Supporting Statement for Regulation Best Interest (OMB No. 3235-0762) Final Rule

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Regulation Best Interest
OMB No. 3235-0762
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq.
A.

JUSTIFICATION
1.

Necessity of Information Collection

On June 5, 2019, the Commission adopted Rule 151-1 under the Securities Exchange Act
of 1934 (“Exchange Act”) establishing a standard of conduct for broker-dealers and natural
persons who are associated persons of a broker-dealer (unless otherwise indicated, together
referred to as “broker-dealer” or “BD”) when making a recommendation of any securities
transaction or investment strategy involving securities to a retail customer (“Regulation Best
Interest”). 1 The Commission adopted Regulation Best Interest pursuant to its authority under
Sections 913(f) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”) 2 and Section 15(l) of the Exchange Act. 3
Section 913(f) of the Dodd-Frank Act provides the Commission with discretionary
authority to “commence a rulemaking, as necessary or appropriate to the public interest and for
the protection of retail customers (and such other customers as the Commission may by rule
provide), to address the legal or regulatory standards of care for brokers, dealers. . .[and] persons
associated with brokers or dealers. . . for providing personalized investment advice about
securities to such retail customers.” 4 Exchange Act Section 15(l) gives the Commission the
authority to (1) facilitate the provision of simple and clear disclosures to investors regarding the
terms of their relationships with brokers, dealers, and investment advisers, including any material
conflicts of interest; and (2) examine and, where appropriate, promulgate rules prohibiting or
restricting certain sales practices, conflicts of interest, and compensation schemes for brokers,
dealers, and investment advisers that the Commission deems contrary to the public interest and
the protection of investors.” 5
Rule 15l-1(a)(1) requires broker-dealers and natural persons who are associated persons
of a broker-dealer, when making a recommendation of any securities transaction or investment
strategy involving securities to a retail customer, to act in the best interest of the retail customer
1

See Securities Exchange Act Release No. 86031 (Jun. 5, 2019), __ FR ____ ( . , 2019)
(“Adopting Release”); see also Securities Exchange Act Release No. 83062 (Apr. 18, 2018) [83
FR 21574] (May 9, 2018) (“Proposing Release”).

2

Pub. L. 111-203, 124 Stat. 1376, 1827 (2010).

3

15 U.S.C. §78o.

4

Section 913(f) of the Dodd-Frank Act.

5

15 U.S.C. §78o.
1

at the time the recommendation is made, without placing the financial or other interest of the
broker-dealer or natural person who is an associated person making the recommendation ahead
of the interest of the retail customer.
Rule 15l-1(a)(2) establishes four obligations that must be met to satisfy the best interest
obligation set forth in Rule 15l-1(a)(1):
1. Disclosure Obligation: requires the broker-dealer or associated person, prior to or at
the time of such recommendation, to provide the retail customer, in writing, full and
fair disclosure of all material facts relating to the scope and terms of the relationship
with the retail customer and all material facts relating to conflicts of interest
associated with the recommendation; 6
2. Care Obligation: requires the broker-dealer or associated person, in making the
recommendation, to exercise reasonable diligence, care and skill; 7
3. Conflict of Interest Obligations: require the broker-dealer 8 to establish, maintain, and
enforce written policies and procedures addressing conflicts of interest associated
with its recommendations to retail customers. 9
4. Compliance Obligation: requires the broker-dealer 10 to also establish, maintain, and
enforce written policies and procedures reasonably designed to achieve compliance
with Regulation Best Interest as a whole. 11
Rule 15l-1(b)(1) defines “Retail Customer” as a natural person, or the legal representative
of such natural person, who: (i) receives a recommendation of any securities transaction or
investment strategy involving securities from a broker, dealer, or a natural person who is an
associated person of a broker or dealer; and (ii) uses the recommendation primarily for personal,
family, or household purposes. 12
Rule 15l-1(b)(2) defines “Retail Customer Investment Profile” as including, but not
limited to, “the retail customer’s age, other investments, financial situation and needs, tax status,
investment objectives, investment experience, investment time horizon, liquidity needs, risk
6

Rule 15l-1(a)(2)(i).

7

Rule 15l-1(a)(2)(ii).

8

The Conflict of Interest Obligations and Compliance Obligation apply solely to the broker or
dealer entity, and not to the natural persons who are associated persons of a broker or dealer. For
purposes of discussing the Conflict of Interest Obligations and Compliance Obligation, the term
“broker-dealer” refers only to the broker-dealer entity, and not to such individuals.

9

Rule 15l-1(a)(2)(iii).

10

See note 8, supra.

11

Rule 15l-1(a)(2)(iv).

12

Rule 15l-1(b)(1).
2

tolerance, and any other information the retail customer may disclose to the broker, dealer, or a
natural person who is an associated person of a broker or dealer in connection with a
recommendation.” 13
Rule 15l-1(b)(3) defines “Conflict of Interest” as an interest that might incline a broker,
dealer, or a natural person who is an associated person of a broker or dealer —consciously or
unconsciously—to make a recommendation that is not disinterested. 14
In addition, the Commission adopted new record-making and recordkeeping requirements
on broker-dealers and associated persons. The addition of paragraph (a)(35) to Rule 17a-3
would impose new record-making obligations on broker-dealers subject to Regulation Best
Interest. The Proposed Amendment to Rule 17a-4(e)(5) would impose new record retention
obligations on broker-dealers subject to Regulation Best Interest. 15
The information that must be collected pursuant to the foregoing proposed rules is
intended to: (1) improve disclosure about the scope and terms of the broker-dealer’s relationship
with the retail customer, which would foster retail customers’ understanding of their relationship
with a broker-dealer; (2) enhance the quality of recommendations provided by establishing an
express best interest obligation under the federal securities laws; (3) enhance the disclosure of a
broker-dealer’s conflicts of interest; and (4) establish obligations that require mitigation, and not
just disclosure, of conflicts of interest arising from financial incentives associated with brokerdealer recommendations. The information will therefore help establish a framework that protects
investors and promotes efficiency, competition, and capital formation.
2.

Purpose and Use of Information Collection
i.

Disclosure Obligation

As noted above, the Disclosure Obligation under Rule 15l-1(a)(2)(i) requires a brokerdealer, prior to or at the time of recommending a securities transaction or investment strategy
involving securities to a retail customer, to provide the retail customer, in writing, full and fair
disclosure of: (1) all material facts relating to the scope and terms of the relationship with the
retail customer, including (a) that the broker-dealer is acting as a broker-dealer with respect to
the transaction; (b) the fees and costs that apply to the retail customer’s transactions, holdings,
and accounts, and (c) the type and scope of services provided ot the retail customer, including
any material limitations on the securities or investment strategies involving securities that may
be recommended to the retail customer; and (2) all material conflicts of interest that are
associated with the recommendation.
The collection of information arising from the Disclosure Obligation will facilitate a
13

Rule 15l-1(b)(2).

14

Rule 15l-1(b)(3).

15

Because the record-making and recordkeeping obligations are being adopted under Rule 17a-3
and Rule 17a-4, which each have their own respective OMB Control Number, separate
supporting statements are being submitted to address these components of Regulation Best
Interest.
3

retail customer’s understanding of the nature of his or her account, the broker-dealer’s fees and
costs, as well as the nature of services that the broker-dealer provides, and any limitations to
those services. It will also reduce retail customers’ confusion about the differences among
certain financial service providers, such as broker-dealers, investment advisers, and dualregistrants. In addition, the obligation to disclose all material conflicts of interest associated with
a recommendation will raise retail customers’ awareness of the potential effects of conflicts of
interest, and increase the likelihood that broker-dealers will make recommendations that are in
the retail customer’s best interest.
ii.

Care Obligation

Under Rule 15l-1(a)(2)(ii), a broker-dealer would be required to make a reasonable effort
to ascertain the potential risks and rewards associated with the recommendation, and to
determine whether the recommendation could be in the best interest of at least some retail
customers.
The Commission believes that any PRA burdens or costs associated with the Care
Obligation are duplicative of costs associated with other obligations in Regulation Best Interest,
including the Disclosure Obligation and the Record-making Obligation and Recordkeeping
Obligation.
iii.

Conflict of Interest Obligations

Rule 15l-1(a)(2)(iii)(A) requires a broker-dealer 16 to establish, maintain, and enforce
written policies and procedures reasonably designed to identify and at a minimum disclose, or
eliminate, all conflicts of interest associated with a recommendation. Rule 15l-1(a)(2)(iii)(B)
requires a broker-dealer to establish, maintain, and enforce written policies and procedures
reasonably designed to identify and mitigate any conflicts of interest associated with a
recommendation that create an incentive for a natural person who is an associated person of a
broker or dealer to place the interest of the broker, dealer, or such natural person ahead of the
retail customer. Rule 15l-1(a)(2)(iii)(C) requires a broker-dealer to establish, maintain, and
enforce written policies and procedures reasonably designed to identify and disclose any material
limitations placed on the securities or investment strategies involving securities that may be
recommended to a retail customer and any conflicts of interest associated with such limitations
and prevent such limitations and associated conflicts of interest from causing the broker-dealer to
make recommendations that place the interest of the broker-dealer ahead of the interest of the
retail customer. Finally, Rule 15l-1(a)(2)(iii)(D) requires a broker-dealer to establish, maintain,
and enforce written policies and procedures reasonably designed to identify and eliminate any
sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of
specific securities or specific types of securities within a limited period of time. The collection
of information arising from the Conflict of Interest Obligations will help a broker-dealer develop
a process, relevant to its retail customers and the nature of its business, for identifying material
conflicts of interest, and then determining whether to eliminate, or disclose and/or mitigate, the
material conflict and the appropriate means of eliminating, disclosing, and/or mitigating the
conflict. As a result of a broker-dealer’s eliminating, disclosing, and/or mitigating the effects of
16

See supra note 8.
4

conflicts of interest on broker-dealer recommendations, retail customers will be more likely to
receive recommendations in their best interest. In addition, the retention of written policies and
procedures under this section will generally: (1) assist a broker-dealer in supervising and
assessing internal compliance with the Conflict of Interest Obligation; and (2) assist the
Commission and self-regulatory organization staff in connection with examinations and
investigations.
iv.

Compliance Obligation

Rule 15l-1(a)(2)(iv) requires a broker-dealer, in addition to the policies and procedures
required by paragraph (iii), to establish, maintain, and enforce written policies and procedures
reasonably designed to achieve compliance with Regulation Best Interest.
In addition, the retention of written policies and procedures under the Compliance
Obligation will generally: (1) assist a broker-dealer in supervising and assessing internal
compliance with Regulation Best Interest; and (2) assist the Commission and self-regulatory
organization staff in connection with examinations and investigations.
3.

Consideration Given to Information Technology

The rules do not prescribe particular forms or methods of compliance for broker-dealers
or their associated person, to allow maximum flexibility with respect to new technologies as they
develop.
4.

Duplication

The Commission evaluates disclosure, recordkeeping, and record retention rule-based
requirements for duplication, and re-evaluates them whenever it proposes a rule or a change in a
rule. Although existing principles and obligations similar to those underlying Regulation Best
Interest already apply to broker-dealers under other rules and regulations, no other Commission
rule establishes an explicit standard of conduct that requires broker-dealers and their natural
associated persons to comply with the express obligations imposed by Regulation Best Interest. We
believe that requiring broker-dealers to explicitly act in the best interests of their retail customers
– by satisfying the obligations underlying Regulation Best Interest, including the collection of
information requirements – is necessary to improve investor protection by enhancing the
professional standards of conduct that currently apply to broker-dealers when they make
recommendations to retail customers.
5.

