" rule violations.
62 44 U.S.C. 3501 to 3520. The titles for the collections of information are "Form ADV"; "Rule 203-2 and Form ADV-W"; "Rule 203-3 and Form ADV-H"; and "Rule 0-2 and Form ADV-NR," all under the Advisers Act. OMB approved the collection of information requirements, and the OMB control numbers are as follows: Form ADV, 3235-0049 (expires Jun. 30, 2003); Rule 203-2 and Form ADV-W, 3235-0313 (expires Jun. 30, 2003); Rule 203-3 and Form ADV-H, 3235-0538 (expires Jun. 30, 2003); and Rule 0-2 and Form ADV-NR, 3235-0240 (expires Jun. 30, 2003).
63 As discussed in the Proposing Release, revised Part 1A of Form ADV incorporates the collection of information that previously appeared in Schedule I to Form ADV.
64 The current burden assumes there would be 760 new applicants per year, and an average of 9.01 hours for a new registrant to complete the form. The current burden also assumes that 7,300 other advisers are registered with us, and assumes that advisers file an aggregate of 11,810 amendments with us annually, at an average of 1.07 hours per amendment.
65 The 3,703 hours represents an increase independent of today's amendments. We receive approximately 1,000 (not 760) new applications annually; and we have approximately 8,100 (not 7,300) advisers registered with us. [(240 more new registrants per year x 9.01 hours) + [(800 more currently-registered advisers x 1.5 amendments) + (240 new applicants x 1 amendment)] x 1.07 hours = 3,703 hours.]
66 The collection of information for amended Form ADV also incorporates the burden of rule 206(4)-4, which requires advisers to disclose financial and disciplinary information to clients and prospective clients. The current burden does not include these separately existing 6,755 burden hours per year. In the Proposing Release, we proposed to incorporate the requirements of rule 206(4)-4 into Part 2 of Form ADV and to withdraw the rule. As discussed above, however, we are deferring adoption of those proposals until later this year.
67 As discussed in the Proposing Release, to estimate the annual burden associated with revised Form ADV, we amortized the burden of an adviser's initial preparation and filing of Form ADV over a 15-year period, which reflects the expected useful life of the revised form. After its initial filing of Form ADV through the IARD (whether as a new registrant or for an existing registrant re-filing to transition to the system), an adviser's burden will generally be limited to amending the form as needed.
68 Many of the concerns centered on proposed Parts 2A (the adviser's narrative firm brochure) and 2B (brochure supplements for advisory personnel). As discussed earlier, we are deferring adoption of those proposals at this time.
69 As discussed in the Proposing Release, based on the Commission's recent experience it is estimated that, each year, 890 new registrants and 10 multi-state advisers (i.e., advisers relying on the multi-state exemption found at rule 203A-2(e) [17 CFR 275.203A-2(e)]) will each amend their Form ADV 1 time; 100 advisers relying on rule 203A-2(d) [17 CFR 275.203A-2(d)] will each amend their Form ADV 2 times; and 8100 currently-registered advisers will amend their Form ADV, on average, 1.5 times.
70 The revised collection of information burden per amendment is 0.75 hours (current burden per amendment of 1.07 hours x .70 = .749 hours per amendment).
71 13,250 responses x 0.75 hours = 9,937.5 hours.
72 9,938 hours attributable to amendments + (1,000 new registrants x 1.47 (amortized) hours) + (8,100 existing registrants x 1.47 (amortized) hours) = 23,315 hours.
73 23,315 hours due to rulemaking + 3,703 hours due to an increase in the number of advisers = 27,018 total burden hours.
74 19,448 + 27,018 = 46,466.
75 Rule 203-2 currently provides for a 60-day wait before a withdrawal is effective.
76 The Commission in the past received approximately 616 notices of withdrawal on Form ADV-W per year.
77 (650 advisers filing for full withdrawal x .75 hours) + (650 advisers filing for partial withdrawal x .25 hours) = 487.5 + 162.5 = 650 hours. This represents a net increase from the current burden of 616 hours, which was based on 616 respondents and one hour per response.
78 A non-resident general partner or managing agent is required to file Form ADV-NR only once.
79 One hour is the current burden for a response to Form 4-R, 5-R, 6-R or 7-R.
80 See Form ADV-H in Appendix C of this Release. The adviser applying for a continuing hardship exemption also must indicate the reasons that the hardware and software needed for Internet access are unavailable, and propose a time period for which the exemption would be in effect.
81 Rules 203-3 and 0-7.
82 A temporary hardship exemption would be available to advisers that submit electronic filings but are temporarily unable to do so. An adviser using a continuing hardship exemption could not apply for a temporary hardship exemption.
83 (50 x 1) + (20 x 1) = 50 + 20 = 70 hours.
84 5 U.S.C. 603(a).
85 References to "rule and form amendments" include new rule 203-3 and new Form ADV-H.
86 For purposes of the Advisers Act and the RFA, an investment adviser generally is a small entity if (a) it manages assets of less than $25 million reported on its most recent Schedule I to Form ADV, (b) it does not have total assets of $5 million or more on the last day of the most recent fiscal year, and (c) it is not in a control relationship with another investment adviser that is not a small entity. Rule 0-7.
87 Title III of NSMIA, supra note 16.
88 Section 203A(d) of the Advisers Act [15 U.S.C. 80b-3A(d)] authorizes us to designate NASDR as operator of the filing system, and to require that advisers file through the system and pay filing fees. The rules we are adopting will require advisers to use the system and pay filing fees to NASDR, but do not themselves impose or authorize NASDR to impose any filing fee on advisers using the IARD. Nonetheless, we have included these filing fees as part of our FRFA. In Investment Advisers Act Release No. 1888, supra note 5, we designated NASDR as operator of the IARD and approved NASDR's proposed filing fees.
89 A 1998 industry survey of registered investment advisers noted that all respondents use the Internet. According to the survey, advisers "new to the business or those with less than $100 million of assets under management are more active users of the online channel than are higher-net-worth [advisers]." See Phil Clark, Cerrulli Survey; Advisers Flock to Internet for Research and Fund Data, Fund Marketing Alert, July 6, 1998 at 1. In 1999, the Institute of Certified Financial Planners (ICFP) and Morningstar also conducted a survey of financial planners and found that 99% of those surveyed had Internet access. See ICFP/Morningstar, Work/Computer Environment Among RIAs (available in File No. S7-10-00). Those advisers that cannot submit electronic filings themselves can obtain the assistance of a filing service bureau -- a firm that provides assistance to advisers and broker-dealers in preparing and making regulatory filings. For advisers' convenience, we will maintain a list of service bureaus that offer assistance in making filings on the IARD system.
90 See Form ADV-H, infra Appendix C of this Release.
91 The 14% estimate is based on responses to Item 11 of current Form ADV.
65 FR 57437
65 FR 20523
Last Reviewed or Updated: July 1, 2025
July 31, 2003
68 FR 42247
Public Comments