Supporting Statement_Rule 206(4)-1

Supporting Statement_Rule 206(4)-1.pdf

Rule 206(4)-1 Under the Investment Advisers Act of 1940

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OMB CONTROL NUMBER: 3235-0784
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
RULE 206(4)-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Rule 206(4)-1 under the Investment Advisers Act of 1940 (“Advisers Act”), known as the
“marketing rule,” addresses advisers marketing their services to clients and investors. 1
Specifically, the marketing rule states that, as a means reasonably designed to prevent fraudulent,
deceptive, or manipulative acts, practices, or courses of business within the meaning of section
206(4) of the Act, it is unlawful for any investment adviser registered or required to be registered
under section 203 of the of the Advisers Act, directly or indirectly, to disseminate any
advertisement that violates any of paragraphs (a) through (d) of the rule, which include the rule’s
general prohibitions, as well as conditions applicable to an adviser’s use of testimonials,
endorsements, third-party ratings, and performance information.
Each requirement under the marketing rule that an adviser disclose information, offer to
provide information, or adopt policies and procedures constitutes a “collection of information”
requirement under the Paperwork Reduction Act of 1995 (“PRA”). The respondents to these
collections of information requirements will be investment advisers that are registered or
required to be registered with the Commission. As of September 2023, there were 15,555
1

See 17 CFR 206(4)-1; Investment Adviser Marketing, Release No. IA-5653 (Dec. 22, 2020) [86 FR 13024
(Mar. 5, 2021)] (the “Adopting Release”). The Securities and Exchange Commission (“Commission” or
“SEC”) adopted amendments to Rule 206(4)-1 in 2020 that amended existing rule 206(4)-1 (the
“advertising rule”), which was adopted in 1961 to target advertising practices that the Commission believed
were likely to be misleading, and replaced rule 206(4)-3 (the “solicitation rule”), which was adopted in
1979 to help ensure clients are aware that paid solicitors who refer them to advisers have a conflict of
interest. See Adopting Release; see also 17 CFR § 275.206(4)-1; Advertisements by Investment Advisers,
Release No. IA-121 (Nov. 1, 1961) [26 FR 10548 (Nov. 9, 1961)]; Requirements Governing Payments of
Cash Referral Fees by Investment Advisers, Release No. 688 (July 12, 1979) [44 FR 42126 (Jul 18, 1979)].

investment advisers registered with the Commission. Investment adviser marketing is not
mandatory. However, marketing is an essential part of retaining and attracting clients and may
be conducted easily through the internet and social media. Accordingly, we estimate that all
investment advisers will disseminate at least one communication that meets the rule’s definition
of “advertisement” and therefore be subject to the requirements of the marketing rule.
Because the use of testimonials, endorsements, third-party ratings, and performance
results in advertisements is voluntary, the percentage of investment advisers that would include
these items in an advertisement is uncertain. However, we have made certain estimates of this
data, as discussed below, solely for the purpose of this PRA analysis.
2.

Purpose and Use of the Information Collection

The purpose of this collection of information is to provide advisory clients, prospective
clients, and the Commission with information about an adviser’s marketing practices. We use
the information to support and manage our regulatory, examination, and enforcement programs.
Clients use this information to determine whether to hire an adviser.
This collection of information is found at 17 CFR.206(4)-1 and it is mandatory. The
information collected takes the form of records retained by respondents and disclosures to
respondents’ clients, potential clients, and the Commission.
3.

Consideration Given to Information Technology

The Commission’s use of computer technology in connection with this information
collection, which has been previously approved by OMB, would not change. Investment

advisers are permitted to provide the information required by rule 206(4)-1 electronically. 2
4.

Duplication

No other rule requires investment advisers to retain records or provide clients or
prospective clients with the same information that is required by rule 206(4)-1.
5.

Effect on Small Entities

The Commission reviews all rules periodically, as required by the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.), to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses. The requirements for rule 206(4)-1 are the same for all
investment advisers registered with the Commission, including small entities. It would defeat
the purpose of the rule to exempt small entities from these requirements. For purposes of
Commission rulemaking, an investment adviser is a small business if it has assets under
management of less than $25 million and meets certain other requirements. Advisers with assets
under management of less than $25 million must register with the Commission only if they
advise a registered investment company, are not regulated or required to be regulated as an
investment adviser in the state in which they maintain their principal office and place of
business, or are qualified under rule 203A-2.
6.

