Document ID: SEC-2022-0835-0001
Agency: sec
Document Type: Proposed Rule
Title: Certain Information Providers Acting as Investment Advisers
Posted Date: 2022-06-22T04:00Z

[Federal Register Volume 87, Number 119 (Wednesday, June 22, 2022)]
[Proposed Rules]
[Pages 37254-37262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13307]

[[Page 37254]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 270 and 275

[Release Nos. IA-6050; IC-34618; File No. S7-18-22]
RIN 3235-AM95

Request for Comment on Certain Information Providers Acting as 
Investment Advisers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule; equest for comment.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or 
``SEC'') is seeking public comment on certain information providers 
whose activities, in whole or in part, may cause them to meet the 
definition of ``investment adviser'' under the Investment Advisers Act 
of 1940 (``Advisers Act'' or ``Act'').

DATES: Comments should be received on or before August 16, 2022.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include 
File No. S7-18-22 on the subject line.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-18-22. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method of submission. The Commission will post all 
comments on the Commission's website (http://www.sec.gov). Comments are 
also available for website viewing and printing in the Commission's 
Public Reference Room, 100 F Street NE, Washington, DC 20549, on 
official business days between the hours of 10 a.m. and 3 p.m. 
Operating conditions may limit access to the Commission's public 
reference room. All comments received will be posted without change. 
Persons submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make publicly available.
    Studies, memoranda, or other substantive items may be added by the 
Commission or staff to the comment file during this request for 
comment. A notification of the inclusion in the comment file of any 
such materials will be made available on the Commission's website. To 
ensure direct electronic receipt of such notifications, sign up through 
the ``Stay Connected'' option at www.sec.gov to receive notifications 
by email.

FOR FURTHER INFORMATION CONTACT: Christopher Chase, Juliet Han, Senior 
Counsels, or Melissa Roverts Harke, Assistant Director, Investment 
Adviser Regulation Office, or Matthew Cook, Senior Counsel, Chief 
Counsel's Office, Division of Investment Management, at (202) 551-6787 
or [email protected], Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is seeking public comment on 
certain information providers whose activities, in whole or in part, 
may cause them to meet the definition of ``investment adviser'' under 
the Act.

Table of Contents

I. Introduction
    A. Index Providers
    B. Model Portfolio Providers
    C. Pricing Services
II. Investment Adviser Status Under the Advisers Act
III. Implications of Investment Adviser Status
    A. Registration Under, and Applicability of, the Advisers Act
    1. Advisers Prohibited From Registering Under the Advisers Act
    2. Requirements for SEC-Registered Advisers
    B. Related Investment Company Act Matters

I. Introduction

    The role of index providers, model portfolio providers, and pricing 
services (``information providers'' or ``providers'') has grown in size 
and scope in recent years, significantly changing the face of the asset 
management industry. The development and nature of these services may 
raise investment adviser status issues under the Advisers Act.\1\ 
Investment adviser status, in turn, has regulatory implications, 
including questions relating to registration under the Advisers Act. In 
addition, the development and nature of these services may raise 
questions under the Investment Company Act of 1940 (``Investment 
Company Act''), including whether an information provider is acting as 
an ``investment adviser'' of an investment company under the Investment 
Company Act.\2\ These providers' operations also raise potential 
concerns about investor protection and market risk, including, for 
example, the potential for front-running of trades where the providers 
and their personnel have advance knowledge of changes to the 
information they generate and potential conflicts of interest where the 
providers or their personnel hold investments they value or that are 
constituents of their indexes or models. Some individual information 
providers of the types we describe below have registered with the 
Commission as investment advisers (sometimes because of other business 
in which they engage), and others have not.\3\ Some may be prohibited 
(absent exemptive relief) from Commission registration because, for 
example, they lack regulatory assets under management. Depending on the 
facts and circumstances, however, particular information providers may 
have an ability, perhaps through operations of sufficient size and 
scope, to affect national markets or otherwise have a ``national 
presence.'' Accordingly, we are seeking comment regarding information 
providers to facilitate consideration of whether regulatory action is 
necessary and appropriate to further the Commission's mission.
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, all references to 
statutory sections are to 15 U.S.C. 80b of the United States Code, 
at which the Advisers Act is codified, and all references to rules 
under the Advisers Act are to title 17, part 275 of the Code of 
Federal Regulations [17 CFR 275].
    \2\ 15 U.S.C. 80a-2(20).
    \3\ For example, at least one pricing service has registered as 
an investment adviser with the Commission because it has related 
person advisers; another has registered because of its ability to 
affect national markets (despite a lack of assets under management). 
See, e.g., infra note 42 (discussing IDC application and order).
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A. Index Providers

