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RE: [FundLaw] SEC Guidance on Wrap Fee Programs

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  • Mimi Ness
    John: Help! I can t seem to find this information request following your instructions and using the link you ve provided. what am I doing wrong??!! Thanks
    Message 1 of 2 , Jun 1, 2004
      John: Help! I can't seem to find this information request following your instructions and using the link you've provided. what am I doing wrong??!! Thanks for your help and your updates - they're invaluable!


      MarieElena V. Ness
      Compliance Director
      ADVISORport, Inc., a PFPC Company
      620 West Germantown Pike, Suite 270
      Plymouth Meeting, PA 19462
      610-834-8910 (phone) / 610-834-8815 (fax)

      Response: Thanks for the kind words. I tried the suggested search a few times, and it seems to work only erratically. However, you can always retrieve the specific Federal Register pages, 23548 and 23549, at


      John Baker

      -----Original Message-----
      From: Baker, John [mailto:JMB@...]
      Sent: Wednesday, May 26, 2004 11:42 AM
      To: fundlaw@yahoogroups.com
      Subject: [FundLaw] SEC Guidance on Wrap Fee Programs

      The Securities and Exchange Commission, like other agencies, regularly publishes information and solicits comments on its information collection requirements. These notices can have unexpected nuggets, as well as revealing the SEC's expectations, which generally are unrealistically low, as to the burdens imposed by its rules. A recent example is the SEC's routine comment request on Rule 3a-4 under the Investment Company Act of 1940. 69 Fed. Reg. 23548 (Apr. 21, 2004). Rule 3a-4 provides a nonexclusive safe harbor from the definition of "investment company" for certain investment advisory programs, typically referred to as "wrap fee programs" or "minifunds."

      Rule 3a-4 imposes various requirements for obtaining information from the client, conducting an annual interview with the client, and providing information to the client on a quarterly basis. How much time should be spent on this process? Not very much, apparently. The SEC staff estimates that each program sponsor spends approximately one hour in preparing, conducting and/or reviewing interviews for each new client; 30 minutes annually preparing, conducting and/or reviewing annual interviews for each continuing client; and one hour preparing and mailing quarterly account activity statements, including the notice to update information to each client. Bear in mind that this includes clerical time.

      There has been no great drop-off in wrap fee program activity since the SEC last solicited information on Rule 3a-4 in 2001, yet the SEC's calculation of burden hours dropped from 14,149,412.5 hours to 6,512,502.5 hours. The SEC explains that the decrease results from a change in the method of computation of the amount of assets managed under investment advisory programs. Considering that the number is so variable as a result of changes in the method of computation, one wonders whether calculation to the tenth of an hour is really necessary. In any case, the calculation only reflects 56 large program sponsors and ignores the many smaller investment advisers that structure their advisory activities to comply with the Rule 3a-4 safe harbor.

      Comments on the information request are due 60 days after publication; the notice appeared in the April 29 Federal Register, so that would make comments due June 28. Usually there are no comments on such notices. The SEC notice is available from the Federal Register website (search for "page 23548"), which is at


      John M. Baker <JMB@...>
      Stradley, Ronon, Stevens & Young, LLP http://www.stradley.com
      1220 19th Street, N.W., Suite 600, Washington, DC 20036
      (202) 419-8413 Fax (202) 822-0140
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw


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