Consequences of Not Conducting Collection

Rule 206(4)-1 requires that certain information regarding testimonials, endorsements,
third party ratings, and performance data used in investment adviser advertisements be disclosed
in such advertisements to clients and potential clients; without this information, the client would

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

be unaware of the limitations and potential misleading nature of the information contained in an
advertisement.
7.

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

Not applicable.
8.

Consultation Outside the Agency

The Commission and staff of the Division of Investment Management participate in an
ongoing dialogue with representatives of the investment adviser profession 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 requested public comment on the collection of information
requirements of rule 206(4)-1 before it submitted the request for extension and approval to the
Office of Management and Budget. The Commission received no comments in response to this
request.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

The information collected pursuant to rule 206(4)-1 requires advisers to provide
information to advisory clients and prospective clients. Accordingly, these disclosures would not
be kept confidential. Responses provided to the Commission in the context of its examination
and oversight program concerning the proposed amendments would be kept confidential subject
to the provisions of applicable law.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
4

under this collection of information. The information collection collects basic Personally
Identifiable Information (PII) that may include names, job titles, work addresses, and phone
numbers. However, the agency has determined that the information collection does not
constitute a system of record for purposes of the Privacy Act. Information is not retrieved by a
personal identifier.
12.

Burden of Information Collection
a. General prohibitions

The general prohibitions under the rule do not create a collection of information and are,
therefore, not discussed, with one exception. The rule prohibits advertisements that include a
material statement of fact that the adviser does not have a reasonable basis for believing that it
will be able to substantiate upon demand by the Commission. Advisers would be able to
demonstrate this reasonable belief in a number of ways. 3 For example, they could make a record
contemporaneous with the advertisement demonstrating the basis for their belief. An adviser
might also choose to implement policies and procedures to address how this requirement is met.
This will create a collection of information burden within the meaning of the PRA.
As stated above, we estimate that all investment advisers will disseminate at least one
communication that meets the rule’s definition of “advertisement” and therefore be subject to the
requirements of the marketing rule. We also estimate that such advertisements will include at
least one statement of material fact that will be subject to this general prohibition, for which an
adviser will create and/or maintain a record documenting its reasonable belief that it can
substantiate the statement. This estimate reflects that many types of statements typically

See Adopting Release, supra footnote 1, at section II.B.2.

included in an advertisement (e.g. performance) can likely be substantiated by other records that
an adviser will be required to create and maintain under the rule. 4 Table 1 summarizes the PRA
estimates for the internal and external burdens associated with this requirement.
Table 1: General Prohibitions
Internal Hour
Burden

Wage Rate1

Internal Time Costs

Annual External
Cost Burden

ESTIMATES FOR RULE 204-1 FOR GENERAL PROHIBITIONS
Determine whether
statements in an
advertisement are
material facts

0.5

$372
(compliance manager)

$186

0.5

$440
(compliance attorney)

$220

$75
(general clerk)

$300

$84
(compliance clerk)

$84

Creation and
maintenance of records
substantiating material
facts in any
advertisements
Total burden per adviser
Total number of affected
advisers
Total burden for general
prohibitions

$790

×15,555

× 15,555

93,330 hours

$12,288,450

Notes:
1. See SIFMA Report, infra footnote 9.

b. Testimonials and endorsements in advertisements
Under the marketing rule, investment advisers are prohibited from including in any
advertisement, or providing any compensation for, any testimonial or endorsement unless the
adviser discloses, or the investment adviser reasonably believes that the person giving the
testimonial or endorsement discloses: (i) clearly and prominently: (A) that the testimonial was
given by a current client or investor, or the endorsement was given by a person other than a
current client or investor; (B) that cash or non-cash compensation was provided for the
testimonial or endorsement, if applicable; and (C) a brief statement of any material conflicts of

See id.