    Index providers compile, create the methodology for, sponsor, 
administer, and/or license market indexes. They typically determine the 
particular ``market'' (which may be a sector or other group of 
securities) that the index measures, the index constituents that 
measure that market, and the weightings that each constituent receives. 
Once the index is designed and its methodology is created, index 
providers determine the index's level (or measurement) pursuant to that 
methodology. These activities leave room for significant discretion--
for example, an index provider typically has the ability to make 
changes to the index by adding or dropping particular constituents 
(i.e., index reconstitution) or modifying their

[[Page 37255]]

weighting within the index (i.e., index rebalancing),\4\ in some cases 
without publicly disclosing their index methodologies or rules.
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    \4\ See Paul G. Mahoney & Adriana Z. Robertson, Advisers by 
Another Name, University of Virginia School of Law (Jan. 2021), at 
28, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3767087 (``[C]ompiling an index . . . is an 
inherently discretionary exercise.'').
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    The number and variety of indexes have grown over time, with 
millions of indexes in the global market.\5\ Some are broad-based and 
widely used, while others are more narrowly focused, including 
specialized indexes that are designed to be tracked by a particular 
user.\6\ Specialized indexes can be composed of constituents on the 
basis of a variety of considerations, including ``factors'' that may be 
seen to cause certain types of securities to outperform or underperform 
the market as a whole. Index providers that offer specialized indexes 
might allow a user to ``specify the customization criteria'' on which a 
provider can create an index; \7\ offer ``flexibility'' with respect to 
the components of the index; \8\ and can be ``built to the exact 
specifications of . . . clients, in any major asset class.'' \9\
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    \5\ See, e.g., Index Industry Association, Fourth Annual IIA 
Benchmark Survey Reveals Significant Growth in ESG Amid Continued 
Multi-Asset Innovation & Heightened Competition (Oct. 28, 2020), 
available at https://www.businesswire.com/news/home/20201028005255/en/Index-Industry%E2%80%99s-Fourth-Annual-Benchmark-Survey-Reveals-Significant-Growth-in-ESG-Amid-Continued-Multi-Asset-Innovation-Heightened-Competition (noting that in 2020, the overall number of 
indexes climbed by approximately three percent to 3.05 million).
    \6\ For purposes of this Request for Comment, ``specialized'' 
indexes may be customized or bespoke indexes. ``Customized'' indexes 
are those where an existing index is modified to suit the needs of a 
particular user, e.g., removing from a securities index all 
securities issued by companies engaged in a particular trade or 
business, and ``bespoke'' indexes are those where an index provider 
constructs an index at the request or direction of a particular 
user.
    \7\ Customized Indexes for Specific Needs, MSCI, available at 
https://www.msci.com/custom-indexes.
    \8\ FTSE Russell Product Guide Oct 2019, FTSE Russell (2019), at 
15, available at https://content.ftserussell.com/sites/default/files/support_document/FTSE%20Russell%20Product%20Guide%20Oct%202019%20Single.pdf.
    \9\ Bespoke and Custom Index Service, Markit, available at 
https://products.markit.com/indices/products/BespokeIndices.asp?showLevel=8.
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    Index providers are compensated by licensing indexes to users for 
the creation of investment products, reporting, and internal use. 
Generally, index providers license information related to their indexes 
to two main groups--those that seek to use the index as a benchmark, 
such as active managers, and those that seek to track the index, such 
as index funds. Although there are many indexes available and no formal 
barriers to becoming an index provider, three index providers account 
for over two-thirds of the market for indexes, totaling approximately 
$5.0 billion in revenue in 2021.\10\
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    \10\ Sonya Swink, Index Providers Take Record $5bn in Revenue in 
2021, Financial Times (May 24, 2022), available at https://www.ft.com/content/595c3c18-7c13-4e33-9a68-f82f558b7ad6.
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    While indexes have historically been associated with passive 
investing, index providers, particularly those that design specialized 
indexes, may be making active decisions in designing or administering 
the index.\11\ In some cases, these decisions may be personalized for a 
particular user, for example designing or modifying an index for the 
specific purpose of licensing its use by particular investors and/or 
their advisers to be employed as part of their investment strategy. 
Whether or not an index is specialized, the index provider's inclusion 
or exclusion of a particular security in an index drives advisers with 
clients tracking that index to purchase or sell securities in response.
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    \11\ Some scholars have recently made this argument. See Adriana 
Z. Robertson, Passive in Name Only: Delegated Management and 
``Index'' Investing, 36 Yale J. on Reg. 795, 798 (2019) (``Rather 
than being passive in any meaningful sense, index investing simply 
represents a form of delegated management. . . . Not only are these 
indices managed portfolios in the strictly financial sense, by their 
construction they often also imply a substantial amount of delegated 
decisionmaking authority.''); see also Jill Fisch, Assaf Hamdani & 
Steven Davidoff Solomon, The New Titans of Wall Street: A 
Theoretical Framework for Passive Investors, 18 U. Pa. L. Rev. 17, 
21 (2019) (``The construction and management of [an] index is not 
passive but entails a form of managed investing, if not by the 
passive funds themselves, then by the index providers.''). Indexes 
may be actively rebalanced or reconstituted on a predetermined 
schedule (e.g., semiannually). Constitution also may change on an ad 
hoc basis as a result of mergers, acquisitions, or bankruptcies.
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B. Model Portfolio Providers

