[Federal Register Volume 89, Number 126 (Monday, July 1, 2024)]
[Notices]
[Pages 54596-54602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14363]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-xxx, OMB Control No. 3235-0784]


Proposed Collection; Comment Request; Extension: Rule 206(4)-1

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (the ``Commission'' or ``SEC'') is soliciting comments on 
the collection of information summarized below. The Commission plans to 
submit this existing collection of information to the Office of 
Management and Budget (``OMB'') for extension and approval.
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    \37\ 17 CFR 200.30-3(a)(12).
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    Rule 206(4)-1 under the Investment Advisers Act of 1940 (``Advisers 
Act''), known as the ``marketing rule,'' addresses advisers marketing 
their services to clients and investors.\1\ Specifically, the marketing 
rule states that, as a means reasonably designed to prevent fraudulent, 
deceptive, or manipulative acts, practices, or courses of business 
within the meaning of section 206(4) of the Act, it is unlawful for any 
investment adviser registered or required to be registered under 
section 203 of the of the Advisers Act, directly or indirectly, to 
disseminate any advertisement that violates any of paragraphs (a) 
through (d) of the rule, which include the rule's general prohibitions, 
as well as conditions applicable to an adviser's use of testimonials, 
endorsements, third-party ratings, and performance information.
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    \1\ See 17 CFR 206(4)-1; Investment Adviser Marketing, Release 
No. IA-5653 (Dec. 22, 2020) [86 FR 13024 (Mar. 5, 2021)] (the 
``Adopting Release''); the Commission adopted amendments to Rule 
206(4)-1 in 2020 that amended existing rule 206(4)-1 (the 
``advertising rule''), which was adopted in 1961 to target 
advertising practices that the Commission believed were likely to be 
misleading, and replaced rule 206(4)-3 (the ``solicitation rule''), 
which was adopted in 1979 to help ensure clients are aware that paid 
solicitors who refer them to advisers have a conflict of interest; 
see Adopting Release; see also 17 CFR 275.206(4)-1; Advertisements 
by Investment Advisers, Release No. IA-121 (Nov. 1, 1961) [26 FR 
10548 (Nov. 9, 1961)]; Requirements Governing Payments of Cash 
Referral Fees by Investment Advisers, Release No. 688 (July 12, 
1979) [44 FR 42126 (Jul 18, 1979)].
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    Each requirement under the marketing rule that an adviser disclose 
information, offer to provide information, or adopt policies and 
procedures constitutes a ``collection of information'' requirement 
under the Paperwork Reduction Act of 1995 (``PRA''). The respondents to 
these collections of information requirements will be investment 
advisers that are registered or required to be registered with the 
Commission. As of September 2023, there were 15,555 investment advisers 
registered with the Commission. Investment adviser marketing is not 
mandatory. However, marketing is an essential part of retaining and 
attracting clients and may be conducted easily through the internet and 
social media. Accordingly, we estimate that all investment advisers 
will disseminate at least one communication that meets the rule's 
definition of ``advertisement'' and therefore be subject to the 
requirements of the marketing rule.
    Because the use of testimonials, endorsements, third-party ratings, 
and performance results in advertisements is voluntary, the percentage 
of investment advisers that would include these items in an 
advertisement is uncertain. However, we have made certain estimates of 
this data, as discussed below, solely for the purpose of this PRA 
analysis.
    The purpose of this collection of information is to provide 
advisory clients, prospective clients, and the Commission with 
information about an adviser's marketing practices. We use the 
information to support and manage our regulatory, examination, and 
enforcement programs. Clients use this information to determine whether 
to hire an adviser.
    This collection of information is found at 17 CFR.206(4)-1 and it 
is mandatory. The information collected takes the form of records 
retained by respondents and disclosures to respondents' clients, 
potential clients, and the Commission.

General Prohibitions

    The general prohibitions under the rule do not create a collection 
of information and are, therefore, not discussed, with one exception. 
The rule prohibits advertisements that include a material statement of 
fact that the adviser does not have a reasonable basis for believing 
that it will be able to substantiate upon demand by the Commission. 
Advisers would be able to demonstrate this reasonable belief in a 
number of ways.\2\ For example, they could make a record 
contemporaneous with the advertisement demonstrating the basis for 
their belief. An adviser might also choose to implement policies and 
procedures to address how this requirement is met. This will create a 
collection of information burden within the meaning of the PRA.
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    \2\ See Adopting Release, supra footnote 1, at section II.B.2.
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    As stated above, we estimate that all investment advisers will 
disseminate at least one communication that meets the rule's definition 
of ``advertisement'' and therefore be subject to the requirements of 
the marketing rule. We also estimate that such advertisements will 
include at least one statement of material fact that will be subject to 
this general prohibition, for which an adviser will create and/or 
maintain a record documenting its reasonable belief that it can 
substantiate the statement. This estimate reflects that many types of 
statements typically included in an advertisement (e.g. performance) 
can likely be substantiated by other records that an adviser will be 
required to create and maintain under the rule.\3\ Table 1 summarizes 
the PRA estimates for the internal and external burdens associated with 
this requirement.
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    \3\ See id.

