Submission for OMB Review; Comment Request; Extension: Rule 206(4)-1

Upon Written Request, Copies Available From Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736.

Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the “Commission”) has submitted to the Office of Management and Budget a request for extension of the previously approved collection of information discussed below.

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. 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 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.

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.

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. 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 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. Table 1 summarizes the PRA estimates for the internal and external burdens associated with this requirement.