Rule 154 Supporting Statement 2021

OMB CONTROL NUMBER: 3235-0495
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 154
A.

JUSTIFICATION
1.

Necessity for the Information Collection

The federal securities laws generally prohibit an issuer, underwriter, or dealer from
delivering a security for sale unless a prospectus meeting certain requirements accompanies or
precedes the security. Rule 154 (17 CFR 230.154) under the Securities Act of 1933 (15 U.S.C.
77a) (the “Securities Act”) permits, under certain circumstances, delivery of a single prospectus
to investors who purchase securities from the same issuer and share the same address
(“householding”) to satisfy the applicable prospectus delivery requirements. 1 The purpose of
rule 154 is to reduce the amount of duplicative prospectuses delivered to investors sharing the
same address.
Under rule 154, a prospectus is considered delivered to all investors at a shared address,
for purposes of the federal securities laws, if the person relying on the rule delivers the
prospectus to the shared address and the investors consent to the delivery of a single prospectus.
The rule applies to prospectuses and prospectus supplements. Currently, the rule permits
householding of all prospectuses by an issuer, underwriter, or dealer relying on the rule if, in
addition to the other conditions, set forth in the rule, the issuer, underwriter, or dealer has

1

The Securities Act requires the delivery of prospectuses to investors who buy securities
from an issuer or from underwriters or dealers who participate in a registered distribution
of securities. See Securities Act sections 2(a)(10), 4(1), 4(3), 5(b) (15 U.S.C. 77b(a)(10),
77d(1), 77d(3), 77e(b)); see also rule 174 under the Securities Act [17 CFR 230.174]
(regarding the prospectus delivery obligation of dealers); and rule 15c2-8 under the
Securities and Exchange Act of 1934 [17 CFR 240.15c2-8] (prospectus delivery

(continued . . .)

obtained from each investor written or implied consent to householding. 2 The rule requires
issuers, underwriters, or dealers that wish to household prospectuses with implied consent to
send a notice to each investor stating that the investors in the household will receive one
prospectus in the future unless the investors provide contrary instructions. In addition, at least
once a year, issuers, underwriters, or dealers relying on rule 154 for the householding of
prospectuses relating to open-end management investment companies that are registered under
the Investment Company Act of 1940 (“mutual funds”) and each series thereof must explain to
investors who have provided written or implied consent how they can revoke their consent.
Preparing and sending the notice and the annual explanation of the right to revoke are collections
of information.
2.

Purpose and Use of the Information Collection

The rule allows issuers, underwriters, or dealers to household prospectuses if certain
conditions are met. Among the conditions with which a person relying on the rule must comply
are providing notice to each investor that only one prospectus will be sent to the household and,
in the case of issuers that are mutual funds and any series thereof, providing to each investor who
consents to householding an annual explanation of the right to revoke consent to the delivery of a
single prospectus to multiple investors sharing an address. The purpose of the notice and annual
explanation requirements of the rule is to ensure that investors who wish to receive individual
copies of prospectuses are able to do so.

obligations of brokers and dealers).
2

Rule 154 permits the householding of prospectuses that are delivered electronically to
investors only if delivery is made to a shared electronic address and the investors give
written consent to householding. Implied consent is not permitted in such a situation. See

(continued . . .)

2

3.

Consideration Given to Information Technology

The Commission’s electronic filing project (Electronic Data Gathering, Analysis and
Retrieval System or “EDGAR”) is designed to automate the filing, processing and dissemination
of full disclosure filings. The system permits publicly held companies to transmit their filings to
the Commission electronically. Such automation has increased the speed, accuracy and
availability of information, generating benefits to investors and financial markets. Prospectuses
are required to be filed with the Commission electronically on EDGAR. [17 CFR 232.101(a)(i)].
The public may access filings on EDGAR through the Commission’s website at
http://www.sec.gov.
Prospectuses may be sent to investors by electronic means if the investors consent. 3 The
Commission has no information concerning the percentage of prospectuses that are sent
electronically, but believes it is a small percentage. For the purposes of Part II of Form 83-I, the
Commission estimates 2% of these documents are sent electronically.
4.