                                          Table 1--General Prohibitions
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                                                                                                      Annual
                                     Internal hour             Wage rate \1\       Internal time   external cost
                                        burden                                         costs          burden
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                                Estimates for Rule 204-1 for General Prohibitions
----------------------------------------------------------------------------------------------------------------
Determine whether statements in an             0.5     x   $372 (compliance                 $186  ..............
 advertisement are material facts.             0.5     x    manager).                       $220
                                                           $440 (compliance
                                                            attorney).

[[Page 54597]]

 
Creation and maintenance of                      4     x   $75 (general clerk)..            $300  ..............
 records substantiating material                 1     x   $84 (compliance                   $84
 facts in any advertisements.                               clerk).
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    Total burden per adviser......               6  .....  .....................            $790  ..............
    Total number of affected              x 15,555  .....  .....................        x 15,555  ..............
     advisers.
                                   -----------------------------------------------------------------------------
    Total burden for general          93,330 hours  .....  .....................     $12,288,450  ..............
     prohibitions.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ See SIFMA Report, infra footnote 8.

Testimonials and Endorsements in Advertisements

    Under the marketing rule, investment advisers are prohibited from 
including in any advertisement, or providing any compensation for, any 
testimonial or endorsement unless the adviser discloses, or the 
investment adviser reasonably believes that the person giving the 
testimonial or endorsement discloses: (i) clearly and prominently: (A) 
that the testimonial was given by a current client or investor, or the 
endorsement was given by a person other than a current client or 
investor; (B) that cash or non-cash compensation was provided for the 
testimonial or endorsement, if applicable; and (C) a brief statement of 
any material conflicts of interest on the part of the person giving the 
testimonial or endorsement resulting from the investment adviser's 
relationship with such person; (ii) the material terms of any 
compensation arrangement, including a description of the compensation 
provided or to be provided, directly or indirectly, to the person for 
the testimonial or endorsement; and (iii) a description of any material 
conflicts of interest on the part of the person giving the testimonial 
or endorsement resulting from the investment adviser's relationship 
with such person and/or any compensation arrangement.\4\ The rule also 
imposes an oversight obligation that requires that an investment 
adviser have a reasonable basis to believe that the testimonial or 
endorsement complies with the marketing rule and have a written 
agreement with the person giving a testimonial or endorsement (except 
for certain affiliated persons of the adviser) that describes the scope 
of the agreed upon activities and the terms of the compensation for 
those activities when making payments for compensated testimonials and 
endorsements that are above the de minimis threshold.\5\ This 
collection of information consists of two components: (i) the 
requirement to disclose certain information in connection with the 
testimonial and endorsement, and (ii) the requirement to oversee the 
testimonial or endorsement, including a written agreement with certain 
persons giving the testimonial or endorsement.
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    \4\ Rule 206(4)-1(b)(1).
    \5\ Rule 206(4)-1(b)(2).
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    The marketing rule's definitions of testimonials and endorsements 
generally contain three elements: (i) statements about the client's/
non-client's or investor's experience with the investment adviser or 
its supervised persons, (ii) statements that directly or indirectly 
solicit any prospective client or investor in a private fund for the 
investment adviser, or (iii) statements that refer any prospective 
client or investor in a private fund to the investment adviser.
    We previously estimated that 50 percent of advisers will use a 
testimonial or endorsement in their advertisements.\6\ However, we are 
reducing this estimate to 21 percent in light of amendments to Form ADV 
that became effective in 2021 that require advisers to provide 
additional information regarding their marketing practices.\7\ We 
continue to estimate that each adviser will use an average of five 
promoters and use 35 testimonials or endorsements annually, which 
includes testimonials and endorsements incorporated into an adviser's 
own advertisement and those communicated by promoters directly.
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    \6\ See Adopting Release, supra footnote 1, at section IV.B.
    \7\ See Form ADV, Item 5.L (requiring an adviser to state, among 
other things, whether any of its advertisements include performance 
results, testimonials, endorsements, or third-party ratings). 
Specifically, 3,231 advisers indicated that they use either 
testimonials or endorsements in response to Item 5.L. 3,231 
advisers/15,555 total advisers registered as of September 2023 = 
approximately 21%; see also Adopting Release, supra footnote 1, at 
section II.H.
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    Under the marketing rule, an adviser that uses a testimonial or 
endorsement will be required to disclose certain information at the 
time it is disseminated. We estimate this burden at 0.20 hours per 
disclosure and believe that advisers will incur this same burden each 
year, since each testimonial and/or endorsement used will likely be 
different and thus require updated disclosures. An investment adviser's 
in-house compliance managers and compliance attorneys will likely 
prepare disclosures, which will likely be included in the 
advertisement.\8\
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    \8\ We estimate the hourly wage rate for compliance manager is 
$372 and a compliance attorney is $440; the hourly wages used are 
from SIFMA's Management & Professional Earnings in the Securities 
Industry 2013 (``SIFMA Report''), modified by Commission staff to 
account for an 1800-hour work-year and inflation, and multiplied by 
5.35 to account for bonuses, firm size, employee benefits, and 
overhead.
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    Some of these third-party testimonials and endorsements will 
require delivery; thus, we estimate that 20 percent of the disclosures 
would be delivered by the U.S. Postal Service, with the remaining 80 
percent delivered electronically or as part of another delivery of 
documents. For the 20% of advisers that will use physical mail, we 
estimate that the average annual costs associated with printing and 
mailing this information will be collectively $592 for all disclosure 
documents associated with a single registered investment adviser.\9\
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    \9\ We do not have specific data regarding how the cost of 
printing and mailing the underlying information would differ, nor 
are we able to specifically identify how the cost of printing and 
mailing the underlying information might be affected by the rule; 
for these reasons, we estimate $592 per year to collectively print 
and mail, upon request, the underlying information associated with 
hypothetical performance for purposes of our analysis; we previously 
estimated this cost at $500 and are adjusting to account for 
inflation between December of 2020 and January of 2024; see Adopting 
Release, supra footnote 1, at section IV.B; U.S. Bureau of Labor 
Statistics, CPI Inflation Calculator, https://www.bls.gov/data/inflation_calculator.htm; in addition, investors may also request to 
receive the underlying information electronically; we estimate that 
there would be negligible external costs associated with emailing 
electronic copies of the underlying information.
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    We estimate the average burden hours each year per adviser to 
oversee testimonials and endorsements will be one hour for each 
promoter, or five hours in total for each adviser that is subject to 
this collection of

