Supporting Statement_Rule 203A-2(e)

OMB CONTROL NUMBER: 3235-0559
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Proposed Amendments to Rule 203A-2(e)
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 203A of the Investment Advisers Act of 1940 (“Advisers Act” or “Act”)
prohibits certain advisers from registering with the Securities and Exchange Commission
(the “Commission”) under the Act. In general, a small adviser with less than $25 million
in assets under management that is regulated or required to be regulated as an adviser in
the state where it maintains its principal office and place of business, and a mid-sized
adviser with between $25 million and $100 million in assets under management that is
required to be registered as an adviser in the state where it maintains its principal office
and place of business and that is subject to examination by its state securities
commission, are not eligible to register with the Commission. 1 A mid-sized adviser that
otherwise would be prohibited may register with the Commission if it would be required
to register with 15 or more states. 2 A mid-sized adviser also will be required to register
with the Commission if it is an adviser to a registered investment company or business
development company under the Investment Company Act. 3 Section 203A(c) of the
Advisers Act also authorizes the Commission to exempt an adviser from the prohibition
on Commission registration if the prohibition would be “unfair, a burden on interstate
commerce, or otherwise inconsistent with the purposes” of section 203A of the Act. 4

1

15 U.S.C. 80b-3a(a).

2

See id.

3

See id.

4

15 U.S.C. 80b-3a(c).

Under this authority, the Commission adopted rule 203A-2 in 1997 to provide certain
types of advisers with exemptions from the prohibition on registration. Rule 203A-2 was
amended by the Commission in 2002 when it adopted an exemption for internet
investment advisers, 5 and was amended again in 2011 when, among other changes, the
internet investment adviser exemption was redesignated as subsection (e) of Rule 203A2. 6
Rule 203A-2(e) exempts from the prohibition on Commission registration an
Internet investment adviser who (1) provides investment advice to all of its clients
exclusively through computer software-based models or applications termed under the
rule as “interactive websites” 7 and (2) maintains in an easily accessible place, for a period
of not less than five years from the filing of a Form ADV, 8 a record demonstrating that
the adviser provides investment advice to its clients exclusively through an interactive
website in accordance with the rule. Rule 203A-2(e)’s record maintenance requirement

5

See Exemption for Certain Investment Advisers Operating Though the Internet, Investment
Advisers Act Release No. 2091 (December 12, 2002) (67 F.R. 77620 (Dec. 18, 2002)).

6

See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment
Advisers Act Release No. 3221 (June 22, 2011) (76 FR 42950 (July 19, 2011)). The Commission
did not make substantive amendments to the internet investment adviser exemption as part of this
rulemaking. Other exempted advisers under Rule 203A-2 include: (1) pension consultants that
provide investment advice to employee benefit plans with respect to assets of plans having an
aggregate value of at least $200 million during the adviser’s last fiscal year; (2) an adviser that
controls, is controlled by, or is under common control with a Commission-registered adviser if the
two advisers have the same principal office and place of business; (3) a newly formed adviser with
a reasonable expectation that it would be eligible for Commission registration within 120 days
after its registration has become effective with the Commission; and (4) an adviser required to
register with the securities authorities in at least 15 states. 17 CFR 275.203A-2.

7

17 CFR 275.203A-2(e). Included in rule 203A-2(e) is a limited exception to the interactive
website requirement which allows these advisers to provide investment advice to fewer than 15
clients through other means on an annual basis. 17 CFR 275.203A-2(e)(1)(i). The rule also
precludes advisers in a control relationship with an SEC-registered internet investment adviser
from registering with the Commission under the common control exemption provided by rule
203A-2(b) (17 CF.R. 275.203A-2(b)).

8

The five-year record retention period is a similar recordkeeping retention period as imposed on all
SEC-registered advisers under rule 204-2 of the Adviser Act. See rule 204-2 (17 CFR 275.204-2).

2

is a “collection of information” for Paperwork Reduction Act (“PRA”) purposes. The
title for the collection of information is “Exemption for Certain Investment Advisers
Operating Through the Internet (Rule 203A-2(e))”. This collection of information is
necessary for use by the Commission staff in its examination and oversight program. The
collection of information for rule 203A-2(e) is currently approved under OMB control
number 3235-0559 (expires May 31, 2026).
On July 26, 2023, the Commission proposed amendments to rule 203A-2(e). 9
The Commission proposed amendments that would require internet investment advisers
relying on the exemption to at all times have an “operational” interactive website. 10 In
addition, the Commission proposed amendments that would eliminate the de minimis
exception in the current rule that permits internet investment advisers to have fewer than
15 non-internet clients in any 12-month period and amendments that would require
internet investment advisers to have more than one client. 11 The Commission also
proposed amendments to the requirement that the internet investment adviser retain in an
easily accessible place, for a period of not less than five years from the filing of a Form
ADV, 12 a record demonstrating that the adviser provides investment advice to its clients
exclusively through an interactive website in accordance with the rule to reflect the
proposed amendment that the adviser’s interactive website must be “operational.” 13

9

Exemption for Certain Investment Advisers Operating Through the Internet Investment Advisers
Act Release No. 6354 (Jul. 26, 2023) [88 FR 50076 (Aug. 1, 2023)].