    A model portfolio generally consists of a diversified group of 
assets (often mutual funds or exchange-traded funds (``ETFs'')) 
designed to achieve a particular expected return with exposure to 
corresponding risks. As with indexes, a model portfolio may be 
rebalanced or have constituent changes over time.\12\ These models 
provide a convenient way to allocate and diversify investments through 
a single, professionally managed portfolio. For example, an investment 
adviser can outsource portfolio management to a model portfolio 
provider and select among several models offering the adviser's clients 
different risk targets. A stable or more conservative portfolio 
generally would invest in mutual funds and ETFs that provide a client 
with low risk exposure and low return volatility, while an aggressive 
portfolio generally would invest in mutual funds and ETFs that provide 
the client with higher-risk exposure and higher return volatility.
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    \12\ A model portfolio may be physically or synthetically 
rebalanced (e.g., to reduce costs during a volatile market, 
derivatives that have the effect of rebalancing may be used in lieu 
of trading in a defined benefit plan). Model portfolios are distinct 
from portfolio allocation models, which can be educational tools 
that investors use to obtain a sense of which asset classes (as 
opposed to which specific securities) are appropriate for the 
investor to allocate its assets to (e.g., 60% in equities, 40% in 
fixed income).
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    Model portfolio providers, sometimes referred to as ``model 
originators,'' include broker-dealers, asset managers, third-party 
strategists, asset allocators, and advisers.\13\ They design allocation 
models, may update or rebalance them over time, provide various degrees 
of customization, and may offer this information on a discretionary or 
non-discretionary basis. While target allocation models that pursue 
defined outcomes or investment strategies (e.g., capital preservation, 
income) have been most common in the marketplace, there is a growing 
demand for specialized models that focus on a particular industry or 
strategy--for example, models that focus on sustainable or ``ESG'' 
(environmental, social, and governance) investments.\14\
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    \13\ This discussion focuses on third-party model portfolio 
providers that sell models to wealth managers that apply them to 
client portfolios (or make available selected models to clients) 
versus internal firm models. This discussion includes as third-party 
model portfolio providers those persons who make available their own 
portfolios so that others can copy or license those portfolios in 
exchange for compensation. Portfolios may be made available through 
the provider's online platform.
    \14\ Model Portfolios See Greater Usage Among Advisory Firms, 
Ted Godbout, National Association of Plan Advisors (Feb. 23, 2021), 
available at https://www.napa-net.org/news-info/daily-news/model-portfolios-see-greater-usage-among-advisory-firms.
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    Model portfolio providers may consider the characteristics and 
investment goals of a general client type, such as whether the investor 
is focused on retirement or short-term financial management, or may 
engage in a more detailed, customized analysis when crafting a model 
portfolio through, for example, the use of direct indexing 
strategies.\15\
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    \15\ Direct indexing is a personalized indexing strategy in 
which, rather than invest in one or more index ETFs, an investor 
buys some or all of an index's constituent securities (i.e., a 
representative amount) to mirror its characteristics and then 
periodically adjusts these holdings to continue to closely replicate 
the index. With this investment strategy, an investor may achieve 
the diversification benefits of an ETF as well as the flexibilities 
that come from owning individual securities, such as tax benefits 
(e.g., harvesting individual security tax losses and capital gains) 
and customization (e.g., overweighting or underweighting a security 
or sector allocation). The availability of fractional share 
investing and commission-free trading has made direct indexing an 
increasingly popular strategy for certain retail investors. See 
Rebecca Baldridge and Benjamin Curry, Beat Funds at Their Own Game 
with Direct Indexing, Forbes (Apr. 15, 2021), available at https://www.forbes.com/advisor/investing/direct-indexing/; Steve Johnson, 
Direct Indexing Looks Set to Disrupt the Retail ETF Market, 
Financial Times (Feb. 10, 2021), available at https://www.ft.com/content/3b35120a-dd92-48b0-8b6f-e26f116473e0; Rebecca Lake, What is 
Direct Indexing?, U.S. News & World Report (Sept. 20, 2019), 
available at https://money.usnews.com/investing/investing-101/articles/what-is-direct-indexing.