[[Page 54598]]

information.\10\ While the rule provides flexibility as to how advisers 
conduct this oversight, we generally believe that this burden will 
include contacting solicited clients, pre-reviewing testimonials or 
endorsements, or other similar methods. Additionally, we estimate that 
each adviser will incur an average burden hour of one hour for each 
promoter, or five hours in total, to prepare the required written 
agreements. In-house compliance managers and compliance attorneys are 
likely to provide oversight of the third party testimonials and 
endorsements and prepare the written agreements.
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    \10\ This estimate is based on the following calculation: 1 hour 
per each solicitor relationship x 5 promoter relationships.
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    Finally, we are no longer including our prior estimate that each 
adviser that uses a compensated testimonial or endorsement will incur 
an initial burden of two hours to modify its policies and procedures to 
reflect the adviser's oversight of testimonials and endorsements, as 
this estimate related to initial burdens of the rule only. Table 2 
summarizes the PRA estimates for the internal and external burdens 
associated with these requirements.

                                     Table 2--Testimonials and Endorsements
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                                    Internal hour                               Internal time   Annual external
                                       burden                 Wage rate \1\         costs         cost burden
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                                   ESTIMATES FOR TESTIMONIALS AND ENDORSEMENTS
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Revise and update each required  0.1 hours x 35         x   $372 (compliance           $1,302
 disclosure.                      disclosures.               manager).
                                 0.1 hours x 35         x   $440 (compliance           $1,540
                                  disclosures.               attorney).
Oversight of compensated         1 hours x 5            x   $372 (compliance           $1,860
 testimonials and endorsements    promoters.                 manager).
 and preparation of written
 agreements.
                                 1 hours x 5            x   $440 (compliance           $2,200
                                  promoters.                 attorney).
                                --------------------------------------------------------------------------------
    Total burden per adviser...  17 hours..........                                    $6,902  $592
    Total number of affected     x 3,231...........                                   x 3,231  x 3,231 (x 20% of
     advisers.                                                                                  advisers that
                                                                                                will use
                                                                                                physical mail).
                                --------------------------------------------------------------------------------
    Total burden for             54,927 hours......                               $22,300,362  $382,550.
     testimonials and
     endorsements.
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Notes:
1. See SIFMA Report, supra footnote 8.

