Rule 15l-3 Supporting Statement v.2

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Proposed Rule 15l-3
A.

Justification
1.

Necessity for the Information Collection

On April 18, 2018, the Securities and Exchange Commission ( the “Commission” or
“SEC”) proposed rule 15l-3 under the Securities Exchange Act of 1934 (“Exchange Act”). 1 This
proposed rule would require a broker-dealer registered under the Exchange Act to prominently
disclose that it is registered as a broker-dealer with the Commission in print or electronic retail
investor communications. The proposed rule also would require an associated natural person of
a broker or dealer to prominently disclose that he or she is an associated person of a broker or
dealer registered with the Commission in print or electronic retail investor communications.
For print communications, the proposed rule requires that such registration status be
displayed in a type size at least as large as and of a font style different from, but at least as
prominent as, that used in the majority of the communication. In addition, the disclosure must be
presented in the body of the communication and not in a footnote. For electronic
communications, or in any publication by radio or television, our proposed rule requires that
such disclosure be presented in a manner reasonably calculated to draw retail investor attention
to it.
Proposed rule 151-3 contains a collection of information requirement. The title of this
collection of information is: “Rule 15l-3 under the Securities Exchange Act.” The Commission
submits this collection to the Office of Management and Budget (“OMB”) for review in
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. If adopted, this collection of
information would be codified as 17 CFR 240.15l-3 and would be mandatory. The respondents
are registered broker-dealers or broker-dealers applying for registration and their associated
natural persons or future associated natural persons that distribute print or electronic retail
investor communications.
2.

Purpose and Use of the Information Collection

We believe that this collection of information is necessary to provide retail investors and
the Commission with information to better determine whether a communication is from a brokerdealer or investment adviser, and, for retail investors specifically, to allow them to better identify
which type of firm is more appropriate for their specific investment needs. Additionally, by
requiring an affirmative identification, retail investors would also be better informed whether a
financial professional is an associated person of a broker-dealer rather than a supervised person
of an investment adviser, allowing them to make a more informed choice as to which type of
1

See Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail
Communications and Restrictions on the use of Certain Names or Titles, Release No. 34-83063, IA-4888
(Apr. 18, 2018).

2
professional is appropriate for their financial goals. We believe that because retail investors
interact with a firm primarily through financial professionals, it is important that financial
professionals disclose the firm type with which they are associated.
3.

Consideration Given to Information Technology

Proposed rule 15l-3 does not require the reporting of any information or the filing of any
documents with the Commission. To the extent broker-dealers or their associated natural
persons provide any information by electronic delivery, they should do so in accordance with
Commission guidance. 2
4.

Duplication

The Commission evaluates rule-based disclosure obligation requirements for duplication,
and reevaluates them whenever it proposes a rule or a change in a rule. No other rule requires
broker-dealers and their financial professionals to provide the same information that would be
required by rule 15l-3.
5.

Effect on Small Entities

The requirements for rule 15l-3 are the same for all broker-dealers, including small
entities. The Commission believes that establishing different compliance or reporting
requirements for small entity broker-dealers would be inappropriate under these circumstances.
Because the protections of the Exchange Act are intended to apply equally to retail investors of
both large and small firms, the Commission preliminarily believes it would be inconsistent with
the purposes of the Exchange Act to specify differences for small entities under the proposed
rule.
We estimate that the costs associated with complying with the proposed rule’s disclosure
requirements would be smaller for small firms than for large firms. We estimate that the costs
would increase with the size of the broker-dealer, such as costs associated with revisions to each
individual representative’s communication and advertising materials. Specifically, large brokerdealers would have to review, identify and change more print and electronic communications and
in turn have their compliance staff verify more communications as being compliant with our
proposed rule as compared to small broker-dealers which would have fewer communications.
Therefore, we anticipate that small entity broker-dealers would require fewer resources to
oversee their employees’ compliance with the proposed rule.
6.

Consequences of Not Conducting Collection

The collection of information required by the proposed rule is necessary to protect retail
investors by providing them with the information necessary to determine whether the firm they
2

Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of
Information; Additional Examples Under the Securities Act of 1933, Securities Exchange Act of 1934, and
Investment Company Act of 1940, Investment Advisers Act Release No. 1562 (May 9, 1996).