10

See proposed rule 203A-2(e)(1)(i).

11

See supra note 7; proposed rule 203A-2(e)(1)(i); proposed rule 203A-2(e)(2)

12

The five-year record retention period is a similar recordkeeping retention period as imposed on all
SEC-registered advisers under rule 204-2 of the Adviser Act. See rule 204-2 (17 CFR 275.204-2).

13

Proposed 17 CFR 275.203(a)-2(e)(ii).

3

Respondents to this collection of information are advisers who provide investment
advice through interactive websites and who rely on the exemption to register with the
Commission. Providing this information is mandatory in qualifying for and maintaining
Commission registration eligibility under rule 203A-2(e). Responses provided to the
Commission in the context of its examination and oversight program are generally kept
confidential under section 210(b) of the Advisers Act. 14
2.

Purpose and Use of the Information Collection

The information collected under rule 203A-2(e) permits the Commission’s
examination staff to determine an advisers’ eligibility for registration with the
Commission under this exemptive rule.
3.

Consideration Given to Information Technology
An investment adviser registering or registered with the Commission under rule

203A-2(e) would be required to maintain, in an easily accessible place, for five years
from the filing of a Form ADV, a record that demonstrates that the adviser provides
investment advice to its clients exclusively through an operational interactive website as
defined under the rule. 15 Advisers are permitted to meet the recordkeeping obligation
under the rule micrographically or electronically, and their storage of this required record
in such media is governed by Advisers Act rule 204-2(g). 16

14

15 U.S.C. 80b-10(b).

15

17 CFR 275.203A-2(e).

16

17 CFR 275.204-2(g). Rule 204-2(g) requires that the record be arranged and indexed in a way
that permits easy location, access, and retrieval of any particular record, and that the micrographic
or electronic duplicate of the record be separately stored for the time required by rule 204-2 to
preserve the original record. See 17 CFR 275.204-2(g)(2). An investment adviser must establish
and maintain procedures to keep the required records so as to reasonably safeguard the records
from loss, alteration, or destruction; to limit access to the records to properly authorized personnel
and the Commission; and to reasonably ensure that any reproduction of a non-electronic original
record is complete, true, and legible when retrieved. See 17 CFR 275.204-2(g)(3).

4

4.

Duplication

The recordkeeping requirement of rule 203A-2(e) is not duplicated elsewhere for
investment advisers that must comply with this collection requirement.
5.

Effect on Small Entities

The collection of information requirements are the same for all investment
advisers registering or registered with the Commission, including those that are small
entities. Under section 203A, advisers with assets under management of less than $100
million generally will not be eligible to register with the Commission. However, under
rule 203A-2(e), these advisers are permitted to register with the Commission if they meet
the conditions of the rule. The recordkeeping requirement under the rule affects small
advisers and larger advisers similarly, because the required information is about the
adviser maintaining the records and about its business, which should be readily available
to any adviser regardless of size. It would defeat the purpose of the rule to exempt small
entities from these requirements.
6.

Consequences of Not Conducting Collection

Less frequent information collection will be incompatible with the objectives of
the rule and would hinder the Commission’s oversight and examination program for
internet investment advisers and thereby reduce the protection to investors.
7.

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

Rule 203A-2(e) includes a recordkeeping provision under which an adviser
relying on the rule to register with the Commission would be required to maintain certain
information, specified more fully in Item 1 above, for five years. Although this period
exceeds the three-year guideline for most kinds of records under 5 CFR 1320.5(d)(2)(iv),

5

the long-term retention of these records is designed to contribute to the effectiveness of
the Commission’s examination and inspection program, and is necessary for the
Commission’s inspection program to determine compliance with the Advisers Act,
including an adviser’s continued eligibility to register with the Commission. Because the
period between examinations may be as long as five years, it is important that the
Commission have access to records that cover the period between examinations.
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 adviser industry
through public conferences, meetings and informal exchanges. These various forums
provide the Commission and the staff with a means of ascertaining and acting upon
paperwork burdens confronting the industry. In addition, the Commission has requested
public comment on the proposed amendments to rule 203A-2(e), including the collection
of information requirements resulting from the proposed amendments. Before adopting
these amendments, the Commission will receive and evaluate public comments on the
proposed amendments and their associated collection of information requirements
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Responses to the recordkeeping responses required under rule 203A-2(e) in the
context of the Commission’s examination and oversight program are generally kept
confidential. 17

17

See Section 210(b) of the Advisers Act. 15 U.S.C. 80b-10b.