Third-Party Ratings in Advertisements

    As referenced above, rule 206(4)-1(c) prohibits an investment 
adviser from including a third-party rating in an advertisement unless 
certain conditions are met, including that the adviser must clearly and 
prominently disclose (or reasonably believe that the third-party rating 
clearly and prominently discloses): (i) the date on which the rating 
was given and the period of time upon which the rating was based, (ii) 
the identity of the third-party that created and tabulated the rating, 
and (iii) if applicable, that cash or non-cash compensation has been 
provided directly or indirectly by the adviser in connection with 
obtaining or using the third-party rating.
    We previously estimated that approximately 50 percent of advisers 
will use third-party ratings in advertisements, but we are reducing 
this estimate to 15 percent.\11\ We continue to believe that these 
advisers will typically use one third-party rating on an annual basis. 
We are no longer including our prior estimate that advisers will incur 
an initial internal burden of 3.0 hours to draft and finalize the 
required disclosures for third-party ratings, as this estimate related 
to initial burdens of the rule only. Because many of these ratings or 
rankings are done yearly (e.g., 2018 Top Wealth Adviser), we continue 
to estimate that an adviser that continues to use a third-party rating 
will incur ongoing, annual costs of 0.75 burden hours to draft the 
third-party rating disclosure updates.\12\ Table 3 summarizes the PRA 
estimates for the internal and external burdens associated with these 
requirements.
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    \11\ See supra footnote 7 and accompanying text (explaining that 
we have revised our estimates in light of additional information 
that advisers must now report on Form ADV); specifically, 2,373 
advisers indicated that they include third-party ratings in their 
advertisements in response to Item 5.L of Form ADV. 2,373 advisers/
15,555 total advisers registered as of September 2023 = 
approximately 15%; see also Adopting Release, supra footnote 1, at 
section IV.B.
    \12\ We believe that this burden will also be split evenly 
between an adviser's compliance attorney and compliance manager.

                                          Table 3--Third-Party Ratings
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                                                                                                      Annual
                                     Internal hour             Wage rate \1\       Internal time   external cost
                                        burden                                         costs          burden
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                                        ESTIMATES FOR THIRD PARTY RATINGS
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Update required disclosures.......     0.375 hours     x   $372 (compliance              $139.50
                                                            manager).
                                       0.375 hours     x   $440 (compliance                 $165
                                                            attorney).
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    Total burden per adviser......       .75 hours                                       $304.50
    Total number of affected               x 2,373                                       x 2,373
     advisers.
                                   -----------------------------------------------------------------------------
    Total burden for third-party       1,780 hours                                      $722,579
     ratings.
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Notes:
1. See SIFMA Report, supra footnote 8.


[[Page 54599]]

Performance Advertising

    The marketing rule imposes certain conditions on the presentation 
of performance results in advertisements, as discussed above. Below we 
discuss the conditions that create ``collection of information'' 
requirements within the meaning of the PRA. First, the rule prohibits 
any presentation of gross performance unless the advertisement also 
presents net performance that meets certain criteria.\13\ Second, the 
rule prohibits any presentation of performance results of any portfolio 
or any composite aggregation of related portfolios, other than any 
private fund, unless the advertisement includes performance results of 
the same portfolio or composite aggregation for one-, five-, and ten-
year periods, except that if the relevant portfolio did not exist for a 
particular prescribed period, then the life of the portfolio must be 
substituted for that period.\14\ Third, the rule prohibits an 
advertisement from including related performance, unless it includes 
all related portfolios, subject to a conditional exception.\15\ Fourth, 
the rule prohibits an advertisement from including extracted 
performance, unless the advertisement provides, or offers to provide 
promptly, the performance results of the total portfolio from which the 
performance was extracted.\16\ Fifth, the rule also prohibits an 
advertisement from including predecessor performance, unless certain 
conditions are satisfied.\17\ Finally, the rule requires that an 
adviser that advertises hypothetical performance: (i) adopts and 
implements policies and procedures reasonably designed to ensure that 
the hypothetical performance is relevant to the likely financial 
situation and investment objectives of the intended audience of the 
advertisement; (ii) provide reasonably sufficient information to enable 
the intended audience to understand the criteria used and assumptions 
made in calculating such hypothetical performance; and (iii) provide 
(or, if the intended audience is an investor in a private fund provide, 
or offers to provide promptly) reasonably sufficient information to 
enable the intended audience to understand the risks and limitations of 
using such hypothetical performance in making investment decisions.
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    \13\ Rule 206(4)-1(d).
    \14\ Id. at (d)(2).
    \15\ Id. at (d)(4).
    \16\ Id. at (d)(5).
    \17\ Id. at (d)(7).
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    We previously estimated that 95 percent, or 13,038 advisers, 
provide performance information in their advertisements, but we are 
reducing this estimate to 40 percent.\18\ The estimated numbers of 
burden hours and costs regarding performance results in advertisements 
may vary depending on, among other things, the complexity of the 
calculations, the type of performance and the risks that investors may 
not understand the limitations of the information, and whether 
preparation of the disclosures is performed by internal staff or 
outside counsel.
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    \18\ See supra note 7 and accompanying text (explaining that we 
have revised our estimates in light of additional information that 
advisers must now report on Form ADV); specifically, 6,186 advisers 
indicated that they include performance results in their 
advertisements in response to Item 5.L of Form ADV. 6,186 advisers/
15,555 total advisers registered as of September 2023 = 
approximately 40%; see also Adopting Release, supra footnote 1, at 
section IV.B.
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Presentation of Net Performance in Advertisements