Effect on Small Entities

5

The Regulatory Flexibility Act (“RFA”) 17 requires federal agencies, in promulgating
rules, to consider the impact of those rules on small entities. Section 603(a) 18 of the
Administrative Procedure Act, 19 as amended by the RFA, generally requires the Commission to
undertake a regulatory flexibility analysis of all proposed rules, or proposed rule amendments, to
determine the impact of such rulemaking on “small entities.” 20 For purposes of a Commission
rulemaking in connection with the RFA, a broker-dealer will be deemed a small entity if it: (1)
had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the
prior fiscal year as of which its audited financial statements were prepared pursuant to Rule 17a5(d) under the Exchange Act, 21 or, if not required to file such statements, had total capital (net
worth plus subordinated liabilities) of less than $500,000 on the last day of the preceding fiscal
year (or in the time that it has been in business, if shorter); and (2) is not affiliated with any
person (other than a natural person) that is not a small business or small organization. 22
Based on 2018 FOCUS Report data about the broker-dealer retail market, we believe that
approximately 756 broker-dealers – with an estimated 5,281 retail customer accounts – would
qualify as small entities subject to Regulation Best Interest. However, Regulation Best Interest
does not distinguish between small entities and other broker-dealers. We recognize that different
broker-dealers may require different amounts of time or external assistance in preparing for
Relationship Best Interest. The Commission believes, however, that imposing different
requirements on smaller firms would not be consistent with investor protection and the purposes
of Regulation Best Interest. The Commission reviews all rules periodically, as required by the
Regulatory Flexibility Act, to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses.
6.

Consequences of Not Conducting Collection

The information to be collected and recorded under Regulation Best Interest will allow
the Commission, state securities regulatory authorities, and SROs to determine whether brokerdealers are in compliance with Regulation Best Interest, and to ensure that broker-dealers are not
placing their interests ahead of the interests of their retail customers when making investment
recommendations. If a broker-dealer does not make these records, or it makes these records less
frequently, the level of investor protection will be reduced.

17

5 U.S.C. 601 et seq.

18

5 U.S.C. 603(a).

19

5 U.S.C. 551 et seq.

20

Although Section 601(b) of the RFA defines the term “small entity,” the statute permits agencies
to formulate their own definitions. The Commission has adopted definitions for the term small
entity for the purposes of Commission rulemaking in accordance with the RFA. Those
definitions, as relevant to this proposed rulemaking, are set forth in Rule 0-10 under the Exchange
Act, 17 CFR 240.0-10.

21

See 17 CFR 240.17a-5(d).

22

See 17 CFR 240.0-10(c).
6

7.

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

There are no special circumstances. The collection is consistent with 5 CFR
1320.5(d)(2). 23
8.

Consultations Outside the Agency

The Commission issued a release soliciting comment on the new “collection of
information” requirements and associated paperwork burdens. 24 A copy of the release is
attached. In addition, the Commission and staff participate in ongoing dialogue with
representatives of various market participants through public conferences, meetings and informal
exchanges. Comments received on this rulemaking were posted on the Commission’s public
website, and made available through http://www.sec.gov/rules/proposed.shtml. The Commission
considered all comments received prior to adopting the final rule and explained in the adopting
release how the final rule responded to such comments, in accordance with 5 C.F.R. 1320.11(f).
We received several comments suggesting that our estimated burdens and costs for the
rule as a whole were too low. 25 In addition, the Commission received some comments
specifically addressing the costs to smaller broker-dealers. 26 Also, as discussed in the Economic
23

Proposed Amendment to Rule 17a-4(e)(5) would impose new record retention obligations on
broker-dealers subject to Regulation Best Interest, including a requirement for broker-dealers to
preserve certain records for a period of not less than six years. This inconsistency with the
Guidelines in 5 CFR 1320.5(d)(2) is discussed separately in the Supporting Statement for Rule
17a-4.

24

See Proposing Release, supra note 1 at 21628-21629.

25

See, e.g., Letter from Lisa D. Crossley, Executive Director, National Society of Compliance
Professionals (“NSCP”) (Aug. 7, 2018) (“NSCP Letter”); see also Letters from Tom Quaadman,
Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of
Commerce (Aug. 7, 2018) (supplemented by letter dated Sep. 5, 2018) (costs to implement the
proposal were underestimated and greater than 40% of firms surveyed anticipate having to spend
a moderate or substantial amount to implement Regulation Best Interest and Form CRS); Letter
from Paul C. Reilly, Chairman and CEO, Raymond James Financial (Aug. 7, 2018) (noting the
significant implementation costs of Regulation Best Interest and Form CRS for the industry);
Letter from Kenneth E. Bentsen, Jr., President and Chief Executive Officer, SIFMA (Aug. 7,
2018) (stating that implementation costs of Regulation Best Interest and Form CRS would be
significant).

26

See, e.g., Letter from Peter J. Chepucavage (May 31, 2018) (finding that the estimates in the
proposal are severely understated unless they are excluding time needed for review of the
proposal and final rule and suggesting the Commission reconsider the impact on small investors
and small broker-dealers); NSCP Letter (requesting the Commission to consider the financial and
operational impacts of the proposed rule, particularly on small firms, and to minimize those
impacts, given that small firms do not have compliance departments adequate to deal with
increasing regulatory demands). See also, e.g., Letter from Douglas M. Ommen, Iowa Insurance
Commissioner (Aug. 6, 2018); Letter from David S. Addington, National Federation of
Independent Business (May 30, 2018).
7

Analysis section of the Adopting Release, we received comments regarding the potential costs
and burdens of proposed Regulation Best Interest on broker-dealers. In response, we have
modified several substantive requirements to the rule by, among other things, providing more
specificity in the rule text in the Disclosure and Conflict of Interest Obligations, which we
believe will mitigate some of these burdens and costs relative to the Proposing Release.
Additionally, in response to comments, we are adopting the Compliance Obligation described
above. 27
9.

Payment of Gift

No payment or gift is provided to respondents.
10.

Confidentiality

The records required by Regulation Best Interest are available only to the examination
staffs of the Commission, State regulatory authorities, and the SROs. Subject to the provisions
of the Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”) and the Commission’s rules
thereunder (17 CFR 200.80(b)(4)(iii)), the Commission generally does not publish or make
available information contained in reports, summaries, analyses, letters, or memoranda arising
out of, in anticipation of, or in connection with an examination or inspection of any person or
any other investigation.
11.

Sensitive Questions

No questions of a sensitive nature are asked. The information collection does not collect
any Personally Identifiable Information (“PII”). 28
12.

Burden of Information Collection and Costs to Respondents

As noted above, Regulation Best Interest requires the collection of information in
connection with new disclosure, conflict of interest, and compliance obligations. The
27

Some commenters suggested broadening the policies and procedures requirement under the
Conflicts of Interest Obligations to a general policies and procedures obligation that would be
reasonably designed to ensure that recommendations are made in the customer’s best interest or
reasonably designed to ensure compliance with Regulation Best Interest as a whole. See Letter
from Barbara Roper, Director of Investor Protection, and Micah Hauptman, Financial Services
Counsel, Consumer Federation of America (Aug. 7, 2018); Letter from Jason Chandler, Group
Managing Director, Co-Head Investment Platforms and Solutions, and Michael Crowl, Group
Managing Director, General Counsel, UBS (Aug. 7, 2018).

28

The term “Personally Identifiable Information” refers to information which can be used to
distinguish or trace an individual’s identity, such as their name, social security number, biometric
records, etc. alone, or when combined with other personal or identifying information which is
linked or linkable to a specific individual, such as date and place of birth, mother’s maiden name,
etc.
8

Commission anticipates that the respondents will incur the following third-party disclosure and
recordkeeping burdens in connection with the new regulation.
Summary of Hourly Burdens
Name of
Information
Collection

Number
of
Entities
Impacted

Small
Business
Entities
Affected

Type of
Burden

Ongoing or
Initial
Burden

Annual
Responses
per Entity

Burden
per Entity
per
Response

Annual Burden
Per Entity

Ongoing

1

7

7

Initial OneTime

N/A 29

10

3.333

Ongoing

1

4

4

Initial OneTime

N/A

10

3.333

Ongoing

1

20

20

Initial OneTime

N/A

20

6.667

Annual Industry
Burden

Annual
Responses per
Information
Collection

5,816

563

5,544

756

53,601

2010

Disclosure Obligation (Rule 15l-1(a)(2)(i)
(1) Disclosure of Capacity, Type, and Scope of Services
Duallyregistered BDs
(Disclosure of
Capacity)

563

133

3rd-Party Discl.

Small BDs
(Disclosure of
Type & Scope
of Services)

756

756

3rd-Party Discl.

Large BDs
(Disclosure of
Type & Scope
of Services)

2010

0

3rd-Party Discl.

All BDs
(Delivery of the
Account Discl.
Document)

2766

756

3rd-Party Discl.

Initial OneTime

36,876 30

.02

245.84

679,994

101,999,016

All BDs
(Delivery of the
Account Discl.
Document)

2766

756

3rd-Party Discl.

Ongoing

7375

.02

147.5

407,985

20,399,250

Ongoing

1

2

2
2,772

756

Disclosure Obligation (Rule 15l-1(a)(2)(i)
(2) Disclosure of Fees and Costs
Small BDs
(Disclosure of
Fees and Costs)

756

756

3rd-Party Discl.

Initial OneTime
burden

N/A

5

1.667

29
Because this is an initial, one-time burden, we entered N/A here because the response will occur only once and
not each year.

Because this is an initial, one-time burden, the 36,876 responses will occur only once. Thus, we have multiplied
the number of responses by the burden per response divided by 3 (.02/3 = 0.0067) to obtain an annual burden per
entity of 245.85.
30

9

Ongoing

Large BDs
(Disclosure of
Fees and Costs)

2010

All BDs
(Delivery of the
Fee Schedule)

2766

756

3rd-Party Discl.

All BDs
(Delivery of the
Fee Schedule)

2766

756

3rd-Party Discl.

0

3 -Party Discl.
rd

1

4

4
14,739

2010

245.84

679,994

101,999,016

.02

295

815,970

40,798,500

1

1

Initial OneTime
burden

N/A

10

3.333

Initial OneTime
burden

36,876

.02

Ongoing

14,750

Disclosure Obligation 15l-1(a)(2)(i)
(3) Disclosure of Conflicts of Interest
Small BDs
(Disclosure of
Conflicts of
Interest)

756

Large BDs
(Disclosure of
Conflicts of
Interest)

2010

All BDs
(Delivery of the
Conflict
Disclosure)

2766

756

3rd-Party Discl.

All BDs
(Delivery of the
Conflict
Disclosure)

2766

756

3rd-Party Discl.

Ongoing
756

0

1

3rd-Party Discl.

2,016
Initial OneTime burden

N/A

5

1.667

Ongoing

1

2

2

3rd-Party Discl.

9,045

756

2010

Initial OneTime burden

N/A

7.5

2.5

Initial OneTime burden

36,876

.02

245.84

679,994

101,999,016

Ongoing

14,750

.02

295

815,970

40,798,500

Ongoing

1

5

5

Initial OneTime

N/A

10

3.333

Ongoing

1

12

12

Initial OneTime

N/A

60

20

Ongoing

1

10

10

Conflict of Interest Obligations 15l-1(a)(2)(iii)
(1) Written Policies and Procedures

Small BDs

Large BDs

756

2010

756

0

Recordkeeping

Recordkeeping

6,300

64,320

756

2010

Conflict of Interest Obligations 15l-1(a)(2)(iii)
(2) Identification and Management of Conflicts of Interest

All BDs

2766

756

Recordkeeping

50,709
Initial OneTime

N/A

10

25

8.333

2766

Compliance Obligation 15l-1(a)(2)(iv)
(1) Written Policies & Procedures
Small BDs
(New IC)

Large BDs
(New IC)

756

756

2010

0

Recordkeeping

Recordkeeping

Ongoing

1

5

5

Initial OneTime

N/A

6

2

Ongoing

1

12

12

Initial OneTime

N/A

40

13.333

5,292

50,919

756

2010

Compliance Obligation 15l-1(a)(2)(iv)
(1) Training
(a) Module Development

All BDs

2766

756

Recordkeeping

Ongoing

N/A

N/A

N/A

Initial OneTime

N/A

4

1.333

Ongoing

155

1

155

Initial OneTime

155

1

51.67

3,687

2766

Compliance Obligation 15l-1(a)(2)(iv)
(1) Training
(b) Implement Training

All BDs

2766

756

Recordkeeping

TOTAL ANNUAL BURDEN FOR ALL RESPONDENTS:

571,640

4,926,307

Following is a more detailed discussion of the estimated burdens associated with brokerdealers’ new obligations under Regulation Best Interest.
i.