interest on the part of the person giving the testimonial or endorsement resulting from the
investment adviser’s relationship with such person; (ii) the material terms of any compensation
arrangement, including a description of the compensation provided or to be provided, directly or
indirectly, to the person for the testimonial or endorsement; and (iii) a description of any material
conflicts of interest on the part of the person giving the testimonial or endorsement resulting
from the investment adviser’s relationship with such person and/or any compensation
arrangement. 5 The rule also imposes an oversight obligation that requires that an investment
adviser have a reasonable basis to believe that the testimonial or endorsement complies with the
marketing rule and have a written agreement with the person giving a testimonial or endorsement
(except for certain affiliated persons of the adviser) that describes the scope of the agreed upon
activities and the terms of the compensation for those activities when making payments for
compensated testimonials and endorsements that are above the de minimis threshold. 6 This
collection of information consists of two components: (i) the requirement to disclose certain
information in connection with the testimonial and endorsement, and (ii) the requirement to
oversee the testimonial or endorsement, including a written agreement with certain persons
giving the testimonial or endorsement.
The marketing rule’s definitions of testimonials and endorsements generally contain three
elements: (i) statements about the client’s/non-client’s or investor’s experience with the
investment adviser or its supervised persons, (ii) statements that directly or indirectly solicit any
prospective client or investor in a private fund for the investment adviser, or (iii) statements that

Rule 206(4)-1(b)(1).

Rule 206(4)-1(b)(2).

refer any prospective client or investor in a private fund to the investment adviser.
We previously estimated that 50 percent of advisers will use a testimonial or endorsement
in their advertisements. 7 However, we are reducing this estimate to 21 percent in light of
amendments to Form ADV that became effective in 2021 that require advisers to provide
additional information regarding their marketing practices. 8 We continue to estimate that each
adviser will use an average of five promoters and use 35 testimonials or endorsements annually,
which includes testimonials and endorsements incorporated into an adviser’s own advertisement
and those communicated by promoters directly.
Under the marketing rule, an adviser that uses a testimonial or endorsement will be
required to disclose certain information at the time it is disseminated. We estimate this burden at
0.20 hours per disclosure and believe that advisers will incur this same burden each year, since
each testimonial and/or endorsement used will likely be different and thus require updated
disclosures. An investment adviser’s in-house compliance managers and compliance attorneys
will likely prepare disclosures, which will likely be included in the advertisement. 9
Some of these third-party testimonials and endorsements will require delivery; thus, we
estimate that 20 percent of the disclosures would be delivered by the U.S. Postal Service, with

See Adopting Release, supra footnote 1, at section IV.B.

See Form ADV, Item 5.L (requiring an adviser to state, among other things, whether any of its
advertisements include performance results, testimonials, endorsements, or third-party ratings).
Specifically, 3,231 advisers indicated that they use either testimonials or endorsements in response to Item
5.L. 3,231 advisers / 15,555 total advisers registered as of September 2023 = approximately 21%. See also
Adopting Release, supra footnote 1, at section II.H.

We estimate the hourly wage rate for compliance manager is $372 and a compliance attorney is $440. The
hourly wages used are from SIFMA’s Management & Professional Earnings in the Securities Industry
2013 (“SIFMA Report”), 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.

the remaining 80 percent delivered electronically or as part of another delivery of documents.
For the 20% of advisers that will use physical mail, we estimate that the average annual costs
associated with printing and mailing this information will be collectively $592 for all disclosure
documents associated with a single registered investment adviser. 10
We estimate the average burden hours each year per adviser to oversee testimonials and
endorsements will be one hour for each promoter, or five hours in total for each adviser that is
subject to this collection of information. 11 While the rule provides flexibility as to how advisers
conduct this oversight, we generally believe that this burden will include contacting solicited
clients, pre-reviewing testimonials or endorsements, or other similar methods. Additionally, we
estimate that each adviser will incur an average burden hour of one hour for each promoter, or
five hours in total, to prepare the required written agreements. In-house compliance managers
and compliance attorneys are likely to provide oversight of the third party testimonials and
endorsements and prepare the written agreements.
Finally, we are no longer including our prior estimate that each adviser that uses a
compensated testimonial or endorsement will incur an initial burden of two hours to modify its
policies and procedures to reflect the adviser’s oversight of testimonials and endorsements, as