    We are no longer including our prior estimate that an investment 
adviser that elects to present gross performance in an advertisement 
will incur an initial burden of 15 hours in preparing net performance 
for each portfolio, including the time spent determining and deducting 
the relevant fees and expenses to apply in calculating the net 
performance and then actually running the calculations, as this 
estimate related to initial burdens of the rule only. Based on staff 
experience, we estimate that the average investment adviser will 
present performance for 3 portfolios over the course of a year, 
excluding any related portfolios that an adviser may need to include 
for purposes of presenting related performance.\19\ As noted above, we 
estimate that 40 percent, or 6,186 advisers, provide performance 
information in their advertisements and thus will be subject to this 
collection of information burden.
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    \19\ The burden associated with calculating net performance in 
connection with presenting related performance is discussed below.
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    We expect that the calculation of net performance may be modified 
every time an adviser chooses to update the advertised performance. We 
estimate that after initially preparing net performance for each 
portfolio, investment advisers will incur a burden of 3 hours to update 
the net performance for each subsequent presentation. For purposes of 
this analysis, we estimate that advisers will update the relevant 
performance of each portfolio 3.5 times each year.\20\
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    \20\ We believe that this burden will be split evenly between an 
adviser's compliance attorney and compliance manager (3 hours x 3.5 
times per year = 10.5 hours; 10.5 hours/2 = 5.25 hours each).
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Time Period Requirement in Advertisements

    We are no longer including our prior estimate that an investment 
adviser that elects to present performance results in an advertisement 
will incur an initial burden of 35 hours in preparing performance 
results of the same portfolio for one-, five-, and ten-year periods 
(excluding private funds), taking into account that these results must 
be prepared on a net basis (and may also be prepared and presented on a 
gross basis), as this estimate related to initial burdens of the rule 
only. We estimate that after initially preparing one-, five-, and ten-
year performance for each portfolio, investment advisers will incur a 
burden of 8 hours to update the performance for these time periods for 
each subsequent presentation. For purposes of this analysis, we 
estimate that advisers will update the relevant performance 3.5 times 
each year.\21\
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    \21\ We believe that this burden will be split evenly between an 
adviser's compliance attorney and compliance manager (8 hours x 3.5 
times per year = 28 hours; 28 hours/2 = 14 hours each).
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Related Performance

    We are no longer including our prior estimate that an investment 
adviser that elects to present related performance in an advertisement 
will incur an initial burden of 30 hours, with respect to each 
advertised portfolio or composite aggregation of portfolios, in 
preparing the relevant performance of all related portfolios, as this 
estimate related to initial burdens of the rule only.
    We estimate that 40 percent of advisers (or 6,186 advisers) will 
have other portfolios with substantially similar investment policies, 
objectives, and strategies as those offered in the advertisement and 
choose to include related performance.\22\ We estimate that after 
initially preparing related performance for each portfolio or composite 
aggregation of portfolios, investment advisers will incur a burden of 5 
hours to update the performance for each subsequent presentation. We 
continue to estimate that advisers will update the relevant related 
performance 3.5 times each year.\23\
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    \22\ See supra footnote 7 and accompanying text (explaining that 
we have revised our estimates in light of additional information 
that advisers must now report on Form ADV); we assume that all 
advisers that indicated that they include performance results, see 
supra footnote 18 and accompanying text, include related 
performance.
    \23\ We believe that this burden will be split evenly between an 
adviser's compliance attorney and compliance manager (5 hours x 3.5 
times per year = 17.5 hours; 17.5 hours/2 = 8.75 hours each).