Disclosure Obligation- Rule 15l-1(a)(2)(i)

The Disclosure Obligation under Regulation Best Interest, which is a third-party
disclosure burden, requires a broker-dealer, prior to or at the time of recommending a securities
transaction or strategy involving securities to a retail customer, to provide the retail customer, in
writing, full and fair disclosure of: (1) all material facts relating to the scope and terms of the
relationship with the retail customer, including (a) that the broker, dealer, or such natural person
is acting as a broker, dealer, or an associated person of a broker or dealer with respect to the
recommendation, (b) the fees and costs that apply to the retail customer’s transactions, holdings,
and accounts, and (c) the type and scope of services provided to the retail customer, including
any material limitations on the securities or investment strategies involving securities that may
be recommended to the retail customer; and (2) all material facts relating to conflicts of interest
that are associated with the recommendation. The Commission believes that requiring brokerdealers to disclose to a retail customer, in writing, all material facts relating to the scope and
11

428,730

terms of the relationship with the retail customer would facilitate the retail customer’s
understanding of the nature of his or her account, the broker-dealer’s fees and costs, as well as
the nature of services that the broker-dealer provides, as well as any limitations to those services.
It would also provide retail customers with information to better understand the differences
among certain financial service providers, such as broker-dealers, investment advisers, and
dually registered firms and dually registered financial professionals. In addition, the obligation
to disclose all material facts relating to conflicts of interest that are associated with a
recommendation would raise retail customers’ awareness of the potential effects of conflicts of
interest, and increase the likelihood that broker-dealers would make recommendations that are in
the retail customer’s best interest.
We are explicitly requiring in the rule text of Regulation Best Interest, items that the
Proposing Release had only provided as examples of “material facts relating to the scope and
terms of the relationship with the retail customer” that must be disclosed, namely: (1) that the
broker, dealer or such natural person is acting as a broker, dealer or an associated person of a
broker-dealer with respect to the recommendation; (2) the material fees and costs that apply to
the retail customer’s transactions, holdings, and accounts; and (3) the type and scope of services
provided to the retail customer, including: any material limitations on the securities or
investment strategies involving securities that may be recommended to the retail customer. We
generally believe that proposed burdens and costs identified in the Proposing Release were
accurate but have updated estimates to reflect changes in the number of broker-dealers and costs
of certain services since the last estimate.
The Commission assumes for purposes of this analysis that broker-dealers would meet
the obligation to disclose to the retail customer, in writing, the material facts related to the scope
and terms of the relationship with the retail customer through a combination of delivery of the
Relationship Summary, creating account disclosures to include standardized language related to
capacity and type and scope of services, and the development of fee schedules.
In addition, we assume that broker-dealers will satisfy the obligation to disclose all
material facts relating to conflicts of interest through the use of: (1) a standardized, written
disclosure document provided to all retail customers and (2) supplemental disclosure provided to
certain retail customers for recommendations of specific products.
We also assume for purposes of this analysis that delivery of written disclosure will occur
at the beginning of a relationship, such as together with the account opening agreement. For
existing retail customers, the disclosure will need to occur “prior to or at the time” of a
recommendation. Subsequent disclosures may be delivered or the broker-dealer may provide an
oral update, under the circumstances outlined in Section II.C.1, in the event of a material change
or if the broker-dealer determines additional disclosure is needed for certain types of products.

12

Disclosure of Capacity – Standalone and Dually Registered BDs
In terms of meeting the requirement to disclose the capacity in which the broker-dealer is
acting (i.e., acting as a broker-dealer, not an investment adviser), burdens will differ depending
on whether the firm is only registered as a broker-dealer (“standalone broker-dealer”) of if the
firm is also registered as an investment adviser (“dually-registered BD”). For all other aspects of
the Disclosure Obligation, the expected burdens will differ depending on whether the firm is
small or large, as described below.
Standalone broker-dealers will satisfy the obligation to disclose capacity through the
delivery to retail customers of the Relationship Summary. Accordingly, we estimate an initial
one-time internal burden of zero hours for standalone broker-dealers to disclose capacity. We
estimate that a dually-registered BD will incur an initial one-time internal burden of 10 hours for
in-house counsel and in-house compliance 31 to draft language regarding the capacity in which
they are acting for inclusion in the standardized account disclosure that is delivered to the retail
customer. 32 We estimate that each dually registered broker-dealer will incur approximately five
burden hours annually for in-house compliance and business-line personnel to review changes in
the dual-registrant’s capacity, 33 and another two burden hours annually for in-house counsel to
amend the account disclosure to disclose material changes to the dual-registrant’s capacity, for a
total of seven burden hours. The estimated ongoing aggregate burden to amend dual-registrants’
account disclosures to reflect changes in capacity is therefore 3,941 hours per year. 34 These
estimates result in a total annual estimated third-party disclosure burden for Disclosure of
Capacity for Dually-Registered BDs of 5,816 hours.
31

The ten hour estimate includes five hours for in-house counsel to draft and review the
standardized language, and five hours for consultation and review of compliance personnel.

32

The following estimates include the costs and burdens that broker-dealers would incur in drafting
standardized account disclosure language related to the scope and terms of the relationship on
behalf of their dually licensed representatives. For purposes of this analysis, the Commission
assumes that broker-dealers will undertake these tasks on behalf of their registered
representatives.

33

In the Proposing Release, we referred to capacity and type and scope of services, however, we
captured the ongoing costs and burdens relating to disclosure of type and scope of services
separately, where we inadvertently referred to “small standalone broker-dealers” and “large
standalone broker-dealers,” but where our calculations reflected the burdens on all “small brokerdealers” and all “large broker-dealers.” See Proposing Release, notes 600-601. We believe it is
appropriate to distinguish between standalone and dually registered broker-dealers in assessing
the costs and burdens relating to disclosure of capacity, and to distinguish between all small and
all large firms in assessing the costs and burdens relating to disclosure of type and scope of
services, as reflected in this analysis.

34

This estimate is based on the following calculation: (7 burden hours per dually registered firm per
year) x (563 dually registered broker-dealers) = 3,941 ongoing aggregate burden hours.
13

Disclosure of Type and Scope of Services – Small BDs

To comply with Regulation Best Interest, we believe that broker-dealers 35 will draft
standardized language for inclusion in the account disclosure to provide the retail customer with
more specific information regarding the type and scope of services that they provide. We expect
that the associated costs and burdens will differ between small and large broker-dealers, as large
broker-dealers generally offer more products and services and therefore will need to evaluate a
larger number of products and services.
Given these assumptions, we estimate that a small broker-dealer will incur an internal
initial one-time burden of 10 hours for in-house counsel and in-house compliance to draft this
standardized language. 36 With respect to small broker-dealers, we estimate an internal burden of
two hours for in-house compliance and business-line personnel to review and update changes in
types or scope of services, and another two burden hours annually for in-house counsel to amend
the account disclosure to disclose material changes to type and scope of services—for a total of
four burden hours. The estimated ongoing aggregate burden for small broker-dealers to amend
account disclosures to reflect changes in type and scope of services is therefore 3,024 hours per
year. 37 These estimates result in a total annual estimated third-party disclosure burden for
Disclosure of Type and Scope of Services for Small BDs of 5,544 hours.
Disclosure of Type and Scope of Services – Large BDs

Given the broader array of products and services offered, we estimate that a large brokerdealer will incur an initial one-time burden of twenty hours to draft the standardized language. 38
We estimate that large broker-dealers would incur ten burden hours annually for in-house
compliance and business-line personnel to review and update changes the type and scope of
services, and another ten burden hours annually for in-house counsel to amend the account
disclosure to disclose material changes to the type and scope of services, for a total of twenty
burden hours. We therefore believe the ongoing, aggregate burden is 40,200 hours per year for

35

In the Proposing Release, we inadvertently referred to “standalone broker-dealers” in this
discussion, but our subsequent references and estimates reflected our intent to capture initial costs
and burdens relating to disclosure of type and scope of services on all broker-dealers
(distinguishing between small and large).

36

The 10-hour estimate includes 5 hours for in-house counsel to draft and review the standardized
language, and 5 hours for consultation and review by in-house compliance.

37

This estimate is based on the following calculation: (4 burden hours per broker-dealer per year) x
(756 small broker-dealers) = 3,024 ongoing aggregate burden hours.

38

The 20-hour estimate includes 10 hours for in-house counsel to draft and review the standardized
language, and 10 hours for consultation and review by in-house compliance.
14

large broker-dealers. 39 For the estimated 2,010 large retail broker-dealers, we estimate an
aggregate initial burden of 40,200 hours. 40 These estimates result in a total annual estimated
third-party disclosure burden for Disclosure of Type and Scope of Services for Large BDs
of 53,601 hours.
Disclosure of Capacity, Type and Scope of Services – Delivery of Account Disclosure Document for all
BDs

We estimate that all broker-dealers will each incur an initial one-time burden of
approximately 0.02 burden hours 41 for delivery of the account disclosure document. 42 Based on
FOCUS data, we estimate that the 2,766 broker-dealers that report retail activity have
approximately 139 million customer accounts, and that approximately 73.5%, or 102 million, of
those accounts belong to retail customers. 43 Accordingly, we estimate that each broker-dealer
will deliver the disclosure to 36,876 retail customer accounts. 44 Additionally, we estimate that
broker-dealers will have an aggregate initial one-time burden of 2,040,000 hours, or
approximately 738 hours 45 per broker-dealer for the first year after Regulation Best Interest is in

39

This estimate is based on the following calculation: (20 burden hours per broker-dealer per year)
x (2,010 large broker-dealers) = 40,200 ongoing aggregate burden hours.

40

This estimate is based on the following calculation: (2,010 large broker-dealers) x (20 burden
hours) = 40,200 aggregate initial burden hours.

41

This is the same estimate the Commission makes in the Relationship Summary Adopting Release.
It is also the same estimate the Commission made in the Amendments to Form ADV Adopting
Release, and for which we received no comment. See Amendments to Form ADV, 17 CFR Parts
275 and 279 at 49259. We expect that delivery requirements will be performed by a general
clerk. The general clerk’s time is included in the initial burden estimate.

42

For new retail customers, we expect delivery to occur at the inception of the relationship; for
existing customers, we expect delivery to occur prior to or at the time of a recommendation.

43

According to FOCUS Report data as of December 2018, the 2,766 broker-dealers (including
dual-registrants) with retail customers report 139 million customer accounts. Assuming the
amount of retail customer accounts is proportionate to the percentage of broker-dealers that have
retail customers, or 73.5% of broker-dealers, then the number of retail customer accounts would
be 73.5% of 139 million accounts = 102 million retail customer accounts. This number likely
overstates the number of deliveries to be made due to the double-counting of deliveries to be
made by dual-registrants to a certain extent, and the fact that one customer may own more than
one account.

44

This estimate is based on the following calculation: (102,000,000 retail customer accounts) /
(2766 broker-dealers) = 36,876 retail customer accounts per broker-dealer.

45

These estimates are based on the following calculations: (0.02 hours per customer account x (102
million retail customer accounts) = 2,040,000 aggregate burden hours. Conversely, (2,040,000
hours) / (2,766 broker-dealers) = approximately 738 burden hours per broker-dealer.
15

effect. 46 These estimates result in an annual burden of 245.84 per respondent, and a total
annual initial estimated third-party disclosure burden for Disclosure of Capacity, Type,
and Scope of Services relating to the Delivery of the Account Disclosure Document for All
BDs of approximately 679,994 hours.
With respect to delivery of the amended account agreements in the event of material
changes to the capacity disclosure or disclosure related to type and scope of services, we estimate
that this would take place among 20% of a broker-dealer’s retail customer accounts annually.
These estimates result in an annual burden of 147.5 hours per year per broker-dealer 47
and a total annual estimated third-party disclosure ongoing burden for Disclosure of
Capacity, Type, and Scope of Services relating to the Delivery of the Account Disclosure
Document for All BDs of approximately407,985 hours.
The Commission acknowledges that the types of services and offering of products vary
greatly by broker-dealer, and therefore that the costs or burdens associated with updating the
account disclosure might similarly vary.
Disclosure of Fees and Costs – Small BDs
We assume that, for purposes of this analysis, the associated costs and burdens will differ
between small and large broker-dealers, as large broker-dealers generally offer more products
and services and therefore will need to evaluate a wider range of fees in their fee schedules. As
stated above, while we anticipate that many broker-dealers may already create fee schedules, we
believe that small broker-dealers will initially spend five hours for in-house compliance to
internally create a new fee schedule in consideration of the requirements of Regulation Best
Interest. We estimate that reviewing and updating the fee schedule will require small brokerdealers to incur approximately two hours for in-house compliance per year. We estimate the
recurring, aggregate, annualized burden will be 1,512 hours for small broker-dealers. 48 We
therefore estimate the initial aggregate burden for small broker-dealers to be 3,780 burden

46

We estimate that broker-dealers will not incur any incremental postage costs because we assume
that they will make such deliveries with another mailing the broker-dealer was already delivering
to retail customers.