We do not have specific data regarding how the cost of printing and mailing the underlying information
would differ, nor are we able to specifically identify how the cost of printing and mailing the underlying
information might be affected by the rule. For these reasons, we estimate $592 per year to collectively
print and mail, upon request, the underlying information associated with hypothetical performance for
purposes of our analysis. We previously estimated this cost at $500 and are adjusting to account for
inflation between December of 2020 and January of 2024. See Adopting Release, supra footnote 1, at
section IV.B; U.S. Bureau of Labor Statistics, CPI Inflation Calculator,
https://www.bls.gov/data/inflation_calculator.htm. In addition, investors may also request to receive the
underlying information electronically. We estimate that there would be negligible external costs associated
with emailing electronic copies of the underlying information.

This estimate is based on the following calculation: 1 hour per each solicitor relationship x 5 promoter
relationships.

this estimate related to initial burdens of the rule only. Table 2 summarizes the PRA estimates
for the internal and external burdens associated with these requirements.
Table 2: Testimonials and Endorsements

Internal Hour
Burden

Wage Rate1

Internal Time Costs

Annual External
Cost Burden

ESTIMATES FOR TESTIMONIALS AND ENDORSEMENTS
Revise and update each
required disclosure

Oversight of compensated
testimonials and
endorsements and
preparation of written
agreements

Total burden per adviser

0.1 hours
× 35 disclosures

$372
(compliance manager)

$1,302

0.1 hours
× 35 disclosures

$440
(compliance attorney)

$1,540

1 hours
× 5 promoters

$372
(compliance manager)

$1,860

1 hours
× 5 promoters

$440
(compliance attorney)

$2,200

17 hours

Total number of affected
advisers

× 3,231

Total burden for
testimonials and
endorsements

54,927 hours

$6,902
× 3,231

$592
× 3,231 (× 20% of
advisers that will use physical mail )

$22,300,362

$382,550

Notes:
1. See SIFMA Report, supra footnote 9.

c. Third-party ratings in advertisements
As referenced above, rule 206(4)-1(c) prohibits an investment adviser from including a
third-party rating in an advertisement unless certain conditions are met, including that the adviser
must clearly and prominently disclose (or reasonably believe that the third-party rating clearly
and prominently discloses): (i) the date on which the rating was given and the period of time
upon which the rating was based, (ii) the identity of the third-party that created and tabulated the
rating, and (iii) if applicable, that cash or non-cash compensation has been provided directly or
indirectly by the adviser in connection with obtaining or using the third-party rating.
We previously estimated that approximately 50 percent of advisers will use third-party
10

ratings in advertisements, but we are reducing this estimate to 15 percent. 12 We continue to
believe that these advisers will typically use one third-party rating on an annual basis. We are no
longer including our prior estimate that advisers will incur an initial internal burden of 3.0 hours
to draft and finalize the required disclosures for third-party ratings, as this estimate related to
initial burdens of the rule only. Because many of these ratings or rankings are done yearly (e.g.,
2018 Top Wealth Adviser), we continue to estimate that an adviser that continues to use a thirdparty rating will incur ongoing, annual costs of 0.75 burden hours to draft the third-party rating
disclosure updates. 13 Table 3 summarizes the PRA estimates for the internal and external
burdens associated with these requirements.
Table 3: Third-Party Ratings
Internal Hour
Burden

Wage Rate1

Internal Time Costs

Annual External
Cost Burden

ESTIMATES FOR THIRD PARTY RATINGS
Update required
disclosures

0.375 hours
0.375 hours

$372
(compliance
manager)

$440
(compliance attorney)

$139.50
$165

Total burden per adviser

.75 hours

$304.50

Total number of affected
advisers

× 2,373

Total burden for thirdparty ratings

1,780 hours

$722,579

Notes:
1. See SIFMA Report, supra footnote 9.