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[[Page 54600]]

Extracted Performance

    We are no longer including our prior estimate that an investment 
adviser that elects to present extracted performance in an 
advertisement will incur an initial burden of 10 hours in preparing the 
performance results of the total portfolio from which the performance 
is extracted in order to provide or offer to provide such performance 
results to investors, as this estimate related to initial burdens of 
the rule only. For purposes of this analysis, we assume that 40 percent 
of advisers will include extracted performance.\24\ We estimate that 
after initially preparing the performance of the total portfolio from 
which extracted performance is extracted, investment advisers will 
incur a burden of 2 hours to update the performance for each subsequent 
presentation. For purposes of this analysis, we estimate that advisers 
will update the relevant total portfolio performance 3.5 times each 
year.\25\ We also estimate that registered investment advisers may 
incur external costs in connection with the requirement to provide 
performance results of a total portfolio from which extracted 
hypothetical performance is extracted. We estimate that the average 
annual costs associated with printing and mailing this information upon 
request will be collectively $592 for all documents associated with a 
single registered investment adviser.
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    \24\ See supra footnote 7 and accompanying text (explaining that 
we have revised our estimates in light of additional information 
that advisers must now report on Form ADV); we assume that all 
advisers that indicated that they include performance results, see 
supra footnote 18 and accompanying text, include extracted 
performance.
    \25\ We believe that this burden will be split evenly between an 
adviser's compliance attorney and compliance manager (2 hours x 3.5 
times per year = 7 hours; 7 hours/2 = 3.5 hours each).
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Hypothetical Performance

    We are no longing including our prior estimate that an investment 
adviser that elects to present hypothetical performance in an 
advertisement will incur an initial burden of 7 hours in preparing and 
adopting policies and procedures reasonably designed to ensure that the 
hypothetical performance is relevant to the likely financial situation 
and investment objectives of the intended audience of the 
advertisement, as this estimate related to initial burdens of the rule 
only. For purposes of this analysis, we estimate that 21 percent of 
advisers will include hypothetical performance in advertisements.\26\
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    \26\ See supra footnote 7 and accompanying text (explaining that 
we have revised our estimates in light of additional information 
that advisers must now report on Form ADV); specifically, 3,260 
advisers indicated that they include hypothetical performance in 
their advertisements in response to Item 5.L of Form ADV. 3,260 
advisers/15,555 total advisers registered as of September 2023 = 
approximately 21%. See also Adopting Release, supra footnote 1, at 
section IV.B.
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    We continue to estimate that advisers that use hypothetical 
performance will disseminate advertisements containing hypothetical 
performance 20 times each year, including in certain one-on-one 
communications that meet the rule's definition of advertisement. We 
estimate that after adopting appropriate policies and procedures, an 
adviser will incur a burden of 0.25 hours to categorize investors 
according to their likely financial situation and investment objectives 
pursuant to the adviser's policies and procedures.\27\
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    \27\ We believe that an adviser's chief compliance officer will 
complete this task (20 presentations per year x 0.25 hours each = 5 
hours per year).
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    Additionally, we are no longer including our prior estimate that an 
investment adviser that elects to present hypothetical performance in 
an advertisement will incur an initial burden of 20 hours in preparing 
the information sufficient to understand the criteria used and 
assumptions made in calculating, as well as risks and limitations in 
using, the hypothetical performance, in order to provide such 
information, which may in certain circumstances be upon request, as 
this estimate related to initial burdens of the rule only. We estimate 
that after initially preparing the underlying information, investment 
advisers will incur a burden of 3 hours to update the information for 
each subsequent presentation. For purposes of this analysis, we 
estimate that advisers will update their hypothetical performance, and 
thus the underlying information, 3.5 times each year.\28\
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    \28\ We believe that this burden will be split evenly between an 
adviser's compliance attorney and compliance manager (3 hours x 3.5 
times per year = 10.5 hours; 10.5 hours/2 = 5.25 hours each).
---------------------------------------------------------------------------

    We estimate that registered investment advisers may incur external 
costs in connection with the requirement to provide this underlying 
information upon the request of an investor or prospective investor in 
a private fund. We estimate that the average annual costs associated 
with printing and mailing this underlying information upon request will 
be collectively $592 for all documents associated with a single 
registered investment adviser.\29\
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    \29\ See supra footnote 9 for a discussion of estimated mailing 
costs.
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Predecessor Performance