47

(20%) x (102 million retail customer accounts) x (.02 hours for delivery to each customer
account) = 408,000 aggregate burden hours. Conversely, 408,000 aggregate burden hours / 2,766
broker-dealers = 147.5 burden hours per broker-dealer.

48

This estimate is based on the following calculation: (2 burden hours per broker-dealer) x (756
small broker-dealers) = 1,512 aggregate burden hours.
16

hours. 49 These estimates result in a total annual estimated third-party disclosure burden for
Disclosure of Fees and Costs for Small BDs of 2,772 hours.
Disclosure of Fees and Costs – Large BDs

We believe that large broker-dealers will incur an initial one-time burden of ten hours for
in-house compliance to internally create a new fee schedule in consideration of the requirements
of Regulation Best Interest. We therefore estimate the initial one-time aggregate burden for
large broker-dealers to be 20,100 burden hours. 50 In addition, we estimate that the recurring,
annual burden for large broker-dealers to review and update the fee schedule will be four hours
for in-house compliance for each large broker-dealer. Based on these estimates, we estimate that
the recurring, aggregate, annualized burden will be 8,040 hours for large broker-dealers. 51 These
estimates result in a total annual estimated third-party disclosure burden for Disclosure of
Fees and Costs for Large BDs of 14,739 hours.
Disclosure of Fees and Costs – All Broker Dealers, Delivery of the Fee Schedule

Similar to delivery of the account disclosure regarding capacity and type and scope of
services, we estimate the burden for broker-dealers to make the initial delivery of the fee
schedule to new retail customers, at the beginning of the relationship, and existing retail
customers, prior to or at the time of a recommendation, will require approximately 0.02 hours to
deliver to each retail customer. As stated above, we estimate that the 2,766 broker-dealers that
report retail activity have approximately 139 million customer accounts, and that approximately
73.5%, or 102 million, of those accounts belong to retail customers. 52 Accordingly, we estimate
that each broker-dealer will deliver the disclosure to 36,876 retail customer accounts. 53
Additionally, we estimate that broker-dealers will have an aggregate initial one-time burden of
approximately 2,040,000 hours, or approximately 738 hours per broker-dealer. 54 These

49

This estimate is based on the following calculation: (5 burden hours of review per small brokerdealer) x (756 small broker-dealers) = 3,780 aggregate initial burden hours.

50

This estimate is based on the following calculation: (10 burden hours of review per large brokerdealer) x (2,010 large broker-dealers) = 20,100 aggregate initial burden hours.

51

This estimate is based on the following calculation: (4 burden hours per broker-dealer) x (2,010
large broker-dealers) = 8,040 aggregate burden hours.

52

See supra note 43. For new retail customers, we expect delivery to occur at the inception of the
relationship; for existing customers, we expect delivery to occur prior to or at the time of a
recommendation.

53

This estimate is based on the following calculation: (102,000,000 retail customer accounts) /
(2766 broker-dealers) = 36,876 retail customer accounts per broker-dealer.

54

This estimate is based on the following calculation: (102 million retail customer accounts) x (.02
hours for delivery to each customer account) = 2,040,000 aggregate burden hours. Conversely,
17

estimates result in an annual burden of 245.84 hours per respondent, and a total annual
initial estimated third-party disclosure burden for Disclosure of Fees and Costs relating to
the Delivery of Fee Schedule for All BDs of approximately 679,994 hours.
With respect to delivery of the amended fee schedule in the event of a material change,
we estimate that this would take place among 40% of a broker-dealer’s retail customer accounts
annually, and that broker-dealers will require approximately 0.02 hours to deliver the amended
fee schedule to each retail customer. 55 We therefore estimate broker-dealers would incur a
total ongoing annual aggregate burden for Disclosure of Fees and Costs relating to Delivery
of the Fee Schedule for All BDs of approximately 815,970 hours, or 295 hours per brokerdealer. 56
The Commission acknowledges that the type of fee schedule may vary greatly by brokerdealer, and therefore that the costs or burdens associated with updating the standardized fee
schedule might similarly vary.
Disclosure of All Material Facts Relating to Conflicts of Interest—Small Broker-Dealers
The Disclosure Obligation provides broker-dealers with the flexibility to choose the form
and manner of conflict disclosure. However, we believe that many or most broker-dealers will
develop a standardized conflict disclosure document and deliver it to their retail customers. 57
We also assume for purposes of this PRA analysis that broker-dealers will update and deliver the
standardized conflict disclosure document yearly on an ongoing basis, following the brokerdealer’s annual conflicts review process. For purposes of this analysis, we assume that a
standardized conflict disclosure document will be developed by in-house counsel and reviewed
by outside counsel (the cost burdens associated with the outside counsel’s review is discussed in
Item 13 below). Additionally, we believe that broker-dealers will incur ongoing annual burdens
and costs to update the disclosure document to include newly identified conflicts. We assume
for purposes of this analysis that broker-dealers will update their conflict disclosure document
annually, after conducting an annual conflicts review. We estimate that the conflicts disclosures
will be updated internally by both small and large broker-dealers.

(2,040,000 aggregate burden hours) / (2,766 broker-dealers) = 738 burden hours per broker-dealer
per year.
55

See supra note 41.

56

This estimate is based on the following calculation: (40% of 102 million retail customer accounts)
x (.02 hours) = 816,000 aggregate burden hours. Conversely, (816,000 aggregate burden hours) /
(2,766 broker-dealers) = 295 burden hours per broker-dealer.

57

We assume that delivery for new customers will occur at the inception of the relationship, and
that delivery for existing customers will occur prior to or at the time a recommendation is made.
18

For small broker-dealers, we estimate it will take in-house counsel, on average, five
burden hours to create the standardized conflict disclosure document. We estimate that the
initial aggregate burden for the development of a standardized disclosure document, based on an
estimated 756 small broker-dealers, will be 3,780 burden hours. 58 We additionally estimate that
in-house counsel at a small broker-dealer will require approximately one hour per year to update
the standardized conflict disclosure document, for an ongoing aggregate, annual burden of
approximately 756 hours. 59 These estimates result in a total annual estimated third-party
disclosure burden for Disclosure of Conflicts of Interest for Small BDs of 2,016 hours.
Disclosure of All Material Facts Relating to Conflicts of Interest—Large Broker-Dealers

We expect the development and review of the standardized conflict disclosure document
to take longer for large broker-dealers because, as discussed above, we believe large brokerdealers generally offer more products and services and employ more individuals, and therefore
will need to disclose a larger number of conflicts. We estimate that for large broker-dealers, it
will take 7.5 burden hours for in-house counsel to create the standardized conflict disclosure
document. As a result, we estimate the initial aggregate burden, based on an estimated 2,010
large broker-dealers, to be approximately 15,075 burden hours. 60 Additionally, we estimate that
the ongoing, annual burden would be two hours for each broker-dealer: one hour for in-house
compliance and one hour for in-house counsel for legal personnel. We therefore estimate the
ongoing, aggregate burden for large broker-dealers to be approximately 4,020 burden hours. 61
These estimates result in a total annual estimated third-party disclosure burden for
Disclosure of Conflicts of Interest for Large BDs of 9,045 hours.
Disclosure of All Material Facts Relating to Conflicts of Interest—All Broker-Dealers, Delivery
of Standard Conflict Disclosure

We assume that broker-dealers will deliver the standardized conflict disclosure document
to new retail customers at the inception of the relationship, and to existing retail customers prior
to or at the time of a recommendation. We estimate that broker-dealers will require
approximately 0.02 hours to deliver the standardized conflict disclosure document to each retail

58

This estimate is based on the following calculation: (5 hours) x (756 small broker-dealers) =
3,780 aggregate burden hours.

60

This estimate is based on the following calculation: (7.5 hours x 2,010 large broker-dealers) =
15,075 burden hours.

61

This estimate is based on the following calculation: (2 hours per broker-dealer) x (2,010 large
broker-dealers) = 4,020 aggregate burden hours.
19

customer. 62 We therefore estimate that broker-dealers will incur an aggregate initial burden of
2,040,000 hours, or approximately 738 hours per broker-dealer for delivery of the standardized
conflict disclosure document. 63 These estimates result in an annual burden of 245.84 hours
per respondent, and a total annual initial estimated third-party disclosure burden for
Standard Conflict Disclosure relating to the Delivery of the Conflict Disclosure Document
for All BDs of approximately 679,994 hours.
With respect to ongoing delivery of the updated conflict disclosure document, we
estimate that this will take place among 40% of a broker-dealer’s retail customer accounts
annually, and that broker-dealers will require approximately 0.02 hours to deliver the updated
conflict disclosure document to each retail customer. 64 Accordingly, we estimate that each
broker-dealer will deliver the disclosure to 36,876 retail customer accounts. 65 We therefore
estimate that broker-dealers will incur an ongoing, aggregate annual burden for Disclosure
of Conflicts of Interest relating to Delivery of the Conflict Disclosure for All BDs of
approximately 815,970 hours, or 295 burden hours per broker-dealer. 66
ii.

Care Obligation

Any PRA burdens or costs associated with the Care Obligation are already accounted for
under other obligations in Regulation Best Interest, including the Disclosure Obligation,
discussed above, and the new Record-Making Obligation under Rule 17a-3(a)(35) (OMB No.
3235-0033) and new Recordkeeping Obligation under Rule 17a-4(e)(5) (OMB No. 3235-0279),
which are discussed in separate Supporting Statements.
iii.

Conflict of Interest Obligations- Rule 15l-1(a)(2)(iii)

62

For purposes of this analysis, we have assumed any initial disclosures made by the broker-dealer
related to material conflicts of interest will be delivered together.

63

These estimates are based on the following calculations: (0.02 hours per customer account x 102
million retail customer accounts) = 2,040,000 aggregate burden hours. Conversely, (2,040,000
hours) / (2,766 broker-dealers) = 738 burden hours per broker-dealer.

64

See supra note 41. The Commission estimates that broker-dealers will update their disclosures of
fees and costs and material facts relating to conflicts of interest that are associated with their
recommendation more frequently than disclosure related to capacity or type and scope of
services.

65

This estimate is based on the following calculation: (102,000,000 retail customer accounts) /
(2766 broker-dealers) = 36,876 retail customer accounts per broker-dealer.

66

This estimate is based on the following calculation: (40% of 102 million retail customer accounts)
x (.02 hours) = 816,000 aggregate burden hours. Conversely, (816,000 aggregate burden hours) /
(2,766 broker-dealers) = 295 hours per broker-dealer.
20

The Conflict of Interest Obligation creates an overarching obligation to require brokerdealers to establish written policies and procedures reasonably designed to identify and at a
minimum disclose, pursuant to the Disclosure Obligation, or eliminate all conflicts of interest
associated with a recommendation. More specifically, broker-dealers are required to establish,
maintain, and enforce written policies and procedures reasonably designed to: (i) identify and
mitigate any conflicts of interest associated with recommendations that create an incentive for a
natural person who is an associated person of a broker or dealer to place the interest of the broker
or dealer, or such natural person making the recommendation, ahead of the interest of the retail
customer; (ii) (A) identify and disclose any material limitations placed on the securities or
investment strategies involving securities that may be recommended to a retail customer and any
conflicts of interest associated with such limitations, in accordance with the Disclosure
Obligation, and (B) prevent such limitations and associated conflicts of interest from causing the
broker, dealer, or a natural person who is an associated person of the broker or dealer to make
recommendations that place the interest of the broker, dealer, or such natural person ahead of the
interest of the retail customer; and (iii) identify and eliminate sales contests, bonuses, and noncash compensation that are based on the sales of specific securities or specific types of securities
within a limited period of time. 68
67

Written policies and procedures developed pursuant to the Conflict of Interest Obligation
of Regulation Best Interest would help a broker-dealer to develop a process, reasonably designed
for its business, for identifying conflicts of interest, and then determining whether to eliminate,
or disclose and/or mitigate the conflict and the appropriate means of eliminating, disclosing
and/or mitigating the conflict. In addition, establishing and maintaining written policies and
procedures would generally (1) assist a broker-dealer in supervising its associated persons and
assessing compliance with the Conflict of Interest Obligation; and (2) assist the Commission and
SRO staff in connection with examinations and investigations. 69
In light of the modifications to several substantive requirements of the rule relative to the
Proposing Release, including the Conflict of Interest Obligation, we believe these changes will
67

The Conflict of Interest Obligation and Compliance Obligation apply solely to the broker or
dealer entity, and not to the natural persons who are associated persons of a broker or dealer.