See supra footnote 8 and accompanying text (explaining that we have revised our estimates in light of
additional information that advisers must now report on Form ADV). Specifically, 2,373 advisers indicated
that they include third-party ratings in their advertisements in response to Item 5.L of Form ADV. 2,373
advisers / 15,555 total advisers registered as of September 2023 = approximately 15%. See also Adopting
Release, supra footnote 1, at section IV.B.

We believe that this burden will also be split evenly between an adviser’s compliance attorney and
compliance manager.

d. Performance Advertising
The marketing rule imposes certain conditions on the presentation of performance results
in advertisements, as discussed above. Below we discuss the conditions that create “collection of
information” requirements within the meaning of the PRA. First, the rule prohibits any
presentation of gross performance unless the advertisement also presents net performance that
meets certain criteria. 14 Second, the rule prohibits any presentation of performance results of any
portfolio or any composite aggregation of related portfolios, other than any private fund, unless
the advertisement includes performance results of the same portfolio or composite aggregation
for one-, five-, and ten-year periods, except that if the relevant portfolio did not exist for a
particular prescribed period, then the life of the portfolio must be substituted for that period. 15
Third, the rule prohibits an advertisement from including related performance, unless it includes
all related portfolios, subject to a conditional exception. 16 Fourth, the rule prohibits an
advertisement from including extracted performance, unless the advertisement provides, or offers
to provide promptly, the performance results of the total portfolio from which the performance
was extracted. 17 Fifth, the rule also prohibits an advertisement from including predecessor
performance, unless certain conditions are satisfied. 18 Finally, the rule requires that an adviser
that advertises hypothetical performance: (i) adopts and implements policies and procedures
reasonably designed to ensure that the hypothetical performance is relevant to the likely financial

Rule 206(4)-1(d).

Id. at (d)(2).

Id. at (d)(4).

Id. at (d)(5).

Id. at (d)(7).

situation and investment objectives of the intended audience of the advertisement; (ii) provide
reasonably sufficient information to enable the intended audience to understand the criteria used
and assumptions made in calculating such hypothetical performance; and (iii) provide (or, if the
intended audience is an investor in a private fund provide, or offers to provide promptly)
reasonably sufficient information to enable the intended audience to understand the risks and
limitations of using such hypothetical performance in making investment decisions
We previously estimated that 95 percent, or 13,038 advisers, provide performance
information in their advertisements, but we are reducing this estimate to 40 percent. 19 The
estimated numbers of burden hours and costs regarding performance results in advertisements
may vary depending on, among other things, the complexity of the calculations, the type of
performance and the risks that investors may not understand the limitations of the information,
and whether preparation of the disclosures is performed by internal staff or outside counsel.
i. PRESENTATION OF NET PERFORMANCE IN ADVERTISEMENTS
We are no longer including our prior estimate that an investment adviser that elects to
present gross performance in an advertisement will incur an initial burden of 15 hours in
preparing net performance for each portfolio, including the time spent determining and deducting
the relevant fees and expenses to apply in calculating the net performance and then actually
running the calculations, as this estimate related to initial burdens of the rule only. Based on
staff experience, we estimate that the average investment adviser will present performance for 3
19

See supra note 8 and accompanying text (explaining that we have revised our estimates in light of
additional information that advisers must now report on Form ADV). Specifically, 6,186 advisers indicated
that they include performance results in their advertisements in response to Item 5.L of Form ADV. 6,186
advisers / 15,555 total advisers registered as of September 2023 = approximately 40%. See also Adopting
Release, supra footnote 1, at section IV.B.

portfolios over the course of a year, excluding any related portfolios that an adviser may need to
include for purposes of presenting related performance. 20 As noted above, we estimate that 40
percent, or 6,186 advisers, provide performance information in their advertisements and thus will
be subject to this collection of information burden.
We expect that the calculation of net performance may be modified every time an adviser
chooses to update the advertised performance. We estimate that after initially preparing net
performance for each portfolio, investment advisers will incur a burden of 3 hours to update the
net performance for each subsequent presentation. For purposes of this analysis, we estimate
that advisers will update the relevant performance of each portfolio 3.5 times each year. 21
ii. TIME PERIOD REQUIREMENT IN ADVERTISEMENTS
We are no longer including our prior estimate that an investment adviser that elects to
present performance results in an advertisement will incur an initial burden of 35 hours in
preparing performance results of the same portfolio for one-, five-, and ten-year periods
(excluding private funds), taking into account that these results must be prepared on a net basis
(and may also be prepared and presented on a gross basis), as this estimate related to initial
burdens of the rule only. We estimate that after initially preparing one-, five-, and ten-year
performance for each portfolio, investment advisers will incur a burden of 8 hours to update the
performance for these time periods for each subsequent presentation. For purposes of this