3
are engaging or seeking to engage is a broker-dealer. The consequences of not collecting this
information would be that retail investors may not have the information they need in order to
evaluate which type of firm they are engaging or seeking to engage. This result would continue
to leave investors confused and potentially lead to an inappropriate selection of firm type for an
investor’s financial goals. Similarly, if the information is either not collected or is a required
collection on fewer retail investor communications, the investor protections would be reduced.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Not applicable.
8.

Consultations Outside the Agency

In the release proposing, among other things, rule 15l-3, the Commission requested
public comment on the effect of information collections under the proposed rule. The
Commission and the staff of the Division of Investment Management and Division of Trading
and Markets continue to participate in an ongoing dialogue with representatives of the brokerdealer industry through public conferences, meetings and informal exchanges. These various
forums provide the Commission and the staff with a means of ascertaining and acting upon
paperwork burdens facing the industry.
9.

Payment or Gift

None.
10.

Confidentiality

The information collection under the proposed rule would be disclosed prominently in all
print and electronic retail investor communications. These disclosures are not kept confidential.
11.

Sensitive Questions

Not applicable.
12.

Estimate of Hour Burden of Information Collection

We estimate that the total burden hours for rule 15l-3 would be approximately 558,472
hours, as explained in the discussion below.
We estimate that the total initial burden for broker-dealers is 121,971 hours, which
translates into a monetized cost of approximately $33,179,514 for broker-dealers in the
aggregate. This would be an annual average burden of 43 hours per broker-dealer (as monetized,
is an aggregate burden per broker-dealer of $11,613). In addition, we preliminarily estimate that
the total ongoing annual aggregate burden for broker-dealers is 1,429 hours, or a total ongoing
monetized cost of approximately $204,275.50. This would be an annual average burden of 0.5
hours per broker-dealer (as monetized, is an average annual burden per broker-dealer of $71.50).

4

We estimate that the total initial one-time burden for associated natural persons is
217,536 hours, which translates into a monetized cost of approximately $31,107,576.50 for
associated natural persons in the aggregate. This would be an annual average burden of 0.5
hours per associated natural person (as monetized, is an average annual burden per associated
natural person of $71.50). We also preliminarily estimate the total ongoing annual aggregate
burden for associated natural persons to be 217,536 hours, which translates into a total ongoing
monetized cost of approximately $31,107,576.50 for associated natural persons in the aggregate.
This would be an ongoing annual average burden of 0.5 hours per associated natural person (as
monetized, is an average ongoing annual burden per associated natural person of $71.50).
a. Broker-dealers
We estimate that approximately 2,857 of the 3,841 broker-dealers distribute print or
electronic retail investor communications. 3 Of these broker-dealers that distribute print or
electronic retail investor communications, 1,388 are large broker-dealers and 1,469 are small
broker-dealers. 4
We estimate that the initial one time burden for complying with the disclosure
requirements would be 72 hours per large broker-dealer 5 and 15 hours per small broker-dealer. 6
We note that we are staging the compliance date to ensure that firms can phase out certain older
communications from circulation through the regular business lifecycle rather than having to
retroactively change them. 7 As a result of this staged compliance, our burden estimates do not
reflect the burdens that would have been imposed had these firms had to replace all outstanding
communications.
We preliminary estimate that to comply with our proposed rule with respect to print
communications, 8 broker-dealers would need to review their communications, identify which
would need to be amended, make the changes, and verify that all firm communications comply
3

The number of broker-dealers is as of Dec. 31, 2017 based on FOCUS reports data and Form BR.

4

For the purposes of this proposed rule, we define large broker-dealers as those with total assets greater than
1 million and small broker-dealers as those with less than 1 million in total assets.
We note that we are not analyzing new broker-dealers or associated natural persons because there has been
a downward trend in broker-dealer registration and the number of associated natural persons has not shown
signs of a noticeable increase over the past few years. From 2016 through 2018 the number of brokerdealers registered with the Commission decreased by 160. (4064 – 3904) = 160. See also FINRA
Statistics, available at https://www.finra.org/newsroom/statistics#reps.