68

Rule 15l-1 under the Exchange Act.

69

Any written policies and procedures developed pursuant to Regulation Best Interest would be
required to be retained pursuant to Exchange Act Rule 17a-4(e)(7), which requires broker-dealers
to retain compliance, supervisory, and procedures manuals (and any updates, modifications, and
revisions thereto) describing the policies and procedures of the broker-dealer with respect to
compliance with applicable laws and rules, and supervision of the activities of each associated
person, for a specified period of time. The record retention requirements of Rule 17a-4(e)(7)
include any written policies and procedures that broker-dealers may produce pursuant to the
Conflict of Interest Obligation of Regulation Best Interest.
21

allow broker-dealers to more easily incorporate the requirements of Regulation Best Interest into
existing supervisory and compliance systems and streamline compliance with Regulation Best
Interest. 70 Therefore, we generally believe our proposed burdens and costs are accurate but have
updated estimates to reflect changes in the number of broker-dealers and costs of certain services
since the last estimate.
Written Policies and Procedures - Small Broker-Dealers

For small broker-dealers, we believe that they would primarily rely on outside counsel to
update existing policies and procedures, as small broker-dealers generally have fewer in-house
legal and compliance personnel. The use of outside counsel would result in a cost burden, which
is discussed in Item 13 below. We also expect that small broker-dealers would incur an initial
burden of 10 hours for in-house compliance to review and approve the updated policies and
procedures, for an aggregate initial burden of 7,560 hours. 71 We additionally believe that small
broker-dealers would review and update policies and procedures on an annual basis to
accommodate the addition of, for example, new products or services, new business lines, and/or
new personnel. We also assume that broker-dealers would review and update their policies and
procedures for compliance with the Conflict of Interest Obligation on an annual basis. We
assume for purposes of this analysis that small broker-dealers, who generally have fewer and less
complex products, and lower rates of hiring and turnover, would primarily rely on outside legal
counsel and outside compliance consultants for review and update of their policies and
procedures, with final approval from an in-house compliance manager. The use of outside
counsel would result in a cost burden, which is discussed in Item 13 below. We estimate that
small broker-dealers would incur an ongoing burden of approximately 5 hours for an in-house
compliance manager to review and approve the updated policies and procedures per year, for an
ongoing, aggregate burden for small broker-dealers of 3,780 hours for in-house compliance
manager review. These estimates result in a total annual estimated recordkeeping burden
for Conflict of Interest Obligation: Written Policies and Procedures for Small BDs of 6,300
hours.
Written Policies and Procedures - Large Broker-Dealers
For purposes of the final rule, we estimate that a large broker-dealer would incur a onetime average internal burden of 50 hours for in-house counsel and in-house compliance to update
existing policies and procedures to comply with Regulation Best Interest and a one-time burden
of 5 hours for general counsel and 5 hours for a Chief Compliance Officer to review and approve

70

See Section II.C.3.

71

This estimate is based on the following calculation: (10 burden hours) x (756 small brokerdealers) = 7,560 aggregate burden hours.
22

the updated policies and procedures, for a total of 60 burden hours. 72 We therefore estimate the
initial aggregate burden for large broker-dealers to be of 120,600 burden hours. 73 We assume
that large broker-dealers would review and update policies and procedures on an annual basis
using in-house personnel. We estimate that large broker-dealers, which generally have more
numerous and complex products and services, and higher rates of hiring and turnover, would
incur an annual internal burden of 12 hours to review and update existing policies and
procedures: four hours for in-house counsel, four hours for in-house compliance, and four hours
for business-line personnel to identify new conflicts. We therefore estimate an ongoing,
aggregate burden for large broker-dealers of approximately 24,120 hours. 74 These estimates
result in a total annual estimated recordkeeping burden for Conflict of Interest Obligation:
Written Policies and Procedures for Large BDs of 64,320 hours.
The Commission acknowledges that policies and procedures may vary greatly by brokerdealer, given the differences in size and the complexity of broker-dealer business models.
Accordingly, we expect that the need to update policies and procedures might also vary greatly.
Identification and Management of Conflicts of Interest – All Broker-Dealers
With respect to identifying and determining whether a conflict of interest exists in
connection with a recommendation and whether it needs to be addressed through disclosure,
mitigation and/or elimination, a broker-dealer would first need to establish mechanisms to
proactively and systematically identify conflicts of interest in its business on an ongoing or
periodic basis. For purposes of this analysis, we assume that most broker-dealers already have
an existing technological infrastructure in place, and we assume it would need to be modified to
comply with the Conflict of Interest Obligation.
To comply with the Conflict of Interest Obligation of Regulation Best Interest as adopted,
we expect that broker-dealers will modify existing technology through the work of an outside
programmer, which would result in a cost burden and is discussed in Item 13 below. We
additionally continue to estimate that coordination between the programmer and the brokerdealer’s compliance manager would involve five burden hours. 75 The aggregate initial burdens

72

This estimate is based on the following calculation: (50 hours of review for in-house counsel and
in-house compliance) + (5 hours of review for general counsel) + (5 hours of review for Chief
Compliance Officer) = 60 burden hours.

73

This estimate is based on the following calculation: (60 burden hours of review per large brokerdealer) x (2,010 large broker-dealers) = 120,600 aggregate burden hours.

74

This estimate is based on the following calculation: (12 burden hours per large broker-dealer) x
(2,010 large broker-dealers) = 24,120 aggregate ongoing burden hours.

23

for the modification of existing technology to identify conflicts of interest would therefore be
13,830 burden hours. 76
As a result of the changes made to the rule text of the Conflict of Interest Obligation of
Regulation Best Interest, we believe that broker-dealers would incur burdens to: (1) identify
conflicts of interest and determine whether the conflict involves an incentive to an associated
person to place the interest of the broker-dealer or natural person making the recommendation
ahead of the interest of the retail customer, a material limitation on the product menu, or a sales
practice that that are based on the sales of specific securities or specific types of securities within
a limited period of time and (2) determine whether and how the conflict would be disclosed,
disclosed and mitigated, or eliminated in accordance with the Conflict of Interest Obligation. In
order to complete this process, we believe a broker-dealer would require approximately 20
hours 77 per broker-dealer, 78 for an aggregate of 55,320 burden hours for all broker-dealers. 79
To maintain compliance with the Conflict of Interest Obligation, we assume for purposes
of this analysis that a broker-dealer would seek to identify additional conflicts of interest as its
business evolves. The Commission recognizes that broker-dealers vary in the types of services
and product offerings and therefore vary in the types of conflicts of interest that exist within and
across broker-dealers. We believe that for purposes of this analysis, broker-dealers would,
through the help of the business line and compliance personnel, spend on average 10 hours 80 to
perform an annual conflicts review using the modified technology infrastructure. 81 Therefore,
the Commission estimates that the aggregate ongoing burden for an annual conflicts review,
based on an estimated 2,766 retail broker-dealers, would be approximately 27,660 burden hours
76

This burden estimate is based on the following calculation: (5 burden hours for in-house
compliance manager) x (2,766 broker-dealers) = 13,830 aggregate burden hours.

77

In light of the changes made to the rule text of the Conflict of Interest Obligation and the
comments received, we have increased our estimate to 20 burden hours per broker-dealer.

78

This burden estimate consists of 10 hours for review by business line personnel, and 10 hours for
review by in-house compliance manager. When combined with the five burden hours for the inhouse compliance manager described above, the initial burden related to the Conflict of Interest
Obligation is 25 burden hours.

79

This burden estimate is based on the following calculation: (20 burden hours) x (2,766 brokerdealers) = 55,320 aggregate burden hours.

80

This burden estimate consists of 5 hours for review by business line personnel, and 5 hours for
review by an in-house compliance manager.

81

FINRA rules set an annual supervisory review as a minimum threshold for broker-dealers. See,
e.g., FINRA Rules 3110 (requiring an annual review of the businesses in which the broker-dealer
engages); 3120 (requiring an annual report detailing a broker-dealer’s system of supervisory
controls, including compliance efforts in the areas of antifraud and sales practices); and 3130
(requiring each broker-dealer’s CEO or equivalent officer to certify annually to the reasonable
design of the policies and procedures for compliance with relevant regulatory requirements).
24

per year. 82 These estimates result in a total annual estimated recordkeeping burden for
Identification and Management of Conflicts of Interests for All Broker-Dealers of 50,709
hours. 83
iv.

Compliance Obligation- Rule 15l-1(a)(2)(iv)

As discussed above, in response to comments that we should require policies and
procedures to comply with Regulation Best Interest as a whole, we are adopting a new
Compliance Obligation. The Compliance Obligation requires that the broker-dealer establish,
maintain and enforce written policies and procedures reasonably designed to achieve compliance
with Regulation Best Interest. This Compliance Obligation creates an explicit obligation under
the Exchange Act with respect to Regulation Best Interest as a whole. Similar to the policies and
procedures requirement of the Conflict of Interest Obligation, broker-dealers will have flexibility
to design policies and procedures that are reasonable for the scope, size and risks associated with
the operations of the firm and the types of business in which the broker-dealer engages. Because
we did not previously include the Compliance Obligation in the Proposing Release, we did not
include costs and burdens associated with the Compliance Obligation, but we have provided a
detailed explanation of these costs and burdens in this Supporting Statement. 84
To comply with the Compliance Obligation, we believe that broker-dealers would
employ a combination of in-house and outside legal and compliance counsel to update existing
policies and procedures to account for the Disclosure and Care Obligations. We assume that, for
purposes of this analysis, the associated costs and burdens would differ between small and large
broker-dealers, as large broker-dealers generally offer more products and services and employ
more individuals and therefore would need to evaluate and update a greater number of systems.
As discussed above, based on FOCUS Report data, we estimate that 2,010 broker-dealers would
qualify as large broker-dealers for purposes of this analysis and 756 would qualify as small
broker-dealers that have retail business.

82

This estimate is based on the following calculation: (10 hours per retail broker-dealer) x (2,766
retail broker-dealers) = 27,660 aggregate burden hours.

83

As discussed in the Proposing Release, we expect that broker-dealers would develop training
programs to comply with Regulation Best Interest, including the Conflict of Interest Obligation.
However, we believe that any burdens and costs associated with a training program would fall
under the new Compliance Obligation in Rule 15l-1(a)(2)(iv) (discussed below) as it would be
developed to comply with Regulation Best Interest as a whole, including each of the component
obligations.