Duplication

The requirements of rule 154 are not duplicated elsewhere in federal securities laws, and
similar information is not available from other sources.

rule 154(b)(4).
3

See Use of Electronic Media for Delivery Purposes, Securities Act Rel. No. 7233;
Exchange Act Rel. No. 36345; Investment Company Act Rel. No. 21399 (Oct. 6, 1995)
[60 FR 53458 (Oct. 13, 1995)]. In addition, rule 172 under the Securities Act allows
certain issuers to satisfy the prospectus delivery obligations of Section 5(b)(2) of that Act
through electronic delivery if certain specified conditions are met. Rule 172 was recently
amended to make electronic delivery available to offerings by registered closed-end funds
and business development companies. See Securities Offering Reform for Closed-End
Investment Companies, Investment Company Act Release IC-33836 (Apr. 8, 2020) [85
FR 33353 (June, 1, 2020)]. Rule 172’s electronic delivery provisions do not apply to

(continued . . .)

3

5.

Effect on Small Entities

Rule 154 is available to any issuer, underwriter, or dealer, including those that are small
entities, that wishes to meet its prospectus delivery requirements by transmitting a single
prospectus to multiple investors sharing an address. Any issuer, underwriter, or dealer that
wishes to rely on rule 154 must comply with its information collection requirements. These
requirements are necessary for investor protection.
6.

Consequences of Not Conducting Collection

Rule 154 requires issuers, underwriters, or dealers that wish to household prospectuses
with implied consent to send a notice to each investor stating that the investors in the household
will receive one prospectus in the future unless the investors provide contrary instructions. In
addition, at least once a year, issuers, underwriters, or dealers relying on rule 154 for the
householding of mutual fund prospectuses must explain to investors who have provided written
or implied consent how they can revoke their consent. Less frequent collection would result in
investors who wish to receive individual copies of prospectuses not being able to do so unless the
investors remember without any reminders to inform the issuer, underwriter, or dealer of such a
wish. The purpose of the notice and annual explanation requirements associated with the rule is
to ensure that investors who wish to receive individual copies of prospectuses are able to do so.
In addition, the rule only requires the notice informing investors of the householding of
prospectuses to be sent once, before householding begins.
7.

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

None.
mutual funds. See Rule 172(d)(1).
4

8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company industry and through public
conferences, meetings, and informal exchanges. These various forums provide the Commission
and staff with a means of ascertaining and acting upon paperwork burdens confronting the
industry. The Commission also requested public comment on the collection of information
requirements with respect to rule 154 before it submitted this request for extension and approval
to the Office of Management and Budget. The Commission received no comments in response
to its request.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information.
12.

Burden of Information Collection

The purpose of the notice and annual explanation requirements is to give reasonable
assurance that all investors have access to the prospectus. Preparing and sending the notice and
the annual explanation of the right to revoke consent are collections of information. The notices
are typically short, one-page statements that are enclosed with other written materials sent to
shareholders, such as annual shareholder reports or account statements. The Commission
5

estimates that the annual burden associated with the notice requirement of the rule is 20 hours per
respondent. In addition, the Commission estimates that the annual burden for preparing and
delivering the annual explanation of the right to revoke is 1 hour per respondent. Although rule
154 is not limited to mutual funds, the Commission believes that it will be used mainly by
mutual funds and by broker-dealers that deliver mutual fund prospectuses.
The Commission estimates that, as of June 30, 2021, there were approximately 13,182
mutual fund series registered on Form N-1A, 4 approximately 1,279 of which are directly sold
and therefore deliver their own prospectuses. Of these, the Commission estimates that
approximately half (640 mutual fund series): (i) do not send the implied consent notice
requirement because they obtain affirmative written consent to household prospectuses in the
fund’s account opening documentation; or (ii) do not take advantage of the householding
provision because of electronic delivery options which lessen the economic and operational
benefits of rule 154 when compared with the costs of compliance. Therefore, the Commission
estimates that each of the 640 directly sold mutual fund series will spend an average of 20 hours
per year complying with the notice requirement of the rule, for a total of 12,800 burden hours at
an internal cost of $2,272,512. 5 In addition, of the approximately 1,279 mutual fund series that

4

This aggregate figure includes approximately 2,028 registered mutual fund series that are
underlying funding options for variable annuity and/or variable life insurance products.
The Commission estimates that approximately 11,154 registered mutual fund series are
offered within the retail and institutional mutual fund markets.

5

Calculated as follows: 640 mutual fund series x 20 hours = 12,800 hours per year; the
staff estimates that two-thirds of each fund series’ annual hourly burden is performed by
clerical staff preparing and mailing notices (12,800 hours x 2/3 x $64 per hour for a
General Clerk = $540,672), and the remaining one-third is performed evenly by
compliance personnel using a blended average hourly rate of $410 for the Chief

(continued . . .)