The burden associated with calculating net performance in connection with presenting related performance
is discussed below.

We believe that this burden will be split evenly between an adviser’s compliance attorney and compliance
manager (3 hours x 3.5 times per year = 10.5 hours; 10.5 hours / 2 = 5.25 hours each).

analysis, we estimate that advisers will update the relevant performance 3.5 times each year. 22
iii. RELATED PERFORMANCE
We are no longer including our prior estimate that an investment adviser that elects to
present related performance in an advertisement will incur an initial burden of 30 hours, with
respect to each advertised portfolio or composite aggregation of portfolios, in preparing the
relevant performance of all related portfolios, as this estimate related to initial burdens of the rule
only.
We estimate that 40 percent of advisers (or 6,186 advisers) will have other portfolios with
substantially similar investment policies, objectives, and strategies as those offered in the
advertisement and choose to include related performance. 23 We estimate that after initially
preparing related performance for each portfolio or composite aggregation of portfolios,
investment advisers will incur a burden of 5 hours to update the performance for each subsequent
presentation. We continue to estimate that advisers will update the relevant related performance
3.5 times each year. 24
iv. EXTRACTED PERFORMANCE
We are no longer including our prior estimate that an investment adviser that elects to
present extracted performance in an advertisement will incur an initial burden of 10 hours in

We believe that this burden will be split evenly between an adviser’s compliance attorney and compliance
manager (8 hours x 3.5 times per year = 28 hours; 28 hours / 2 = 14 hours each).

See supra footnote 8 and accompanying text (explaining that we have revised our estimates in light of
additional information that advisers must now report on Form ADV). We assume that all advisers that
indicated that they include performance results, see supra footnote 19 and accompanying text, include
related performance.

We believe that this burden will be split evenly between an adviser’s compliance attorney and compliance
manager (5 hours x 3.5 times per year = 17.5 hours; 17.5 hours / 2 = 8.75 hours each).

preparing the performance results of the total portfolio from which the performance is extracted
in order to provide or offer to provide such performance results to investors, as this estimate
related to initial burdens of the rule only. For purposes of this analysis, we assume that 40
percent of advisers will include extracted performance. 25 We estimate that after initially
preparing the performance of the total portfolio from which extracted performance is extracted,
investment advisers will incur a burden of 2 hours to update the performance for each subsequent
presentation. For purposes of this analysis, we estimate that advisers will update the relevant
total portfolio performance 3.5 times each year. 26 We also estimate that registered investment
advisers may incur external costs in connection with the requirement to provide performance
results of a total portfolio from which extracted hypothetical performance is extracted. We
estimate that the average annual costs associated with printing and mailing this information upon
request will be collectively $592 for all documents associated with a single registered investment
adviser.
v. HYPOTHETICAL PERFORMANCE
We are no longing including our prior estimate that an investment adviser that elects to
present hypothetical performance in an advertisement will incur an initial burden of 7 hours in
preparing and adopting policies and procedures reasonably designed to ensure that the
hypothetical performance is relevant to the likely financial situation and investment objectives of
the intended audience of the advertisement, as this estimate related to initial burdens of the rule
25

We believe that this burden will be split evenly between an adviser’s compliance attorney and compliance
manager (2 hours x 3.5 times per year = 7 hours; 7 hours / 2 = 3.5 hours each).

