[Federal Register Volume 77, Number 231 (Friday, November 30, 2012)]
[Notices]
[Pages 71458-71460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28945]
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SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; Comment Request
Upon Written Request Copies Available From: Securities and Exchange
Commission, Office of Investor Education and Advocacy, Washington, DC
20549-0213.
Extension: Rule 3a-4.
OMB Control No. 3235-0459, SEC File No. 270-401.
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Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 350l-3520), the Securities and Exchange
Commission (the ``Commission'') has submitted to the Office of
Management and Budget (``OMB'') a request for extension of the
previously approved collection of information discussed below.
Rule 3a-4 (17 CFR 270.3a-4) under the Investment Company Act of
1940 (15 U.S.C. 80a) (``Investment Company Act'' or ``Act'') provides a
nonexclusive safe harbor from the definition of investment company
under the Act for certain investment advisory programs. These programs,
which include ``wrap fee'' and ``mutual fund wrap'' programs, generally
are designed to provide professional portfolio management services to
clients who are investing less than the minimum usually required by
portfolio managers but more than the minimum account size of most
mutual funds. Under wrap fee and similar programs, a client's account
is typically managed on a discretionary basis according to pre-selected
investment objectives. Clients with similar investment objectives often
receive the same investment advice and may hold the same or
substantially similar securities in their accounts. Some of these
investment advisory programs may meet the definition of investment
company under the Act because of the similarity of account management.
In 1997, the Commission adopted rule 3a-4, which clarifies that
programs organized and operated in a manner consistent with the
conditions of rule 3a-4 are not required to register under the
Investment Company Act or comply with the Act's requirements.\1\ These
programs differ from investment companies because, among other things,
they provide individualized investment advice to the client. The rule's
provisions have the effect of ensuring that clients in a program
relying on the rule receive advice tailored to the client's needs.
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\1\ Status of Investment Advisory Programs Under the Investment
Company Act of 1940, Investment Company Act Release No. 22579 (Mar.
24, 1997) (62 FR 15098 (Mar. 31, 1997)) (``Adopting Release''). In
addition, there are no registration requirements under section 5 of
the Securities Act of 1933 for these programs. See 17 CFR 270.3a-4,
introductory note.
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Rule 3a-4 provides that each client's account must be managed on
the basis of the client's financial situation and investment objectives
and consistent with any reasonable restrictions the client imposes on
managing the account. When an account is opened, the sponsor \2\ (or
its designee) must obtain information from each client regarding the
client's financial situation and investment objectives, and must allow
the client an opportunity to impose reasonable restrictions on managing
the account.\3\ In addition, the sponsor (or its designee) must contact
the client annually to determine whether the client's financial
situation or investment objectives have changed and whether the client
wishes to impose any reasonable restrictions on the management of the
account or reasonably modify existing restrictions. The sponsor (or its
designee) must also notify the client quarterly, in writing, to contact
the sponsor (or its designee) regarding changes to the client's
financial situation, investment objectives, or restrictions on the
account's management.\4\
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\2\ For purposes of rule 3a-4, the term ``sponsor'' refers to
any person who receives compensation for sponsoring, organizing or
administering the program, or for selecting, or providing advice to
clients regarding the selection of, persons responsible for managing
the client's account in the program.
\3\ Clients specifically must be allowed to designate securities
that should not be purchased for the account or that should be sold
if held in the account. The rule does not require that a client be
able to require particular securities be purchased for the account.
\4\ The sponsor also must provide a means by which clients can
contact the sponsor (or its designee).
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The program must provide each client with a quarterly statement
describing all activity in the client's account during the previous
quarter. The sponsor and personnel of the client's account manager who
know about the client's account and its management must be reasonably
available to consult with the client. Each client also must retain
certain indicia of ownership of all securities and funds in the
account.
The requirement that the sponsor (or its designee) obtain
information about each new client's financial situation and investment
objectives when their account is opened is designed to ensure that the
investment adviser has sufficient information regarding the client's
unique needs and goals to enable the portfolio manager to provide
individualized investment advice. The sponsor is required to contact
clients annually and provide them with quarterly notices to ensure that
the sponsor has current information about the client's financial
status, investment objectives, and restrictions on management of the
account. Maintaining current information enables the portfolio manager
to evaluate each client's portfolio in light of the client's changing
needs and circumstances. The requirement that clients be provided with
quarterly statements of account activity is designed to ensure each
client receives an individualized report, which the Commission believes
is a key element of individualized advisory services.
The Commission staff estimates that 11,291,005 clients participate
each year in investment advisory programs relying on rule 3a-4. Of that
number, the staff estimates that 903,280 are new clients and 10,387,725
are continuing clients. The staff estimates that each year investment
advisory program sponsors staff engage in 1.3 hours per new client and
1 hour per continuing client to prepare, conduct and/or review
interviews regarding the client's financial situation and investment
objectives as required by the rule. Furthermore, the staff estimates
that each year investment advisory program staff spends 1 hour per
client to prepare and mail quarterly client account statements,
including notices to update information. Based on the estimates above,
the Commission estimates that the total annual burden of the rule's
paperwork requirements is 22,852,994 hours.
The total annual hour burden of 22,852,994 hours represents an
increase of 17,245,466 hours from the prior estimate of 5,607,528
hours. This increase principally results from an increase in the
estimated number of clients, which was due to a change in the way
Commission staff made its estimates. The change in annual burden hours
also reflects changes in the estimated burden hours associated with
several collections of information required under the rule (certain
burden estimates increased and certain burden estimates decreased).
These changes in estimated burden hours per collection of information
result from changes in burden hours reported by representatives of
investment advisers that rely on rule 3a-4 that Commission staff
surveyed.
The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act. The estimate is not derived
from a comprehensive or even a representative survey or study of the
costs of Commission rules and forms.
Compliance with the collection of information requirements of the
rule is necessary to obtain the benefit of relying on the rule's safe
harbor. Nevertheless, rule 3a-4 is a nonexclusive safe harbor, and a
program that does not comply with the rule's collection of information
requirements does not necessarily meet the Investment Company Act's
definition of investment company. An agency may not conduct or sponsor,
and a person is not required to respond to, a collection of information
unless it
[[Page 71460]]
displays a currently valid OMB control number.
The public may view the background documentation for this
information collection at the following Web site www.reginfo.gov.
Comments should be directed to: (i) Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Office of Management and Budget, Room 10102, New Executive Office
Building, Washington, DC 20503, or by sending an email to: [email protected]; and (ii) Thomas Bayer, Director/Chief Information
Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon,
6432 General Green Way, Alexandria, VA 22312 or send an email to: [email protected]. Comments must be submitted to OMB within 30 days of
this notice.
Dated: November 26, 2012.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28945 Filed 11-29-12; 8:45 am]
BILLING CODE 8011-01-P