    The marketing rule imposes conditions on an adviser's use of 
predecessor performance. We are no longer including our prior estimate 
that an investment adviser that elects to present predecessor 
performance in an advertisement will incur an initial burden of 10 
hours in preparing the relevant performance results and associated 
disclosures, as this estimate related to initial burdens of the rule 
only.
    We previously estimated that 2% of advisers (or 275 advisers) will 
include predecessor performance in an advertisement, but we are 
increasing this estimate to 9%.\30\ We estimate that after initially 
preparing predecessor performance, investment advisers will incur a 
burden of 1 hour to update the relevant disclosures and performance 
information for each subsequent presentation. For purposes of this 
analysis, we estimate that advisers will update the relevant 
disclosures 3.5 times each year.\31\ Table 4 summarizes the PRA 
estimates for the internal and external burdens associated with these 
requirements.
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    \30\ See supra footnote 7 and accompanying text (explaining that 
we have revised our estimates in light of additional information 
that advisers must now report on Form ADV); specifically, 1,407 
advisers indicated that they include predecessor performance in 
their advertisements in response to Item 5.L of Form ADV. 1,407 
advisers/15,555 total advisers registered as of September 2023 = 
approximately 9%. See also Adopting Release, supra footnote 1, at 
section IV.B.
    \31\ We believe that this burden will be split evenly between an 
adviser's compliance attorney and compliance manager (1 hour x 3.5 
times per year = 3.5 hours; 3.5 hours/2 = 1.75 hours each).

                                              Table 4--Performance
----------------------------------------------------------------------------------------------------------------
                                                                                                      Annual
                                     Internal hour              Wage rate \1\      Internal time   external cost
                                         burden                                        costs          burden
----------------------------------------------------------------------------------------------------------------
                                          ESTIMATES FOR NET PERFORMANCE
----------------------------------------------------------------------------------------------------------------
Updating performance..............             5.25     x   $372 (compliance              $1,953  ..............
                                                             manager).

[[Page 54601]]

 
                                               5.25     x   $440 (compliance              $2,310  ..............
                                                             attorney).
                                   -----------------------------------------------------------------------------
    Total burden per adviser......             10.5  .....  ....................          $4,263  ..............
    Total number of affected                x 6,186  .....  ....................         x 6,186  ..............
     advisers.
                                   -----------------------------------------------------------------------------
    Sub-total burden..............     64,953 hours  .....  ....................     $26,370,918  ..............
----------------------------------------------------------------------------------------------------------------
                                ESTIMATES FOR PERFORMANCE TIME PERIOD REQUIREMENT
----------------------------------------------------------------------------------------------------------------
Updating performance..............               14     x   $372 (compliance              $5,208  ..............
                                                             manager).
                                                 14     x   $440 (compliance              $6,160  ..............
                                                             attorney).
                                   -----------------------------------------------------------------------------
    Total burden per adviser......               28  .....  ....................         $11,368  ..............
    Total number of affected                x 6,186  .....  ....................         x 6,186  ..............
     advisers.
----------------------------------------------------------------------------------------------------------------
    Sub-total burden..............    173,208 hours  .....  ....................     $70,322,448  ..............
----------------------------------------------------------------------------------------------------------------
                                        ESTIMATES FOR RELATED PERFORMANCE
----------------------------------------------------------------------------------------------------------------
Updating performance for all                   8.75     x   $372 (compliance              $3,255  ..............
 related portfolios.                                         manager).
                                               8.75     x   $440 (compliance              $3,850  ..............
                                                             attorney).
                                   -----------------------------------------------------------------------------
    Total burden per adviser......             17.5  .....  ....................          $7,105  ..............
    Total number of affected                x 6,186  .....  ....................         x 6,186  ..............
     advisers.
                                   -----------------------------------------------------------------------------
    Sub-total burden..............    108,255 hours  .....  ....................     $43,951,530  ..............
----------------------------------------------------------------------------------------------------------------
                                       ESTIMATES FOR EXTRACTED PERFORMANCE
----------------------------------------------------------------------------------------------------------------
Updating performance..............              3.5     x   $372 (compliance              $1,302  ..............
                                                             manager).
                                                3.5     x   $440 (compliance              $1,540  ..............
                                                             attorney).
                                   -----------------------------------------------------------------------------
    Total burden per adviser......                7  .....  ....................          $2,842            $592
    Total number of affected                x 6,186  .....  ....................         x 6,186         x 6,186
     advisers.
                                   -----------------------------------------------------------------------------
    Sub-total burden..............     43,302 hours  .....  ....................     $17,580,612      $3,662,112
----------------------------------------------------------------------------------------------------------------
                                     ESTIMATES FOR HYPOTHETICAL PERFORMANCE
----------------------------------------------------------------------------------------------------------------
Updating policies and procedures..                5     x   $638 (chief                   $3,190  ..............
                                                             compliance officer).
Updating disclosures and                       5.25     x   $372 (compliance              $1,953  ..............
 underlying information.                                     manager).
                                               5.25     x   $440 (compliance              $2,310  ..............
                                                             attorney).
                                   -----------------------------------------------------------------------------
    Total burden per adviser......             15.5  .....  ....................          $7,453            $592
    Total number of affected                x 3,260  .....  ....................         x 3,260         x 3,260
     advisers.
                                   -----------------------------------------------------------------------------
    Sub-total burden..............     50,530 hours  .....  ....................     $24,296,780      $1,929,920
----------------------------------------------------------------------------------------------------------------
                                      ESTIMATES FOR PREDECESSOR PERFORMANCE
----------------------------------------------------------------------------------------------------------------
Updating disclosures and                       1.75     x   $372 (compliance                $651  ..............
 performance.                                                manager).
                                               1.75     x   $440 (compliance                $770  ..............
                                                             attorney).
                                   -----------------------------------------------------------------------------
    Total burden per adviser......              3.5  .....  ....................          $1,421  ..............
    Total number of affected                x 1,407  .....  ....................         x 1,407  ..............
     advisers.
                                   -----------------------------------------------------------------------------
    Sub-total burden..............    4,924.5 hours  .....  ....................      $1,999,347  ..............
----------------------------------------------------------------------------------------------------------------
                            TOTAL ESTIMATED TIME BURDEN FOR PERFORMANCE REQUIREMENTS
----------------------------------------------------------------------------------------------------------------
                                      445,173 hours  .....  ....................    $184,521,635      $5,592,032
----------------------------------------------------------------------------------------------------------------
Notes:
1. See SIFMA Report, supra footnote 8.