only. For purposes of this analysis, we estimate that 21 percent of advisers will include
hypothetical performance in advertisements. 27
We continue to estimate that advisers that use hypothetical performance will disseminate
advertisements containing hypothetical performance 20 times each year, including in certain oneon-one communications that meet the rule’s definition of advertisement. We estimate that after
adopting appropriate policies and procedures, an adviser will incur a burden of 0.25 hours to
categorize investors according to their likely financial situation and investment objectives
pursuant to the adviser’s policies and procedures. 28
Additionally, we are no longer including our prior estimate that an investment adviser
that elects to present hypothetical performance in an advertisement will incur an initial burden of
20 hours in preparing the information sufficient to understand the criteria used and assumptions
made in calculating, as well as risks and limitations in using, the hypothetical performance, in
order to provide such information, which may in certain circumstances be upon request, as this
estimate related to initial burdens of the rule only. We estimate that after initially preparing the
underlying information, investment advisers will incur a burden of 3 hours to update the
information for each subsequent presentation. For purposes of this analysis, we estimate that
advisers will update their hypothetical performance, and thus the underlying information, 3.5

See supra footnote 8 and accompanying text (explaining that we have revised our estimates in light of
additional information that advisers must now report on Form ADV). Specifically, 3,260 advisers indicated
that they include hypothetical performance in their advertisements in response to Item 5.L of Form ADV.
3,260 advisers / 15,555 total advisers registered as of September 2023 = approximately 21%. See also
Adopting Release, supra footnote 1, at section IV.B.

We believe that an adviser’s chief compliance officer will complete this task (20 presentations per year x
0.25 hours each = 5 hours per year).

times each year. 29
We estimate that registered investment advisers may incur external costs in connection
with the requirement to provide this underlying information upon the request of an investor or
prospective investor in a private fund. We estimate that the average annual costs associated with
printing and mailing this underlying information upon request will be collectively $592 for all
documents associated with a single registered investment adviser. 30
vi. PREDECESSOR PERFORMANCE
The marketing rule imposes conditions on an adviser’s use of predecessor performance.
We are no longer including our prior estimate that an investment adviser that elects to present
predecessor performance in an advertisement will incur an initial burden of 10 hours in preparing
the relevant performance results and associated disclosures, as this estimate related to initial
burdens of the rule only.
We previously estimated that 2% of advisers (or 275 advisers) will include predecessor
performance in an advertisement, but we are increasing this estimate to 9%. 31 We estimate that
after initially preparing predecessor performance, investment advisers will incur a burden of 1
hour to update the relevant disclosures and performance information for each subsequent
presentation. For purposes of this analysis, we estimate that advisers will update the relevant

We believe that this burden will be split evenly between an adviser’s compliance attorney and compliance
manager (3 hours x 3.5 times per year = 10.5 hours; 10.5 hours / 2 = 5.25 hours each).

See supra footnote 10 for a discussion of estimated mailing costs.

See supra footnote 8 and accompanying text (explaining that we have revised our estimates in light of
additional information that advisers must now report on Form ADV). Specifically, 1,407 advisers indicated
that they include predecessor performance in their advertisements in response to Item 5.L of Form ADV.
1,407 advisers / 15,555 total advisers registered as of September 2023 = approximately 9%. See also
Adopting Release, supra footnote 1, at section IV.B.

disclosures 3.5 times each year. 32 Table 4 summarizes the PRA estimates for the internal and
external burdens associated with these requirements.
Table 4: Performance
Internal Hour
Burden

Wage Rate1

Internal Time Costs

Annual External
Cost Burden

ESTIMATES FOR NET PERFORMANCE
5.25

$372
(compliance
manager)

$1,953

5.25

$440
(compliance
attorney)

$2,310

Updating
performance

Total burden per
adviser

10.5

$4,263

Total number of
affected advisers

× 6,186

Sub-total burden

64,953 hours

$26,370,918
ESTIMATES FOR PERFORMANCE TIME PERIOD REQUIREMENT

$372
(compliance
manager)

$5,208

$440
(compliance
attorney)

$6,160

Updating
performance

Total burden per
adviser

$11,368

Total number of
affected advisers

× 6,186

Sub-total burden

173,208 hours

$70,322,448
ESTIMATES FOR RELATED PERFORMANCE

Updating
performance for all
related portfolios

8.75

$372
(compliance
manager)