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    Model portfolio providers generally are compensated by fees on 
securities bought, sold, and held in the model (e.g., an asset manager 
that builds a model using proprietary products), but some providers 
charge a fee for the use of the model portfolio separate from the 
underlying product fees or receive commissions or other transaction-
based compensation.\16\
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    \16\ The additional fee compensates the model provider for its 
asset allocation advice. 2020 Model Portfolio Landscape, Morningstar 
Manager Research (Aug. 2020), at 3. Any person receiving 
transaction-based compensation (such as commissions) in exchange for 
providing a model portfolio or other information service must 
determine whether it is subject to statutory or regulatory 
requirements under Federal law, including the requirement to 
register as a broker-dealer pursuant to section 15(a) of the 
Securities Exchange Act of 1934. See 15 U.S.C. 78o(a).
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    Investment advisers' use of a third party's model portfolios may 
raise concerns with respect to clients' understanding of the fees they 
are paying, the services being performed by each party (i.e., the 
client-facing adviser and the model portfolio provider), and their 
respective conflicts (or potential conflicts) of interest.\17\ For 
example, clients may be unsure which services are being performed by a 
model portfolio provider and which are being performed by the adviser, 
as well as by whom they are owed a fiduciary duty. This uncertainty may 
be increased where, for example, the client-facing adviser seeks to 
disclaim or limit its fiduciary duty or any other duty when 
implementing a model provided by a third-party model portfolio 
provider.\18\ In addition, an adviser may invest according to a model 
customized by the provider for the adviser, including where (for 
example) the model portfolio provider may adjust the model based on 
input from the adviser.
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    \17\ There may be a similar lack of understanding among 
investors in pooled investment vehicles, including registered 
investment companies, that rely on third-party models.
    \18\ The Commission has stated that ``an adviser's federal 
fiduciary duty may not be waived, though it will apply in a manner 
that reflects the agreed-upon scope of the relationship.'' 
Commission Interpretation Regarding Standard of Conduct for 
Investment Advisers, Investment Advisers Act Release No. 5248 (June 
5, 2019) [84 FR 33669, 33672 (Jul. 12, 2019)].
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C. Pricing Services