5

(8 hours for print communications per large broker-dealer + 64 hours for electronic communications per
large broker-dealer).

6

(5 hours for print communications per small broker-dealer + 10 hours for electronic communications per
small broker-dealer).

7

Similarly, we are not requiring firms to send new communications to replace all older print
communications as this would be overly burdensome and costly for firms.

8

Such communications could include business cards, letterheads, newspaper advertisements, and article
reprints from an unaffiliated magazine or newspaper.

5
with the rule’s requirements including its technical specifications such as the type size, font, and
prominence. Therefore, for existing print communications for large broker-dealers, we
preliminarily estimate that the total burden for broker-dealers would be 8 hours for compliance
and business operations personnel to review, identify, and make changes across all print
communications. 9
For smaller broker-dealers, we preliminarily estimate that the total burden for brokerdealers would be 5 hours for compliance and business operations personnel to review, identify,
and make changes across all print communications. 10 We note that there is a difference between
large broker-dealers and smaller broker-dealers. We assume that large broker-dealers will have
to review, identify and change more print communications and in turn have their compliance
staff verify more print communications as being compliant with our proposed rule as compared
to small broker-dealers which will have fewer print communications.
With respect to electronic communications, 11 we preliminarily anticipate that it would
take large broker-dealers approximately 64 hours 12 to review, identify and make the required
updates coupled with verifying that such communications (present and future) would be
compliant with the proposed rule. Our estimates take into account that larger firms likely have
full-featured websites that generate other webpages based on complex system code and logic. 13
In order to make changes to comply with our proposed rule, we assume that business operations
9

This estimate is based upon staff experience and industry sources more generally. See e.g. Self-Regulatory
Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change
to Amend FINRA Rule 2210, Exchange Act Release No. 34-75377 (Jul. 7, 2015), at Economic Impact
Assessment (“FINRA 2015-22 Notice”) (stating with reference to adding BrokerCheck links to mid-size
and smaller firm communications, which we believe is analogous to the manual changes made to print
communications, that “mid-size and small members typically have less complex websites, which they
manage and maintain with nontechnical staff. These members would use personnel in non-technical roles to
accomplish the required updates to their websites…. [I]t would take mid-size or small members
approximately eight hours of non-technical staffs’ time to make the required updates….”).
To compute the 8 hours internal initial burden we assume 2 hours by compliance personnel and 6 hours by
business operations personnel of the broker-dealer.

10

This estimate is based upon staff experience and industry sources more generally. See e.g. FINRA 2015-22
Notice, supra note 9. To compute the 5 hours internal initial burden we assume 1 hour by compliance
personnel and 4 hours by business operations personnel of the broker-dealer.

11

We believe such communications could include websites, smart phone apps, social media, emails, and
blogs.

12

This estimate is based upon staff experience and industry sources more generally. See e.g. FINRA 2015-22
Notice, supra note 9. (“These estimates are based on FINRA’s assumption that large members typically
have full-featured websites that dynamically generate webpages based on data and logic. The technology
personnel at these members would be required to update the underlying information in order to automate
the implementation of references and hyperlinks to BrokerCheck across all applicable webpages. FINRA
estimates that on average it would take large members approximately 60 hours of technology staffs’ time to
make the required updates….”). To compute the 64 hours internal initial burden we assume 4 hours by
compliance personnel and 60 hours by business operations and information technology personnel of the
broker-dealer.

13

This is based upon staff experience and industry sources more generally. See e.g. FINRA 2015-22 Notice,
supra note 9 (discussing the burdens associated with the inclusion of a BrokerCheck reference and
hyperlink across all firm communications for certain firms).