6

11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be
required under this collection of information. The information collection does not collect
personally identifiable information (PII). The agency has determined that a system of
records notice (SORN) and privacy impact assessment (PIA) are not required in
connection with the collection of information.
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for
purposes of the Paperwork Reduction Act of 1995 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules
and forms. Rule 203A-2(e) would require advisers registering with the Commission
under the exemption to maintain a record demonstrating that the adviser’s advisory
business has been conducted through an “operational” interactive website in accordance
with the rule. Although most advisers registering under the rule usually generate the
necessary records in the ordinary conduct of their Internet advisory business, the
recordkeeping requirement of rule 203A-2(e) nonetheless may impose a small additional
burden on these advisers. As under the current rule, under the proposed rule we continue
to estimate that this recordkeeping burden should not exceed an average of four (4) hours
annually per adviser. As of December 2022, 266 internet investment advisers were
relying on the exemption and we estimate that 266 advisers will continue to rely on the

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exemption 18 Accordingly, the total recordkeeping burden hours for all rule 203A-2(e)
advisers has increased from 924 hours to 1,064 hours. 19
The Commission estimates that the total cost to each internet investment adviser
to comply with the recordkeeping provision of rule 203A-2(e) would be approximately
$1,700, 20 such that the total cost for the 266 advisers relying on this exemption at this
time would be $452,200 21 Information related to the estimated total burden is also
summarized in the table 2 below.

18

This estimate is based on information reported by advisers through the Investment Adviser
Registration Depository (“IARD”) through March 31, 2023.

19

Four (4) hours x 266 advisers = 1,064 hours.

20

Four (4) hours x $425 = $1,700. The Commission estimated this figure by multiplying the burden
hours to comply with rule 203A-2(e)’s recordkeeping requirements (4 hours) by an average hourly
compensation rate of $425. The compensation rate used is the rate for a Sr. Operations Manager
in the Securities Industry and Financial Markets Association’s Report on Management &
Professional Earnings in the Securities Industry 2013 updated for 2022, and is modified to account
for an 1,800-hour work-year and inflation and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.

21

Four (4) hours x $425 = $1,700 x 266 advisers = $452,200.

8

TABLE 1: BURDEN ESTIMATES FOR PROPOSED RULE 203A-(e)

Burden Per Response
Internal
Burden

Wage
Rate

Aggregate Burden

Cost of
Internal
Burden

Annual
Cost
Burden

Annual
Responses

Internal
Burden

Cost of Internal
Burden

Annual
Cost
Burden

4 hours

$452,200 25

$452,200

4 hours

$452,200

$452,200

REVISED ESTIMATES
General
burden
of
proposed
rule
203A-(e)

4 hours

Total
annual
burden

4 hours

×

$425 22

$1,700 23

$1,700

×

266 24

TABLE 2: BURDEN ESTIMATE CHANGE FOR PROPOSED RULE 203A-(e)
IC Title

Annual No. of Responses
Previously Requested
Change
approved

Annual Time Burden (Hrs.)
Previously Requested
Change
approved

External Cost to Respondents ($)
Previously
Requested
Change
approved

Rule 203A2(e)

231

924

0

266

+35

1,064 26

+140

0

22

The compensation rate used is the rate for a Sr. Operations Manager in the Securities Industry and
Financial Markets Association’s Report on Management & Professional Earnings in the Securities
Industry 2013 updated for 2022, and is modified to account for an 1,800-hour work-year and
inflation and multiplied by 5.35 to account for bonuses, firm size, employee benefits and
overhead.

23

Four (4) hours x $425 = $1,700. The Commission estimated this figure by multiplying the burden
hours to comply with proposed rule 203A-2(e)’s recordkeeping requirements (4 hours) by an
average hourly compensation rate of $425.

24

This estimate is based on information reported by advisers through the Investment Adviser
Registration Depository (“IARD”) as of March 31, 2023.

25

$1,700 x 266 advisers = $452,200.

26

Four (4) hours x 266 advisers = 1,064 hours.

9

0

13.

Cost to Respondents

Excluding the burden hours identified in item 12, the collection of information
requirement for rule 203A-2(e) is not expected to impose additional non-labor or capital
costs. The Commission anticipates that most advisers registering under the rule would
generate the necessary records in the ordinary conduct of their advisory businesses.
14.

Cost to the Federal Government

There are no costs to the federal government directly attributable to rule
203A-2(e).
15.

Change in Burden

The revised burden for rule 203A-2(e) results from an increase in the number of
advisers relying on the rule for Commission registration eligibility. The annual
recordkeeping burden under the rule previously was 924 hours, or four hours per adviser
for 231 advisers in total. Adjusting this number for the 35 additional advisers relying on
the rule, the annual recordkeeping burden is revised from 924 hours to 1,064 hours. 27
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.

27

Four (4) hours x 266 advisers = 1,064 hours.

10

B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS
Not applicable.

11