    Pricing services provide prices, valuations, and additional data 
about a particular investment (e.g., a security, a derivative, or 
another investment), to assist users with determining an appropriate 
value of the investment.\19\ In addition, a pricing service may provide 
pricing information when market quotations are unavailable, such as 
when the primary market for a foreign security is closed, or when the 
relevant security is traded in over-the-counter markets that result in 
incomplete information on the security's market price.
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    \19\ The names for these services may vary, such as pricing 
services, valuation agents, or providers of fairness opinions.
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    In providing pricing information to users, pricing services may 
exercise significant discretion. They often determine a valuation 
methodology to use; develop valuation model templates; determine the 
sources or relevance of inputs; determine whether the valuations 
generated are appropriate or require further adjustment; and may need 
to address any pricing challenges raised by the user. Because pricing 
services rely on and prioritize differently a variety of inputs, 
methods, models, and assumptions in determining a pricing level, 
different pricing services may determine different pricing levels for 
the same security.\20\ A pricing service may offer different pricing 
levels for the same security as well, depending on the service's type 
of analysis or evaluation and the user's needs. Depending on the 
specific analysis, pricing services may be compensated through 
subscription fees, through other fixed fees, and as a percentage of 
assets.
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    \20\ See Money Market Fund Reform, Amendments to Form PF, 
Investment Advisers Act Release No. 3879 (July 23, 2014) [79 FR 
47736 (Aug. 14, 2014)].
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    The Commission recently discussed pricing services in adopting rule 
2a-5 under the Investment Company Act, which addresses valuation 
practices and the role of the board of directors with respect to the 
fair value of the investments of a registered investment company or 
business development company.\21\ Under the rule, fair value as 
determined in good faith requires overseeing and evaluating any pricing 
services used. The Commission recognized that pricing services play an 
important role in the fair value process, while also noting the 
potential risks and conflicts of interest that pricing services can 
present in registrants' valuing of securities.\22\ Staff have also 
observed compliance issues in connection with registrants' interactions 
with third-party pricing services, including the risks of misleading 
disclosure regarding whether those services provide ``independent'' 
values and the possibility of stale or otherwise inaccurate 
valuations.\23\
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    \21\ Good Faith Determinations of Fair Value, Investment Company 
Act Release No. 34128 (Dec. 3, 2020) [86 FR 748, 756 (Jan. 6, 2021)] 
(``Fair Value Release''), available at https://www.sec.gov/rules/final/2020/ic-34128.pdf.
    \22\ See Fair Value Release, at text following n.98.
    \23\ Compliance Alert, Division of Examinations (published as 
Office of Compliance Inspections and Examinations), Securities and 
Exchange Commission (July 2008), available at https://www.sec.gov/about/offices/ocie/complialert0708.htm. This compliance alert and 
other staff statements (including those cited herein) represent the 
views of Commission staff and are not a rule, regulation, or 
statement of the Commission. The Commission has neither approved nor 
disapproved the content of these documents and, like all staff 
statements, they have no legal force or effect, do not alter or 
amend applicable law, and create no new or additional obligations 
for any person.
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II. Investment Adviser Status Under the Advisers Act

    The Advisers Act generally defines an ``investment adviser'' as any 
person who, for compensation, engages in the business of advising 
others, either directly or through publications or writings, as to the 
value of securities or as to the advisability of investing in, 
purchasing, or selling securities, or any person who, for compensation 
and as part of a regular business, issues or promulgates analyses or 
reports concerning securities.\24\ The definition generally includes 
three elements for determining whether a person is an investment 
adviser: (i) the person provides advice, or issues analyses or reports, 
concerning securities; (ii) the person is in the business of providing 
such services; and (iii) the person provides such services for 
compensation. Each element must be met in order for a person to be 
deemed an investment adviser.
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    \24\ 15 U.S.C. 80b-2(a)(11).
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    With respect to the first element, a person generally is an 
investment adviser even if its advice, reports, or analyses about 
securities do not relate to specific securities, provided the services 
are performed as part of a business and for compensation. For example, 
in the context of financial planning services, our staff has taken the 
position that a person may be ``advising'' another within the meaning 
of the Advisers Act if the advice addresses whether to invest in 
securities instead of a non-securities investment.\25\
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    \25\ Statement of Staff Interpretive Position, Applicability of 
the Investment Advisers Act to Financial Planners, Pension 
Consultants, and Other Persons Who Provide Investment Advisory 
Services as a Component of Other Financial Services, Investment 
Advisers Act Release No. 1092 (Oct. 8, 1987) [52 FR 38400, 38402 
(Oct. 16, 1987)] (``Financial Planners Release'') (``A person who, 
in the course of developing a financial program for a client, 
advises a client as to the desirability of investing in, purchasing 
or selling securities, as opposed to, or in relation to, any non-
securities investment or financial vehicle would also be 
``advising'' others within the meaning of Section 202(a)(11).''); 
see also U.S. v. Elliott, 62 F.3d 1304, 1309-10 (11th Cir. 1996) 
(citing Financial Planners Release and stating ``[W]e are persuaded 
that both Elliott and Melhorn are `in the business' of advising 
others because they satisfy all three of the disjunctive factors'' 
in the Financial Planners Release); Luzerne County Retirement Bd. v. 
Makowski, 627 F.Supp.2d 506, 572-74 (M.D. Penn. 1995) (applying 
three-part test of Financial Planners Release and granting summary 
judgment in favor of defendants as to count alleging violations of 
the Advisers Act); infra note 31 (describing the Solely Incidental 
Release, as defined therein).