6
and information technology personnel would likely be required to update the underlying code
and logic to automate the implementation of the required language to populate across all
associated electronic media. Additionally, we assume that these teams would need to test to
ensure that such changes were implemented correctly.
With respect to smaller broker-dealers, we preliminarily anticipate that it would take
approximately 10 hours 14 to review, identify and make the required updates coupled with
verifying that such communications (present and future) would be compliant with the proposed
rule. Our estimate for smaller broker-dealers assumes that smaller broker-dealers have fewer
electronic communications that would be subject to our proposed rule as compared to larger
firms, resulting in a lower burden preliminary estimate.
We preliminarily estimate that the total initial burden for broker-dealers is 121,971
hours. 15 We preliminarily estimate a cost of approximately $33,179,514 for broker-dealers. 16
14

This estimate is based upon staff experience and industry sources more generally. See e.g. FINRA 2015-22
Notice (stating with reference to adding BrokerCheck links to firm communications that “mid-size and
small members typically have less complex websites, which they manage and maintain with nontechnical
staff. These members would use personnel in non-technical roles to accomplish the required updates to
their websites…. [I]t would take mid-size or small members approximately eight hours of non-technical
staffs’ time to make the required updates….”).
To compute the 10 hours internal initial burden, we assume 2 hours by compliance personnel and 8 hours
by business operations and information technology personnel of the broker-dealer.

15

(8 hours for print communications per large broker-dealer + 64 hours for electronic communications per
large broker-dealers) = 72 hours per large broker-dealer. (72 hours x 1,388 large broker-dealers) = 99,936
total initial burden for large broker-dealers.
(5 hours for print communications per small broker-dealer + 10 hours for electronic communications per
small broker-dealer) = 15 hours per small broker-dealer. (15 hours x 1,469 small broker-dealers) = 22,035
total initial burden for small broker-dealers.
(99,936 total initial burden large broker-dealers + 22,035 total initial burden small broker-dealers) =
121,971 total broker-dealer initial burden.

16

The hourly wage figures in this and subsequent footnotes are from SIFMA’s Management & Professional
Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1800-hour workyear and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and
overhead (“SIFMA Management and Professional Earnings Report”).
Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270. The average technology and business rate is ($268
business rate + $270 technology rate) / 2 = $269 average rate.
This figure was calculated as follows: ((6 compliance hours x $298 compliance rate) + (66
technology/business hours x $269 averaged technology/business rate)) x 1,388 large broker-dealers =
$27,124,296 total initial costs for large broker-dealers.
((3 compliance hours x $298 compliance rate) + (12 technology/business hours x $269 averaged
technology/business rate)) x 1,469 small broker-dealers = $6,055,218 total initial costs for small brokerdealers.
$27,124,296 total initial cost for large broker-dealers + $6,055,218 total initial cost for small broker-dealers
= $33,179,514 total initial costs for all broker-dealers.

7
This would be an annual average burden of 43 hours per broker-dealer 17 (as monetized, which is
an average annual burden per broker-dealer of $11,613). 18
For the ongoing burden of new communications for broker-dealers, we preliminarily
estimate that the burden for legal, compliance, business operations, and technology services for
adding a registration status statement would be 0.5 hours annual hours per broker-dealer. 19 We
anticipate that broker-dealers will need to add the registration disclosure to each new
communication which they create, however we anticipate the burdens associated with this task to
be minimal and therefore we do not believe there is a material difference between large and
small broker-dealers. 20 We preliminarily estimate that the total ongoing annual aggregate burden
for broker-dealers is 1,429 hours. 21 We preliminarily estimate a total ongoing monetized cost of
17

(8 hours for print communications per large broker-dealer + 64 hours for electronic communications per
large broker-dealers) = 72 hours per large broker-dealer. (72 hours x 1,388 large broker-dealers) = 99,936
total initial burden for large broker-dealers.
(5 hours for print communications per small broker-dealer + 10 hours for electronic communications per
small broker-dealer) = 15 hours per small broker-dealer. (15 hours x 1,469 small broker-dealers) = 22,035
total initial burden for small broker-dealers.
99,936 total initial burden large broker-dealers + 22,035 total initial burden small broker-dealers = 121,971
total broker-dealer initial burden / 2,857 total broker-dealers = 43 total initial burden per broker-dealer.