84

We note that any burdens and costs to comply with the Conflict of Interest Obligation are
included in the estimates above.
25

Written Policies and Procedures – Small Broker-Dealers
For small broker-dealers, we believe that they would primarily rely on outside counsel to
update existing policies and procedures, as small broker-dealers generally have fewer in-house
legal and compliance personnel. The use of outside counsel would result in a cost burden, which
is discussed in Item 13 below. We also expect that in-house compliance personnel would require
6 hours to review and approve the updated policies and procedures, for an aggregate burden of
4,536 hours. 85 We assume for purposes of this analysis that small broker-dealers, who generally
have fewer and less complex products, and lower rates of hiring and turnover, would mostly rely
on outside legal counsel and compliance consultants for review and update of their policies and
procedures, with final review and approval from an in-house compliance manager. This would
result in a cost burden, which is discussed in Item 13 below. We estimate that small brokerdealers would incur an ongoing burden of approximately 5 hours for an in-house compliance
manager to review and approve the updated policies and procedures per year, for an ongoing,
aggregate burden for small broker-dealers of 3,780 hours for in-house compliance manager
review. These estimates result in a total annual estimated recordkeeping burden for the
Compliance Obligation: Written Policies and Procedures for Small Broker-Dealers of
5,292.
Written Policies and Procedures - Large Broker-Dealers
For purposes of this analysis we estimate that a large broker-dealer would incur a onetime average internal initial one-time burden of 30 hours for in-house legal personnel and inhouse compliance counsel to update existing policies and procedures to comply with the
Compliance Obligation and a one-time burden of five hours for general counsel and five hours
for a Chief Compliance Officer to review and approve the updated policies and procedures, for a
total of 40 burden hours. 86 The use of outside counsel would result in a cost burden, which is
discussed in Item 13 below. We therefore estimate the aggregate initial one-time burden for
large broker-dealers to be of 80,400 burden hours. 87
We estimate that large broker-dealers would incur ongoing hourly burdens to review and
update their written policies and procedures. For large broker-dealers with more numerous and
complex products and services, as well as higher rates of hiring and turnover, we estimate that
85

This estimate is based on the following calculation: (6 burden hours) x (756 small broker-dealers)
= 4,536 aggregate burden hours.

86

This estimate is based on the following calculation: (30 hours of review for in-house legal and
in-house compliance counsel) + (5 hours of review for general counsel) + (5 hours of review for
Chief Compliance Officer) = 40 burden hours.

87

This estimate is based on the following calculation: (40 burden hours of review per large brokerdealer) x (2,010 large broker-dealers) = 80,400 aggregate burden hours.
26

each broker-dealer would annually incur an internal burden of 12 hours to review and update
existing policies and procedures: four hours for legal personnel, four hours for compliance
personnel, and four hours for business-line personnel. We therefore estimate an ongoing,
aggregate burden for large broker-dealers of approximately 24,120 hours per year. 88 These
estimates result in a total annual estimated recordkeeping burden for the Compliance
Obligation: Written Policies and Procedures for Large Broker-Dealers of 50,919.
Training – Develop Module, All Broker-Dealers
We believe that broker-dealers would likely use a computerized training module to train
their associated persons regarding the policies and procedures pertaining to Regulation Best
Interest. We estimate that a broker-dealer would retain an outside systems analyst, outside
programmer, and an outside programmer analyst to create the training module. This would result
in a cost burden, which is discussed in Item 13 below.
Additionally, we expect that the training module would require the approval of the Chief
Compliance Officer, as well as in-house counsel, each of whom would require approximately 2
hours to review and approve the training module. The initial aggregate burden for broker-dealers
is therefore estimated at 11,064 burden hours. 89 These estimates result in a total annual
estimated recordkeeping burden for Developing a Training Module for All Broker-Dealers
of 3,687 hours.
Training – Implement Training, All Broker-Dealers
In addition, broker-dealers would incur an initial recordkeeping cost relating to associated
persons undergoing training through the training module. We estimate one hour per associated
person, for an aggregate burden of 428,404 burden hours, or an initial burden of 154.9 hours per
broker-dealer. 90
We believe that, as a matter of best practice, broker-dealers would likely require
registered representatives to repeat the training module for Regulation Best Interest on an annual
basis. The ongoing aggregate burden relating to the one-hour training would be 428,404 burden

88

This estimate is based on the following calculation: (12 burden hours per large broker-dealer) x
(2,010 large broker-dealers) = 24,120 aggregate ongoing burden hours.

89

This estimate is based on the following calculation: (2,766 broker-dealers) x (4 burden hours per
broker-dealer) = 11,064 burden hours.

90

This estimate is based on the following calculation: (1 burden hour) x (428,404 registered
representatives at standalone or dually registered broker-dealers) = 428,404 aggregate burden
hours. Conversely, (428,404 aggregate burden hours) / (2,766 retail broker-dealers) = 154.9 initial
burden hours per broker-dealer.
27

hours per year, or 154.9 burden hours per broker-dealer per year. 91 These estimates result in a
total annual estimated recordkeeping burden for Implementing a Training Module for All
Broker-Dealers of 571,640 hours.
TOTAL:
Based on the estimates discussed above, the total annual estimated hour burden for
the collections of information in Regulation Best Interest is 4,926,307.
13.

Summary of Costs to Respondents

The Commission adopted Regulation Best Interest, which requires broker-dealers to
make and keep current various records. As described in more detail below, the Commission
estimates this rule would impose various costs, in addition to hour burdens, on each brokerdealer. The Commission anticipates that the respondents will incur the following third-party
disclosure and recordkeeping cost burdens in connection with the Regulation Best Interest.

Summary of Cost Burdens
Name of
Informatio
n
Collection

Number
of
Entities
Impacte
d

Small
Business
Entities
Affected

Type of
Burden

Ongoing or
Initial Burden

Annual
Responses
per Entity

Burden
per
Entity
per
Response

Annual
Burden
Per Entity

N/A

N/A

N/A

Annual Industry
Burden

Disclosure Obligation 15l-1(a)(2)(i)
(1) Disclosure of Capacity, Type, and Scope of Services

Duallyregistered
BDs

Small BDs

Large BDs

91

Ongoing
563

756

2010

133

756

0

3rd-Party
Discl.

$932,705
Initial One-Time

N/A

$4970

$1656.67

Ongoing

N/A

N/A

N/A

3rd-Party
Discl.

3rd-Party
Discl.

$1,252,443
Initial One-Time

N/A

$4970

$1656.67

Ongoing

N/A

N/A

N/A

$5,004,900

This estimate is based on the following calculation: (1 burden hour) x (428,404 registered
representatives at standalone or dually registered broker-dealers) = 428,404 burden hours.
Conversely, (428,404 aggregate burden hours) / (2,766 retail broker-dealers) = 154.9 initial
burden hours per broker-dealer.
28

Initial One-Time

N/A

$7470

$2490

Ongoing

N/A

N/A

N/A

Disclosure Obligation 15l-1(a)(2)(i)
(2) Disclosure of Fees and Costs

Small BDs

Large BDs

756

2010

756

0

3rd-Party
Discl.

$626,217
Initial One-Time

N/A

$2485

$828.33

Ongoing

N/A

N/A

N/A

3rd-Party
Discl.

$3,329,907
Initial One-Time

N/A

$4970

$1656.67

Ongoing

N/A

N/A

N/A

Initial One-Time

N/A

$2485

$828.33

Ongoing

N/A

N/A

N/A

Disclosure Obligation 15l-1(a)(2)(i)
(3) Disclosure of Material Conflicts of Interest

Small BDS

Large BDs

756

2010

756

0

3rd-Party
Discl.

3rd-Party
Discl.

$626,217

$2,497,767
Initial One-Time

N/A

$3728

$1242.67

Ongoing

1

$3850

$3850

Conflict of Interest Obligations 15l-1(a)(2)(iii)
(1) Written Policies & Procedures

Small BDs

Large BDs

756

2010

756

0

Recordke
eping

Recordke
eping

$7,920,363
Initial One-Time

N/A

$19880

$6626.67

Ongoing

N/A

N/A

N/A
$3,329,907

Initial One-Time

N/A

$4970

$1656.67

Ongoing

N/A

N/A

N/A

Conflict of Interest Obligations 15l-1(a)(2)(iii)
(2) Identification of Material Conflicts of Interest

All BDs

2766

756

Recordke
eping

$5,236,951
Initial One-Time

Compliance Obligation 15l-1(a)(2)(iv)
(1) Written Policies and Procedures

29

N/A

$5680

$1893.33

Small BDs

Large BDs

756

2010

756

0

Recordke
eping

Recordke
eping

Ongoing

1

$3850

$3850
$5,415,477

Initial One-Time

N/A

$9940

$3313.33

Ongoing

N/A

N/A

N/A
$1,997,940

Initial One-Time

N/A

$2982

$994

Ongoing

N/A

N/A

N/A

Compliance Obligation 15l-1(a)(2)(iv)
(3) Training Develop Module

All BDs

2766

756

Recordke
eping

$19,288,231
Initial One-Time

N/A

$20920

$6973.33

TOTAL COST FOR ALL RESPONDENTS:

$57,459,025

Following is a more detailed discussion of the estimated burdens associated with brokerdealers’ new obligations under Regulation Best Interest.
i.

Disclosure Obligation- Rule 15l-1(a)(2)(i)

Disclosure of Capacity – Standalone and Dually Registered BDs
Standalone broker-dealers will satisfy the obligation to disclose capacity through the
delivery to retail customers of the Relationship Summary. Accordingly, we do not estimate any
initial or ongoing costs for standalone broker-dealers to disclose capacity. We estimate that
dual-registrants will incur an estimated external initial, one-time cost of $4,970 for the assistance
of outside counsel in the preparation and review of standardized language regarding capacity. 92
For the estimated 563 dually registered firms with retail business, 93 we project approximately
92

Data from the Securities Industry Financial Markets Association’s Management & Professional
Earnings in the Securities Industry 2013 (“SIFMA Management and Professional Earnings
Report”), modified by Commission staff to account for an 1,800-hour work-year and inflation,
and multiplied by 5.35 (professionals) or 2.93 (office) to account for bonuses, firm size, employee
benefits, and overhead, suggests that costs for this position is $497 per hour. The SIFMA
Management and Professional Earnings Report was updated in 2019 to reflect inflation. The
numbers in the report are higher than the numbers we used in the Proposing Release. This
estimate is based on the following calculation: (10 hours for outside counsel review/drafting) x
($497/hour for outside counsel services) = $4,970 in initial outside counsel costs.

93

FOCUS Reports, or “Financial and Operational Combined Uniform Single” Reports, are monthly,
quarterly, and annual reports that broker-dealers are generally required to file with the
Commission and/or SROs pursuant to Exchange Act Rule 17a-5. See 17 CFR 240.17a-5. This
30

$2.8 million in aggregate initial costs relating to disclosure of capacity in which they are
acting. 94 Further, we estimate that broker-dealers, including dual registrants, will not incur
outside costs in connection with updating account disclosures, as in-house personnel will be
more knowledgeable about changes in capacity of the broker-dealer. These estimates result in
a total annual estimated third-party disclosure cost burden for Disclosure of Capacity for
Dually-Registered BDs of $932,705.
Disclosure of Type and Scope of Services – Small BDs
We expect that the associated costs will differ between small and large broker-dealers, as
large broker-dealers generally offer more products and services and therefore will need to
evaluate a larger number of products and services. Given these assumptions, we estimate that a
small broker-dealer will incur an estimated external cost of $4,970 for the assistance of outside
counsel in the preparation and review of this standardized language. 95 For the estimated 756
small broker-dealers, we project an aggregate initial costs of $3.8 million. 96 We estimate that
broker-dealers will not incur ongoing costs in connection with updating account disclosures, as
in-house personnel will be more knowledgeable about changes in type and scope of services
offered by the broker-dealer. These estimates result in a total annual estimated third-party
disclosure cost burden for Disclosure of Type and Scope of Services for Small BDs of
$1,252,443.
Disclosure of Type and Scope of Services – Large BDs
We estimate that a large broker-dealer will incur an estimated cost of $7,470 for the
assistance of outside counsel in the preparation and review of this standardized language. 97 For
the estimated 2,010 large retail broker-dealers, we estimate $15 million in aggregate initial
costs. 98 As discussed above, we estimate that broker-dealers will not incur outside costs in
data is obtained from FOCUS filings as of December 2018. The number of dually registered
broker-dealers includes broker-dealers that are also Commission- and state-licensed investment
advisers.
94

This estimate is based on the following calculation: (563 dually registered retail firms) x ($4,970
in external cost per firm) = $2.8 million in aggregate initial costs.

95

This estimate is based on the following calculation: (10 hours for outside counsel review/drafting)
x ($497/hour for outside counsel services) = $4,970 in initial outside counsel costs.

96

This estimate is based on the following calculation: (756 small broker-dealers) x ($4,970 in
external cost per small retail firm) = $3.8 million in aggregate initial costs.

97

This estimate is based on the following calculation: (15 hours for outside counsel review/drafting)
x ($497/hour for outside counsel services) = $7,455 in initial outside counsel costs.