6

are directly sold, the Commission estimates that approximately 75% (or 960) will each spend 1
hour complying with the annual explanation of the right to revoke requirement of the rule, for a
total of 960 hours at an internal cost of $61,440. 6
The Commission estimates that, as of December 31, 2020, there were approximately 462
broker-dealers that have customer accounts with mutual funds, and which therefore may be
required to deliver mutual fund prospectuses. The Commission estimates that each affected
broker-dealer will spend, on average, 20 hours complying with the notice requirement of the rule,
for a total of 9,240 hours at a cost of $1,640,470. 7 Each broker-dealer will also spend one hour
complying with the annual explanation of the right to revoke requirement, for a total of 462 hours

Compliance Officer, Compliance Attorney and Compliance Manager (12,800 hours x 1/3
x $410 per hour = $1,731,840). Therefore, the total internal cost for 12,800 burden hours
is $2,272,512 ($540,672 + $1,731,840).
All hourly rates in this Supporting Statement are derived from the average annual salaries
reported in SIFMA’s Management & Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for an 1800-hour work-year and inflation,
and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.
6

The Commission estimates that approximately 25% (or 320) of the 1,279 mutual fund
series that engage in direct marketing do not take advantage of the householding
provision (and therefore do not prepare annual notices to shareholders) because, as
discussed above, the benefits of the rule do not outweigh the costs of compliance. The
staff estimates the total internal cost associated with this internal burden to be $61,440
(960 funds x 1 burden hour x $64 per hour for a General Clerk).

7

Calculated as follows: 462 broker-dealers x 20 hours = 9,240 hours per year. The staff
estimates that two-thirds of each broker-dealer’s annual hourly burden is performed by
clerical staff preparing and mailing notices (9,240 hours x 2/3 x $64 per hour for a
General Clerk = $390,298) and the remaining 1/3 is performed evenly by compliance
personnel using a blended average hourly rate of $410 for the Chief Compliance Officer,
Compliance Attorney and Compliance Manager (3,500 hours x 1/3 x $410 per hour =
$1,250,172). Therefore, the total internal cost associated with the 9,240 burden hours
spent on the notice requirement is $1,640,470 ($390,298 + $1,250,172).
7

at a cost of $29,568. 8
The total number of respondents for rule 154 is estimated to be 1,422 (960 9 mutual fund
series plus 462 broker-dealers), and the estimated total internal hour burden is approximately
23,462 hours (13,760 hours for mutual fund series, plus 9,702 hours for broker-dealers). The
Commission estimates the total internal cost of the hourly burden associated with rule 154 to be
$4,003,990. 10
Table 1: Summary of Revised Annual Responses and Burden Hours Estimates
Rule 154

Annual No. of Responses

Notice
(mutual fund
series)
Explanation of
rights
(mutual fund
series)
Both Notice
and
Explanation of
rights (brokerdealers)
Total :

13.

Annual Time Burden (Hrs.)

Previously
approved

Requested

Change

Previously
approved

Requested

Change

200

640

440

4,000

12,800

8,800

100

960

860

300

960

660

175

924

749

3675

9,702

6,027

475

2,524

+2,049

7,975

23,462

+15,487

Cost to Respondents

The Commission believes there will be no other financial costs since much of the delivery

8

The staff estimates this internal cost to be $29,568 (462 burden hours x $64 per hour for a
General Clerk).

9

The Commission estimates that 640 mutual fund series prepare both the implied consent
notice and the annual explanation of the right to revoke consent + 320 mutual fund series
that prepare only the annual explanation of the right to revoke.

10

This estimate is based on the following calculation: $2,272,512 + $61,440 + $1,640,470
+ $29,568 = $4,003,990.
8

process has been automated by the industry, the householding notice usually accompanies other
documents transmitted to shareholders (e.g., the annual shareholder report), and the required
notices are generally short in length.
14.

Costs to Federal Government

The rule does not impose any additional costs on the Federal government.
15.

Changes in Burden

The increase in burden from 7,975 hours to 23,462 hours (an increase of 15,487 hours) is
due to an increase in the estimated number of mutual funds that are directly sold and brokerdealers that have customer accounts with mutual funds (and may be required to deliver mutual
fund prospectuses), as well as a change in methodology that corrects certain estimates for the
number of responses and burden hours in the previous PRA.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

9