18

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270. The average technology and business rate is ($268
business rate + $270 technology rate) / 2 = $269 average rate.
This figure was calculated as follows: (6 compliance hours x $298 compliance rate) + (66
technology/business hours x $269 averaged technology/business rate) x 1,388 large broker-dealers =
$27,124,296 total initial costs for large broker-dealers.
((3 compliance hours x $298 compliance rate) + (12 technology/business hours x $269 averaged
technology/business rate)) x 1,469 small broker-dealers = $6,055,218 total initial costs for small brokerdealers.
$27,124,296 total initial cost for large broker-dealers + $6,055,218 total initial cost for small broker-dealers
= $33,179,514 total initial costs for all broker-dealers / 2,857 total number of broker-dealers=$11,613 total
initial cost per broker-dealer.

19

This estimate is based upon staff experience. See e.g. Release 2968, infra note 26; Enhanced Mutual Fund
Disclosure Adopting Release, infra note 26.
In this estimate we are not calculating the print and technological associated burdens of updating
communications which we analyzed earlier as we are assuming those burdens to be a one-time initial
burden for a firm seeking compliance with the proposed rule.

20

Our assumption of no material difference between large and small rests on the fact that all major systems
changes would already have been implemented as part of the initial one-time burden. Therefore, any new
electronic communications would have the disclosure statement required by our proposed rule built in at
the outset which should take minimal time rather than having to retroactively insert it into the systems logic
which is a more onerous task. We note that such communications will need to be reviewed by compliance
staff for compliance with applicable securities laws and associated self-regulatory organization rules,
including FINRA Rule 2210. We anticipate that compliance with proposed rule 151-3’s requirements will
be reviewed as part of this larger compliance check.

21

(0.5 hours x 2,857 broker-dealers) = 1,429 total ongoing burden for broker-dealers.

8
approximately $204,275.50 for broker-dealers. 22 This would be an annual average burden of 0.5
hours per broker-dealer 23 (as monetized, is an average annual burden per broker-dealer of
$71.50). 24
b. Associated Natural Persons:
We estimate that 435,071 associated natural persons distribute print or electronic retail
investor communications at standalone broker-dealers or dually registered firms. 25 We
preliminarily anticipate that associated natural persons would have an initial one-time burden of
0.5 hours for each associated natural person respondent to review, identify, and make changes to

22

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per broker-dealer.
(0.5 hours x $143 total cost per broker-dealer x 2,857 broker-dealers) = $204,275.50 total ongoing cost for
broker-dealers.

23

(0.5 hours x 2,857 broker-dealers) = 1,429 total ongoing burden for broker-dealers.
(1,429 total ongoing burden for broker-dealers / 2,857 total broker-dealers) = 0.5 total initial burden per
broker-dealer.

24

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per broker-dealer.
(0.5 hours x $143 total cost per broker-dealer x 2,857 broker-dealers) = $204,275.50 total ongoing cost for
broker-dealers / 2,857 total number of broker-dealers = $71.50 total ongoing cost per broker-dealer.

25

For the purposes of the Paperwork Reduction Act analysis applicable to proposed rule 15l-3, we are
defining a “dually registered firm” as any firm that is dually registered with the Commission as an
investment adviser and a broker-dealer.
Such associated natural persons are registered as registered representatives with FINRA through Form U4
as of Dec. 31, 2017. We took the total 494,399 registered representatives across standalone broker-dealers,
dually registered firms, and standalone investment advisers and isolated those registered representatives
that act on behalf of standalone broker-dealers and dually registered firms (i.e. 88%).

9
their individual communications, both print and electronic. 26 Based on staff experience, we
anticipate that many firms will make many communication changes for their associated natural
persons, including their business cards and letterheads, leaving only certain responsibilities to the
individual such as changes to their individual social media profile(s) and email signatures.
Therefore, we preliminarily estimate that the total initial one-time burden for associated natural
persons is 217,536 hours. 27 We preliminarily estimate a monetized cost of approximately
$31,107,576.50 for associated natural persons. 28 This would be an annual average burden of 0.5
hours per associated natural person 29 (as monetized, is an average annual burden per associated
natural person of $71.50). 30
26

This estimate is based upon staff experience. See e.g. Custody of Funds or Securities of Clients by
Investment Advisers, Investment Advisers Act Release No. 2968 (Dec. 30, 2009) (“Release 2968”) (“We
further estimate that the adviser will spend 10 minutes per client drafting and sending the notice.”);
Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management
Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26,
2009)] (“Enhanced Mutual Fund Disclosure Adopting Release”) (“we estimate, as we did in the proposing
release, that rule 498 will impose a ½ hour burden per portfolio annually associated with the compilation of
the additional information required on a cover page or at the beginning of the Summary Prospectus. Rule
498 also imposes annual hour burdens associated with the posting of a fund’s Summary Prospectus,
statutory prospectus, SAI, and most recent report to shareholders on an Internet website. We estimate that
the average hour burden for one portfolio to comply with the Internet website posting requirements will be
approximately one hour annually.”).