98

This estimate is based on the following calculation: (2,010 large broker-dealers) x ($7,455 initial
outside counsel costs) = $15 million in aggregate initial costs.
31

connection with updating account disclosures, as in-house personnel will be more knowledgeable
about changes in type and scope of services offered by the broker-dealer. These estimates result
in a total annual estimated third-party disclosure cost burden for Disclosure of Type and
Scope of Services for Large BDs of $5,004,900.
Disclosure of Fees and Costs – Small BDs
We assume that, for purposes of this analysis, the associated costs and burdens will differ
between small and large broker-dealers, as large broker-dealers generally offer more products
and services and therefore will need to evaluate a wider range of fees in their fee schedules. We
estimate a one-time external cost of $2,485 for small broker-dealers, 99 and an initial aggregate
cost of $1.88 million. 100 We do not anticipate that small broker-dealers will incur ongoing costs
in connection with updating their standardized fee schedule since in-house personnel would be
more knowledgeable about these facts, and we therefore do not expect external costs associated
with updating the fee schedule. These estimates result in a total annual estimated third-party
disclosure cost burden for Disclosure of Fees and Costs for Small BDs of $626,217.
Disclosure of Fees and Costs – Large, Standalone Broker-Dealers
We estimate a one-time external cost of $4,970 for larger broker-dealers for outside
counsel to review the fee schedule, 101 and an initial aggregate cost of $9.99 million. 102 As with
small broker-dealers, we do not anticipate that large broker-dealers will incur ongoing costs in
connection with updating their standardized fee schedule since in-house personnel would be
more knowledgeable about these facts, and we therefore do not expect external costs associated
with updating the fee schedule. These estimates result in a total annual estimated third-party
disclosure cost burden for Disclosure of Fees and Costs for Large BDs of $3,329,907.
Disclosure of All Material Facts Relating to Conflicts of Interest—Small Broker-Dealers
As discussed previously, we assume that a standardized conflict disclosure document will

be developed by in-house counsel and reviewed by outside counsel. We estimate that small
broker-dealers will require outside counsel to spend five hours to review and revise the

99

This cost estimate is based on the following calculation: (5 hours of review) x ($497/hour for
outside counsel services) = $2,485 outside counsel costs.

100

This estimate is based on the following calculation: ($2,485 for outside counsel costs per small
broker-dealer) x (756 small broker-dealers) = $1.88 million in aggregate initial outside costs.

101

This cost estimate is based on the following calculation: (10 hours of review) x ($497/hour for
outside counsel services) = $4,970 outside counsel costs.

102

This estimate is based on the following calculation: ($4,970 for outside counsel costs per large
broker-dealer) x (2,010 large broker-dealers) = $9.99 million in aggregate initial costs.
32

document, at an initial cost of $2,485 per small broker-dealer, 103 and an aggregate initial cost of
$1.88 million for all small broker-dealers. 104 We do not anticipate that small broker-dealers will
incur ongoing costs in connection with updating their standardized conflict disclosure document,
since in-house personnel would presumably be more knowledgeable about conflicts of interest.
These estimates result in a total annual estimated third-party disclosure cost burden for
Disclosure of Conflicts of Interest for Small BDs of $626,217.
Disclosure of All Material Facts Relating to Conflicts of Interest—Large Broker-Dealers
We expect the development and review of the standardized conflict disclosure document
to take longer for large broker-dealers because, as discussed above, we believe large brokerdealers generally offer more products and services and employ more individuals, and therefore
will need to disclose a larger number of conflicts. We believe that large broker-dealers will hire
outside counsel for 7.5 hours to review and revise the disclosure document and that this would
result in initial costs of $3,728 per large broker-dealer, 105 and an aggregate initial cost for large
broker-dealers of approximately $7.49 million. 106 As with small broker-dealers, we do not
anticipate that large broker-dealers will incur ongoing costs in connection with updating their
standardized conflict disclosure document, since in-house personnel would presumably be more
knowledgeable about conflicts of interest. These estimates result in a total annual estimated
third-party disclosure cost burden for Disclosure of Conflicts of Interest for Large BDs of
$2,497,767.
ii.

Care Obligation

As noted in Item 12 above, any PRA burdens or costs associated with the Care Obligation
are already accounted for under other obligations in Regulation Best Interest, including the
Disclosure Obligation, discussed above, and the new Record-Making Obligation under Rule 17a3(a)(35) (OMB No. 3235-0033) and new Recordkeeping Obligation under Rule 17a-4(e)(5)
(OMB No. 3235-0279), which are discussed in separate Supporting Statements.
iv.

Conflict of Interest Obligations

103

This estimate is based on the following calculation: ($497/hour) x (5 hours) = $2,485 in initial
costs.

104

This estimate is based on the following calculation: ($497/hour x 5 hours) x (756 small brokerdealers) = $1.88 million in aggregate initial costs.

105

This estimate is based on the following calculation: ($497/hour) x (7.5 hours) = $3,728 in initial
costs.

106

This estimate is based on the following calculation: ($497/hour) x (7.5 hours) x 2,010 large
broker-dealers) = $7.49 million in aggregate costs.
33

Written Policies and Procedures - Small Broker-Dealers
For small broker-dealers, we believe that they would primarily rely on outside counsel to
update existing policies and procedures, as small broker-dealers generally have fewer in-house
legal and compliance personnel. Given that smaller broker-dealers generally have fewer
conflicts of interest, we estimate that 40 hours of outside legal counsel would be required to
update existing policies and procedures, for a one-time cost of $19,880 per small brokerdealer, 107 and an aggregate cost of $15.0 million for all small broker-dealers. 108 We assume for
purposes of this analysis that small broker-dealers, with generally fewer and less complex
products, and lower rates of hiring, would primarily rely on outside legal counsel and outside
compliance consultants for review and update of their policies and procedures. We estimate that
outside legal counsel would require approximately five hours per year to update policies and
procedures, for an annual cost of $2,485 for each small broker-dealer. 109 The projected
aggregate, annual ongoing cost for outside legal counsel to update policies and procedures for
small broker-dealers would be $1.88 million.110 In addition, we expect that small broker-dealers
would require five hours of outside compliance services per year to update their policies and
procedures, for an ongoing cost of $1,365 per year, 111 and an aggregate ongoing cost of $1.03
million. 112 These estimates result in a total ongoing cost of $3,850 per year. The total aggregate,
ongoing cost for small broker-dealers is therefore projected at $2.91 million per year. 113 These

107

This cost estimate is based on the following calculation: (40 hours of review) x ($497/hour for
outside counsel services) = $19,880 in outside counsel costs.

108

This cost estimate is based on the following calculation: ($19,880 for outside attorney costs per
small broker-dealer) x (756 small broker-dealers) = $15.0 million in outside counsel costs.

109

This estimate is based on the following calculation: (5 hours per small broker-dealer) x
($497/hour for outside counsel services) = $2,485 in outside counsel costs.

110

This estimate is based on the following calculation: ($2,485 in outside counsel costs per small
broker-dealer) x (756 small broker-dealers) = $1.88 million in aggregate, ongoing outside legal
costs.

111

We believe that performance of this function will most likely be equally allocated between a
senior compliance examiner and a compliance manager. Data from the SIFMA Management and
Professional Earnings Report suggests that costs for these positions are $237 and $309 per hour,
respectively for an average of $273 per hour. This cost estimate is based on the following
calculation: (5 hours of review) x ($273/hour for outside compliance services) = $1,365 in outside
compliance service costs.

112

This estimate is based on the following calculation: ($1,365 in outside compliance costs per small
broker-dealer) x (756 small broker-dealers) = $1.03 million in aggregate, ongoing outside
compliance costs.

113

This estimate is based on the following calculation: ($1.88 million for outside legal counsel costs)
+ ($1.03 million for outside compliance costs) = $2.91 million total aggregate ongoing costs.
34

estimates result in a total annual estimated recordkeeping cost burden for Conflict of
Interest Obligation: Written Policies and Procedures for Small BDs of $7,920,363.
Written Policies and Procedures - Large Broker-Dealers
As discussed in Item 12, we believe that most of the burdens associated with the written
policies and procedures requirement would be incurred internally by large broker-dealers, and
therefore would result in hourly burdens. However, we believe that large broker-dealers would
also hire outside counsel to review updated policies and procedures on behalf of a large brokerdealer. We estimate a cost of $4,970 for this review. 114 We therefore estimate the aggregate
initial one-time cost burden for large broker-dealers to be approximately $10.0 million for large
broker-dealers. 115 Because we assume that large broker-dealers would rely on internal personnel
to update policies and procedures on an ongoing basis, we do not believe large broker-dealers
would incur ongoing costs. These estimates result in a total annual estimated recordkeeping
cost burden for Conflict of Interest Obligation: Written Policies and Procedures for Large
Broker-Dealers of $3,329,907.
Identification and Management of Conflicts of Interest – All Broker-Dealers
To comply with the Conflict of Interest Obligation of Regulation Best Interest as adopted,
we expect that broker-dealers would modify existing technology through an outside programmer,
which would require, on average, an estimated 20 hours, for an estimated cost per broker-dealer
of $5,680. 116 The aggregate initial costs for the modification of existing technology to identify
conflicts of interest would therefore be $15.71 million. 117 As discussed in Item 12 above, we
assume for purposes of this analysis that a broker-dealer would seek to identify additional
conflicts of interest as its business evolves. However, because we assume that broker-dealers
would use in-house personnel to identify and evaluate new, potential conflicts, we believe they
will not incur additional ongoing costs. These estimates result in a total annual estimated
114

Data from the SIFMA Management and Professional Earnings Report suggests that the average
hourly rate for legal services is $497/hour. This cost estimate is therefore based on the following
calculation: (10 hours of review) x ($497/hour for outside counsel services) = $4,970 in outside
counsel costs.

115

This estimate is based on the following calculation: ($4,970 for outside counsel costs per large
broker-dealer) x (2,010 large broker-dealers) = approximately $10.0 million in outside counsel
costs.

116

Data from the SIFMA Management and Professional Earnings Report suggests that the average
hourly rate for technology services in the securities industry is $284. This cost estimate is based
on the following calculation: (20 hours of review) x ($284/hour for technology services) =
$5,680.

117

This cost estimate is based on the following calculation: ($5,680 in outside programmer costs per
broker-dealer) x (2,766 broker-dealers) = $15.71 million in aggregate outside programmer costs.
35

recordkeeping cost burden for the Identification and Management of Conflicts of Interest
for All Broker-Dealers of $5,236,951.
v.

Compliance Obligation

Written Policies and Procedures – Small Broker-Dealers
For small broker-dealers, we believe that they would primarily rely on outside counsel to
update existing policies and procedures, as small broker-dealers generally have fewer in-house
legal and compliance personnel. We estimate that only 20 hours of outside legal counsel
services would be required, for a one-time cost of $9,940 per small broker-dealer, 118 and an
aggregate cost of $7.5 million for all small broker-dealers. 119 In addition, we estimate that
outside counsel would require approximately five hours per year to update policies and
procedures, for an annual cost of $2,485 for each small broker-dealer. 120 The projected
aggregate, annual ongoing cost for outside legal counsel to update policies and procedures for
small broker-dealers would be $1.88 million.121 Finally, we expect that small broker-dealers
would require five hours of outside compliance services per year to update their policies and
procedures, for an ongoing cost of $1,365 per year, 122 and an aggregate ongoing cost of $1.03
million. 123 The total aggregate, ongoing cost for small broker-dealers is therefore projected at
$2.91 million per year. 124 These estimates result in a total annual estimated recordkeeping
118

This cost estimate is based on the following calculation: (20 hours of review) x ($497/hour for
outside counsel services) = $9,940 in outside counsel costs.

119

This cost estimate is based on the following calculation: ($9,940 for outside attorney costs per
small broker-dealer) x (756 small broker-dealers) = $7.5 million in outside counsel costs.

120

Data from the SIFMA Management and Professional Earnings Report suggests that the average
hourly rate for legal services is $497/hour. This estimate is therefore based on the following
calculation: (5 hours per small broker-dealer) x ($497/hour for outside counsel services) =
$2,485 in outside counsel costs.

121

This estimate is based on the following calculation: ($2,485 in outside counsel costs per small
broker-dealer) x (756 small broker-dealers) = $1.88 million in aggregate, ongoing legal costs.