8.75

$440
(compliance
attorney)

$3,255

$3,850

Total burden per
adviser

17.5

$7,105

Total number of
affected advisers

× 6,186

Sub-total burden

108,255 hours

$43,951,530
ESTIMATES FOR EXTRACTED PERFORMANCE

Updating
performance

3.5

$372
(compliance
manager)

$1,302

3.5

$440
(compliance

$1,540

We believe that this burden will be split evenly between an adviser’s compliance attorney and compliance
manager (1 hour x 3.5 times per year = 3.5 hours; 3.5 hours / 2 = 1.75 hours each).

attorney)
Total burden per
adviser

$2,842

$592

Total number of
affected advisers

× 6,186

Sub-total burden

43,302 hours

$17,580,612

$3,662,112

ESTIMATES FOR HYPOTHETICAL PERFORMANCE
Updating policies
and procedures
Updating
disclosures and
underlying
information

$638
(chief
compliance
officer)

$3,190

5.25

$372
(compliance
manager)

$1,953

5.25

$440
(compliance
attorney)

$2,310

Total burden per
adviser

15.5

$7,453

$592

Total number of
affected advisers

× 3,260

x 3,260

Sub-total burden

50,530 hours

$24,296,780

$1,929,920

ESTIMATES FOR PREDECESSOR PERFORMANCE
Updating
disclosures and
performance

1.75

$372
(compliance
manager)

$651

1.75

$440
(compliance
attorney)

$770

Total burden per
adviser

3.5

$1,421

Total number of
affected advisers

× 1,407

Sub-total burden

4,924.5 hours

$1,999,347

TOTAL ESTIMATED TIME BURDEN FOR PERFORMANCE REQUIREMENTS
445,173 hours

$184,521,635

Notes:
1. See SIFMA Report, supra footnote 9.

$5,592,032

e. Total Hour Burden Associated with Rule 206(4)-1
Accordingly, we estimate the total annual hour burden for investment advisers registered
or required to be registered with the Commission under proposed rule 206(4)-1 to prepare
testimonials and endorsements, third-party ratings, and performance results disclosures will be
595,210 hours, at a time cost of $219,833,026. The total external burden costs would be
$5,974,582. The following chart summarizes the various components of the total annual burden
for investment advisers.
Table 5: Totals

13.

Internal
hour burden

Internal
burden time cost

External
cost burden

General Prohibitions

93,330 hours

$12,288,450

Testimonials and Endorsements

54,927 hours

$22,300,362

Third-Party Ratings

1,780 hours

$722,579

Performance

445,173 hours

$184,521,635

$5,592,032

Total annual burden

595,210 hours

$219,833,026

$5,974,582

$382,550
-

Cost to Respondents

Cost burden is the cost of goods and services purchased to comply with rule 206(4)-1,
such as legal and accounting services. The cost burden does not include the hour burden
discussed in Item 12 above. Estimates are based on the Commission’s examination and oversight
experience. As summarized in Table 5 above, we estimate the total external cost per all advisers

per year to be $5,974,582, with the total per adviser per year to be $384. 33
14.

Cost to the Federal Government

Rule 206(4)-1 does not impose any costs on the Federal government because there are no
separate filing requirements with the Commission.
15.

Changes in Burden

The estimated hourly burden and external cost associated with rule 206(4)-1 has changed
as follows:
Table 6: Comparison of Current and Revised Burden Hours and External Cost
Annual Time Burden (hours)

Rule 206(4)-1

External Cost Burden (dollars)

Currently Approved

Revised Estimate

Change

Currently Approved

Revised Estimate

Change

1,414,291

595,210

- 819,081

$4,460,200

$5,974,582

+$1,514,382

As discussed above in Item 12, these changes reflect, among other things, differences in
the number of respondents—including newly available information about the number of advisers
who include performance results, testimonials, endorsements, or third-party ratings in their
advertisements—and the completion of initial burdens to comply with the rule.
16.

Information Collection Planned for Statistical Purposes

Not applicable.

This estimate is based upon the following calculations: $5,974,582 (total annual external cost burden) /
15,555 (number of advisers) = $384.

17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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