27

(0.5 hours x 435,071 associated natural persons) = 217,536 total initial burden for associated natural
persons.

28

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per associated natural person.
(0.5 x $143 total cost per associated natural person x 435,071 associated natural persons) = $31,107,576.50
total initial cost for associated natural persons.

29

(0.5 hours x 435,071 associated natural persons) = 217,536 total initial burden for associated natural
persons.
(217,536 total initial burden / 435,071 total associated natural persons) = 0.5 total initial burden per
associated natural person.

30

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.

10

For the ongoing burden of new communications for associated natural persons of a
broker-dealer, we preliminarily estimate that the burden for compliance, business operations, and
technology services for adding a registration status statement would be 0.5 hours. 31 Therefore,
we preliminarily estimate that the total ongoing annual aggregate burden for associated natural
persons is 217,536 hours. 32 We preliminarily estimate a total ongoing monetized cost of
approximately $31,107,576.50 for associated natural persons. 33 This would be an ongoing
annual average burden of 0.5 hours per associated natural person 34 (as monetized, is an average
ongoing annual burden per associated natural person of $71.50). 35
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per associated natural person.
(0.5 x $143 total cost per associated natural person x 435,071 associated natural persons) = $31,107,576.50
total initial cost for associated natural persons.
($31,107,576.50 total initial cost for associated natural persons / 435,071 total number of associated natural
persons) = $71.50 total initial cost per associated natural person.
31

This estimate is based upon staff experience. See e.g. Release 2968, supra note 26; Enhanced Mutual Fund
Disclosure Adopting Release, supra note 26.
In this estimate we are not calculating the print and technological associated burdens of updating
communications which we analyzed earlier as we are assuming those burdens to be a one-time initial
burden for an associated natural person of a broker-dealer seeking compliance with the proposed rule.

32

(0.5 hours x 435,071 associated natural persons) = 217,536 total ongoing burden for associated natural
persons.

33

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.
($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per associated natural person.
(0.5 hours x $143 total cost per associated natural person x 435,071 associated natural person) =
$31,107,576.50 total ongoing cost for associated natural persons.

34

(0.5 hours x 435,071 associated natural persons) = 217,536 total ongoing annual burden for associated
natural persons.
(217,536 total ongoing burden / 435,071 total associated natural persons) = 0.5 total ongoing annual burden
per associated natural person.

35

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for compliance services is $298, for business operation services is
$268, and for information technology services is $270.
This figure was calculated as follows: 0.5 hours / 3 firm staff categories (i.e. compliance, business
operations, and information technology) = 0.17 hours per staff category
($298 compliance/hour x 0.17) = $51 per 0.17 of an hour.

11

13.

Cost to Respondents

Aside from the internal initial burden, we anticipate that there will be certain associated
outside costs to the respondents. We estimate that the total external costs to respondents will be
approximately $625,862,867, as explained in the discussion below. We believe that brokerdealers and their associated natural persons may engage outside counsel to assist them in
understanding our proposed rule should it be adopted. 36 We assume that the amount of
outsourced legal assistance would vary among various sizes of broker-dealers and their number
of associated natural persons. As a result, we preliminarily estimate that large broker-dealers
together with their associated natural persons may initially outsource approximately 8 hours of
legal time in order to understand the implications of our proposed rule, including which
communications are subject to the proposed rule and how best to comply with the technical
specifications. 37 For small broker-dealers, we anticipate that such firms will outsource 4 hours
of legal time. 38 Our preliminary estimates take into account that large firms have more
communications affected by our proposed rule and more associated natural persons to supervise
than smaller firms. We estimate initial outside legal costs associated with the proposed rule of
$8,014,560 for broker-dealers 39 or $2,805 per broker-dealer. 40