Total Hour Burden Associated With Rule 206(4)-1

    Accordingly, we estimate the total annual hour burden for 
investment advisers registered or required to be registered with the 
Commission under proposed rule 206(4)-1 to prepare testimonials and 
endorsements, third-party ratings, and performance results disclosures 
will be 595,210 hours, at a time cost of $219,833,026. The total 
external burden costs would be $5,974,582. The following chart 
summarizes the various components of the total annual burden for 
investment advisers.

[[Page 54602]]



                                                 Table 5--Totals
----------------------------------------------------------------------------------------------------------------
                                                                                     Internal
                                                                   Internal hour    burden time    External cost
                                                                      burden           cost           burden
----------------------------------------------------------------------------------------------------------------
General Prohibitions............................................          93,330     $12,288,450  ..............
Testimonials and Endorsements...................................          54,927      22,300,362        $382,550
Third-Party Ratings.............................................           1,780         722,579  ..............
Performance.....................................................         445,173     184,521,635       5,592,032
                                                                 -----------------------------------------------
    Total annual burden.........................................   595,210 hours     219,833,026       5,974,582
----------------------------------------------------------------------------------------------------------------

    Cost burden is the cost of goods and services purchased to comply 
with rule 206(4)-1, such as legal and accounting services. The cost 
burden does not include the hour burden discussed in above. Estimates 
are based on the Commission's examination and oversight experience. As 
summarized in Table 5 above, we estimate the total external cost per 
all advisers per year to be $5,974,582, with the total per adviser per 
year to be $384.\32\
---------------------------------------------------------------------------

    \32\ This estimate is based upon the following calculations: 
$5,974,582 (total annual external cost burden)/15,555 (number of 
advisers) = $384.
---------------------------------------------------------------------------

    Written comments are invited on: (a) whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimate of the burden of the collection of information; (c) ways to 
enhance the quality, utility, and clarity of the information collected; 
and (d) ways to minimize the burden of the collection of information on 
respondents, including through the use of automated collection 
techniques or other forms of information technology. Consideration will 
be given to comments and suggestions submitted by August 30, 2024.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    Please direct your written comments to: David Bottom, Chief 
Information Officer, Securities and Exchange Commission, c/o John 
Pezzullo, 100 F Street NE, Washington, DC 20549 or send an email to: 
[email protected].

    Dated: June 25, 2024.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14363 Filed 6-28-24; 8:45 am]
BILLING CODE 8011-01-P