122

We believe that performance of this function will most likely be equally allocated between a
senior compliance examiner and a compliance manager. Data from the SIFMA Management and
Professional Earnings Report suggests that costs for these positions are $237 and $309 per hour,
respectively for an average of $273 per hour. This estimate is therefore based on the following
calculation: (5 hours per small broker-dealer) x ($273/hour for outside counsel services) =
$1,365 in outside compliance service costs.

123

This estimate is based on the following calculation: ($1,365 in outside compliance costs per small
broker-dealer) x (756 small broker-dealers) = $1.03 million in aggregate, ongoing outside
compliance costs.

124

This estimate is based on the following calculation: ($1.88 million for outside legal counsel costs)
+ ($1.03 million for outside compliance costs) = $2.91 million total aggregate ongoing costs.
36

cost burden for the Compliance Obligation: Written Policies and Procedures for Small
Broker-Dealers of $5,415,477.
Written Policies and Procedures - Large Broker-Dealers
As discussed in Item 12 above, we believe large broker-dealers would use their in-house
legal and compliance departments to update existing policies and procedures, and therefore
would incur hour burdens for most of this requirement. However, we estimate a cost of $2,982
for outside counsel to review updated policies and procedures on behalf of a large brokerdealer. 125 We therefore estimate an aggregate cost of approximately $6.0 million for large
broker-dealers. 126 These estimates result in a total annual estimated recordkeeping cost
burden for the Compliance Obligation: Written Policies and Procedures for Large BrokerDealers of $1,997,940.
Training – Develop Module, All Broker-Dealers
We believe that broker-dealers would likely use a computerized training model to train
associated persons of the broker-dealer on the policies and procedures pertaining to Regulation
Best Interest. We estimate that a broker-dealer would retain an outside systems analyst, outside
programmer, and an outside programmer analyst to create the training module, at 20 hours, 40
hours, and 20 hours, respectively. The total cost to develop the training module would be
approximately $20,920, 127 for an aggregate initial cost of $62.8 million.128 These estimates
result in a total annual estimated recordkeeping cost burden for Developing a Training
Module for All Broker-Dealers of $19,288,231.
TOTAL:

125

Data from the SIFMA Management and Professional Earnings Report suggests that the average
hourly rate for legal services is $497/hour. This cost estimate is therefore based on the following
calculation: (6 hours of review) x ($497/hour for outside counsel services) = $2,982 in outside
counsel costs.

126

This estimate is based on the following calculation: ($2,982 for outside counsel costs per large
broker-dealer) x (2,010 large broker-dealers) = $6.0 million in outside counsel costs.

127

Data from the SIFMA Management and Professional Earnings Report suggests that the average
hourly rate in the securities industry is $263 for a systems analyst, $271 for a programmer, and
$241 for a programmer analyst.. This cost estimate is based on the following calculation: ((20
hours for a systems analyst) x ($263/ hour)) + ((40 hours of labor for a programmer) x
($271/hour)) + ((20 hours of labor for a programmer analyst) x ($241/hour)) = $20,920 in
external technology costs per broker-dealer.

128

This estimate is based on the following calculation: (2,766 broker-dealers) x ($20,920costs per
broker-dealer) = $57.9 in aggregate costs for technology services
37

Based on the estimates discussed above, the total annual estimated cost burden for the
collections of information in Regulation Best Interest is $57,459,025.
14.

Cost to Federal Government

Commission staff estimates that there is no annual cost associated with information
submitted to the Commission under the new rules, other than the cost of full-time employee labor
costs.
15.

Explanation of Changes in Burden

The Commission has revised its burden estimates for some of the information collections,
as summarized in this chart:
Name of
Information
Collection

Annual Industry
Burden

Annual
Industry
Burden
Previously
Reviewed

Change in
Burden

Reason for Change

Disclosure Obligation 15l-1(a)(2)(i)
(1) Disclosure of Capacity, Type, and Scope of Services
Duallyregistered BDs

5,816

3,720

2,096

Increase in number
of dually-registered
broker-dealers

Small BDs

5,544

5,881

(337)

Decrease in number
of small brokerdealers

Large BDs

53,601

54,801

(1,200)

Decrease in number
of large brokerdealers

All BDs

1,087,979

1,015,784 129

72,195

This was
submitted as a
single burden
when proposed,
but it was
separated into

(407,985 +
679,994)

Increase in estimated
number of retail
customer accounts
(to which
disclosures must be
delivered). This
burden combines the
initial one-time

This number reflects the sum of 634,984 burden hours + 380,800 burden hours previously
reviewed.
129

38

two burdens in
the final rule.

delivery burden and
ongoing delivery
burden, which were
previously presented
separately as
“delivery of fee
schedule” and
“delivery of
amended fee
schedule”.

Disclosure Obligation 15l-1(a)(2)(i)
(2) Disclosure of Fees and Costs
Small BDs

2,772

2,941

(169)

Decrease in number
of small brokerdealers

Large BDs

14,739

15,069

(330)

Decrease in number
of large brokerdealers

All BDs

1,495,964

1,396,584 130

99,380

This was
submitted as a
single burden
when proposed,
but it was
separated into
two burdens in
the final rule.

(815,970 +
679,994)

Increase in estimated
number of retail
customer accounts
(to which
disclosures must be
delivered). This
burden combines the
initial one-time
delivery burden and
ongoing delivery
burden, which were
previously presented
separately as
“delivery of fee
schedule” and
“delivery of
amended fee
schedule”.

Disclosure Obligations 15l-(a)(2)(i)
This number reflects the sum of 634,984 burden hours + 761,600 burden hours previously
reviewed.
130

39

(3) Disclosure of Conflict of Interest
Small BDs

2,016

2,139

(123)

Decrease in number
of small brokerdealers

Large BDs

9,045

9,248

(203)

Decrease in number
of large brokerdealers

All BDs

1,495,964

1,396,584 131

99,380

This was
submitted as a
single burden
when proposed,
but it was
separated into
two burdens in
the final rule.

(815,970 +
679,994)

Increase in estimated
number of retail
customer accounts
(to which
disclosures must be
delivered). This
burden combines the
initial one-time
delivery burden and
ongoing delivery
burden, which were
previously presented
separately as
“delivery of fee
schedule” and
“delivery of
amended fee
schedule”.

Conflict of Interest Obligations 15l-(1)(2)(iii)
(1) Written Policies and Procedures
Small BDs

6,300

6,681

(381)

Decrease in number
of small brokerdealers

Large BDs

64,320

65,760

(1,440)

Decrease in number
of large brokerdealers

Conflict of Interest Obligations 15l(a)(2)(iii)

This number reflects the sum of 637, 840 burden hours + 759,219 burden hours previously
reviewed.
131

40

(2) Identification and Management of Material Conflicts of Interest
All BDs

50,709

38,084

12,625

Increased estimates
as a result of
changes to the rule.

Compliance Obligation 15l-1(a)(2)(iv)
(1) Written Policies and Procedures
Small BDs

5,292

0

5,292

New rule
requirement/IC
based on comments
received

Large BDs

50,919

0

50,919

New rule
requirement/IC
based on comments
received

3,808

(121)

Decrease in number
of broker-dealers

580,016

(8376)

Decreases in number
of broker-dealers
and number of
registered
representatives

Compliance Obligation 15l-1(a)(2)(iv)
(2) Training
(a) Module Development
All BDs

3,687

Compliance Obligation 15l-1(a)(2)(iv)
(2) Training
(b) Implement Training
All BDs

TOTAL
BURDEN
REQUESTED

571,640

4,926,307

4,597,575

41

328,732

As reflected above,
we have added some
new ICs and some
individual burdens
have increased due

to changes in the
rule.

Name of
Information
Collection

Annual Industry
Cost Burden

Annual
Industry Cost
Burden
Previously
Reviewed

Change in Cost
Burden

Reason for
Change

Disclosure Obligation 15l-1(a)(2)(i)
(1) Disclosure of Capacity, Type, and Scope of Services
Dually-registered
BDs

$932,705

$566,399

$366,306

Change in
number of duallyregistered brokerdealers and
estimated costs
for services

Small BDs

$1,252,443

$1,261,811

$(9,368)

Change in
number of small
broker-dealers
and estimated
costs for services

Large BDs

$5,004,900

$4,849,800

$155,100

Change in
number of large
broker-dealers
and estimated
costs for services

Disclosure Obligation 15l-1(a)(2)(i)
(2) Disclosure of Fees and Costs
Small BDs

$626,217

$630,909

$(4,692)

Change in
number of small
broker-dealers
and estimated
costs for services

Large BDs

$3,329,907

$3,233,193

$96,714

Change in
number of large
broker-dealers

42

and estimated
costs for services
Disclosure Obligations 15l-(a)(2)(i)
(3) Disclosure of Conflict of Interest
Small BDs

$626,217

$630,909

$(4,692)

Change in
number of small
broker-dealers
and estimated
costs for services

Large BDs

$2,497,767

$2,424,900

$72,867

Change in
number of large
broker-dealers
and estimated
costs for services

Conflict of Interest Obligations 15l-(1)(2)(iii)
(1) Written Policies and Procedures
Small BDs

$7,920,363

$8,134,951

$(214,588)

Change in
number of small
broker-dealers
and estimated
costs for services

Large BDs

$3,329,907

$3,233,193

$96,714

Change in
number of large
broker-dealers
and estimated
costs for services

Conflict of Interest Obligations 15l(a)(2)(iii)
(2) Identification and Management of Material Conflicts of Interest
All BDs

$5,236,951

$5,142,600

Compliance Obligation 15l-1(a)(2)(iv)

43

$94,351

Change in
number of
broker-dealers
and estimated
costs for services

(1) Written Policies and Procedures
Small BDs

$5,415,477

0

$5,415,480

New rule
requirement/IC

Large BDs

$1,997,940

0

$1,997,940

New rule
requirement/IC

Compliance Obligation 15l-1(a)(2)(iv)
(2) Training
(a) Module Development
All BDs

$19,288,231

$20,570,400

$(1,282,169)

TOTAL
BURDEN
REQUESTED

$57,459,025

$50,679,065

$6,779,960

Change in
number of
broker-dealers
and estimated
costs for services

We generally believe the previously reviewed burdens and costs relating to the
Disclosure Obligation are accurate but have updated estimates to reflect changes in the number
of broker-dealers and costs of certain services since the last estimate.
In light of the modifications to several substantive requirements of the rule, including the
Conflict of Interest Obligation, we believe these changes will allow broker-dealers to more easily
incorporate the requirements of Regulation Best Interest into existing supervisory and
compliance systems and streamline compliance with Regulation Best Interest. We generally
believe our proposed burdens and costs relating to the Conflict of Interest Obligations are
accurate but have updated estimates to reflect changes in the number of broker-dealers and costs
of certain services since the last estimate. As explained above, as a result of the changes made to
the rule text of the Conflict of Interest Obligation of Regulation Best Interest, we believe that
broker-dealers would incur burdens to: (1) identify relevant conflicts of interest and (2)
determine whether and how the conflict would be addressed. As a result, we have increased our
initial and ongoing burden estimates relating to the Conflict of Interest Obligation - Identification
and Management of Material Conflicts of Interest.

As discussed above, in response to comments that we should require policies and
procedures to comply with Regulation Best Interest as a whole, we are adopting the Compliance
Obligation, which requires that the broker-dealer establish, maintain and enforce written policies
and procedures reasonably designed to achieve compliance with Regulation Best Interest. This
Compliance Obligation creates an explicit obligation under the Exchange Act with respect to
44

Regulation Best Interest as a whole. Similar to the policies and procedures requirement of the
Conflict of Interest Obligation, broker-dealers will have flexibility to design policies and
procedures proportionate to the scope, size and risks associated with the operations of the firm
and the types of business in which the firm engages. Because we did not include the Compliance
Obligation in the Proposing Release, we did not include costs and burdens associated with the
Compliance Obligation in that release, but we have provided a detailed explanation of these costs
and burdens above.
16.
Rules.

Not applicable. The Commission does not publish information collected pursuant to the
17.

date.

Information Collection Planned for Statistical Purposes

OMB Expiration Date Display Approval

The Commission is not seeking approval to not display the OMB approval expiration
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

45