($268 business operations rate/hour x 0.17) = $46 per 0.17 of an hour.
($270 information technology rate/hour x 0.17) = $46 per 0.17 of an hour.
$51 + $46 + $46 = $143 total cost per associated natural person.
(0.5 hours x $143 total cost per associated natural person x 435,071 associated natural person) =
$31,107,576.50 total ongoing cost for associated natural persons / 435,071 total number of associated
natural persons) = $71.50 total ongoing annual cost per associated natural person.
36

We are assuming that associated natural persons would not independently seek outside counsel and would
instead rely on the advice received from outside counsel to the firm. Therefore, we are not including a
separate estimate for associated natural persons.

37

This estimate is based upon staff experience. See e.g. Disclosure of Order Handling Information Proposed
Rule, Securities Exchange Act Release No. 34-78309 (July 13, 2016) (“Release 34-78309”) (estimating 4
hours for legal burden “to assign each order routing strategy for institutional orders into passive, neutral,
and aggressive categories and establish and document its specific methodologies for assigning order routing
strategies as required by Rule 606(b)(3)(v)”); Regulation of NMS Stock Alternative Trading Systems
Proposed Rule, Securities Exchange Act Release No. 34-76474 (Nov. 18, 2015) (“Release 34-76474”)
(estimating 7 legal hours “to put in writing its safeguards and procedures to protect subscribers’
confidential trading information and the oversight procedures to ensure such safeguards and procedures are
followed….”).

38

This estimate is based upon staff experience. See supra note 38.

39

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for legal services is $472/hour.
($472 x 8 legal hours = $3,776 x 1,388 large broker-dealers = $5,241,088) + ($472 x 4 legal hours =
$1,888 x 1,469 small broker-dealers = $2,773,472).
($5,241,088 large broker-dealers + $2,773,472 small broker-dealers) = $8,014,560 total cost.

40

Based on the SIFMA Management and Professional Earnings Report, Commission staff preliminarily
estimates that the average hourly rate for legal services is $472/hour.

12

We anticipate that firms will also have one-time outside cost associated with the cost of
printing new communications including new business cards, envelopes, pitch books, and
letterheads. As part of these costs, we anticipate that both large and small broker-dealers will
have to work with printers to set the disclosure on, for example, business cards. We estimate
initial costs to amend certain communications associated with the proposed rule of $617,848,307
for broker-dealers 41 (or $216,258 per broker-dealer). 42 We assume that because small brokerdealers have fewer associated natural persons there will be less communications that will require
printing.
14.

Estimate of Cost to Federal Government

There are no costs to the federal government directly attributable to proposed rule 15l-3.
15.

Change in Burden

Not applicable. This is the first request for approval of the collection of information for
this rule.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

Not applicable.
B.

Collection of Information Employing Statistical Methods
($472 x 8 legal hours = $3,776 x 1,388 large broker-dealers = $5,241,088) + ($472 x 4 legal hours =
$1,888 x 1,469 small broker-dealers = $2,773,472).
$5,241,088 large broker-dealers + $2,773,472 small broker-dealers = $8,014,560 total cost/ 2,857 brokerdealers = $2,805 total cost per broker-dealer.

41

Our estimates are based on staff experience and industry sources. In particular, staff factored in its cost
estimate the costs associated with printing envelopes, pitch books, letterheads, and business cards. For
large broker-dealers, the staff assumes a printing cost of $445,121. For small broker-dealers, the staff
assumes a printing cost of $20,359.
($445,121 x 1,388 large broker-dealers = $617,827,948) + ($20,359 x 1,469 small broker-dealers =
$29,907,371) = $617,848,307 total broker-dealer outside costs.

42

($445,121 x 1,388 large broker-dealers = $617,827,948) + ($20,359 x 1,469 small broker-dealers =
$29,907,371) = $617,848,307 total broker-dealer outside costs / 2,857 broker-dealers = $216,258 total cost
per broker-dealer.

13

Not applicable.