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    With respect to the second element, giving advice does not need to 
constitute the principal business activity or any particular portion of 
the business activities of a person in order for the person to be 
considered ``in the business'' of acting as an investment adviser under 
the Advisers Act. Rather, the giving of advice need only be done on a 
basis such that it constitutes a business activity occurring with some 
regularity.\26\ Finally, the receipt of any economic benefit, whether 
in the form of an advisory fee or some other fee relating to the total 
services rendered, commissions, or some combination of the two, would 
generally suffice with respect to compensation under the definition. 
The source of an ``economic benefit'' that would satisfy this element 
of the definition is not, however, limited to fees and commissions.\27\
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    \26\ See, e.g., Elliott, 62 F.3d at 1310 (stating that 
defendants ``provided investment advice on more than rare, isolated 
occasions'' and ``regularly gave advice regarding the safety and 
effectiveness'' of specific investment vehicles ``based upon the 
personal circumstances of individual investors''); SEC v. Battoo, 
158 F. Supp. 3d 676, 698 (N.D. Ill. 2016). Our staff took a similar 
view. See Financial Planners Release, 52 FR at 38402 (``The 
frequency of the activity is a factor, but not determinative.'').
    \27\ At least one court has found that an ``economic benefit'' 
could even include an adviser's ill-gotten gains from investors' 
misappropriated funds. See U.S. v. Ogale, 378 Fed. Appx. 959, 960-61 
(11th Cir. 2010) (``The receipt of any economic benefit qualifies as 
compensation under the Investment Adviser's [sic] Act and thus the 
investment adviser enhancement.''); see also U.S. v. Miller, 833 
F.3d 274, 282 (3rd Cir. 2016) (finding that adviser compensation 
includes ``any economic benefit'' and holding that defendant who 
sold his firm's promissory notes to his clients met the compensation 
element of Section 202(a)(11)); U.S. v. Elliott, 62 F.3d at 1311 
(finding that adviser compensation includes ``any economic benefit'' 
and holding that defendants were investment advisers even though 
they did not receive an investment adviser's fee but did receive 
compensation from an economic relationship that included providing 
ongoing investment advice as a primary aspect of the relationship).
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    As technology and advisory practices have evolved, one aspect of 
this statutory definition that market participants have questioned is 
whether certain types of information or data constitute ``analyses or 
reports concerning securities.'' For example, these questions have 
arisen in the context of databases and various computer software 
services offering calculations and pricing models. Our staff has 
considered these questions, in the context of one part of the statutory 
definition,\28\ and stated that, while this is a facts and 
circumstances analysis, relevant factors could include whether: (i) The 
information is not readily available to the public in its raw state, 
(ii) the categories of information are highly selective, and (iii) the 
information is organized or presented in a manner that suggests the 
purchase, holding, or sale of any security or securities.\29\
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    \28\ This staff analysis does not consider other aspects of the 
statutory definition--e.g., whether such information or data 
constitutes advice ``as to the value of securities,'' see section 
202(a)(11).
    \29\ See, e.g., Datastream International, Inc., SEC Staff No-
Action Letter (Mar. 15, 1993), available at https://www.sec.gov/divisions/investment/noaction/1993/datastream-international-031593-202a.pdf; RDM Infodustries, SEC Staff No-Action Letter (Mar. 25, 
1996), available at https://www.sec.gov/divisions/investment/noaction/1996/rfminfodustries032596.pdf.
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    The Advisers Act expressly excludes from the definition of 
investment adviser certain types of persons or persons engaging in 
certain types of activities.\30\ The exclusions generally cover persons 
that are already subject to regulation, either by the Commission or 
another regulator, or persons that Congress did not intend to be 
covered by the Act. For example, the Advisers Act excludes from the 
definition ``any broker or dealer whose performance of such services is 
solely incidental to the conduct of his business as a broker or dealer 
and who receives no special compensation therefor.'' \31\ The Advisers 
Act also authorizes the Commission to exempt from the definition of 
investment adviser any other person ``not within the intent'' of the 
statutory definition.\32\
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    \30\ See 15 U.S.C. 80b-2(a)(11)(A) through (H). A person relying 
on any of the exclusions must meet all of its requirements. See, 
e.g., Solely Incidental Release, infra note 31.
    \31\ 15 U.S.C. 80b-2(a)(11)(C) (``broker-dealer exclusion''). 
The Commission has adopted an interpretation of the ``solely 
incidental prong'' of the broker-dealer exclusion that states that 
``a broker-dealer's provision of advice as to the value and 
characteristics of securities or as to the advisability of 
transacting in securities is consistent with the solely incidental 
prong if the advice is provided in connection with and is reasonably 
related to the broker-dealer's primary business of effecting 
securities transactions.'' Commission Interpretation Regarding the 
Solely Incidental Prong of the Broker-Dealer Exclusion from the 
Definition of Investment Adviser, Investment Advisers Act Release 
No. 5249 (June 5, 2019) [84 FR 33681 (July 12, 2019)] (``Solely 
Incidental Release''). The Solely Incidental Release also states 
that ``[w]hether advisory services provided by a broker-dealer 
satisfy the solely incidental prong is assessed based on the facts 
and circumstances surrounding the broker-dealer's business, the 
specific services offered, and the relationship between the broker-
dealer and the customer.'' Id. In the Solely Incidental Release, the 
Commission stated that broker-dealers ``receive special compensation 
where there is a clearly definable charge for investment advice.'' 
Id. at n.68 (internal citations omitted).
    \32\ 15 U.S.C. 80b-2(a)(11)(H). The Commission is authorized to 
exempt persons by rule, regulation, or order, see id., and has 
exercised that authority. See, e.g., In the Matter of 1112 Partners, 
LLC, Investment Advisers Act Release No. 4917 (May 29, 2018) 
(order).
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    In addition, the Advisers Act excludes from the definition the 
``publisher of any bona fide newspaper, news magazine or business or 
financial publication of general and regular circulation'' 
(``publisher's exclusion'').\33\ In Lowe v. SEC, the Supreme Court 
construed the publisher's exclusion and held that publishers are 
excluded from the definition under the Advisers Act as long as their 
publication: (i) Provides only impersonal advice; (ii) is ``bona 
fide,'' meaning that it provides genuine and disinterested commentary; 
and (iii) is of general and regular circulation rather than issued from 
time to time in response to episodic market activity.\34\ Building on 
Lowe, the court in SEC v. Park stated that the personalized or 
disinterested nature of a publication ``clearly'' affects whether it is 
``bona fide.'' \35\
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    \33\ 15 U.S.C. 80b-2(a)(11)(D).
    \34\ Lowe, 472 U.S. 181, 208-210 (1985); see also Alfred A. 
Zurl, SEC Staff No-Action Letter (Aug. 7, 1995), available at 
https://www.sec.gov/divisions/investment/noaction/1995/alfredzurl080795.pdf (applying Lowe).
    \35\ SEC v. Park, 99 F. Supp.2d 889, 895 (N.D. Ill. 2000).
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    Certain providers have relied on the publisher's exclusion. We 
believe that index providers have historically concluded, for example, 
that, even if they meet the definition of investment adviser, they may 
rely on the exclusion and thus need not register with the Commission or 
be subject to any section of the Advisers Act, including section 206. 
Similarly, other providers, such as pricing services, may be relying on 
the publisher's exclusion.
    Given the length of time since Lowe was decided, and understanding 
that new business models have developed in the interim, we are 
considering the extent to which providers' activities, in whole or in 
part, may raise investment adviser status issues. We specifically 
request comment on the following:

[[Page 37258]]

General

    1. Are our descriptions of each information provider accurate and 
comprehensive? What types of potential risks and conflicts of interest 
does each type of provider present? How many providers of each type do 
commenters estimate currently offer their services in the United 
States?
    2. Are there any other types of information providers whose 
activities, in whole or in part, may raise investment adviser status 
issues? If so, which providers, and why?

General Questions Related to Information Providers' Status

    3. How do providers analyze whether they meet the Advisers Act's 
definition of ``investment adviser'' under each element of the 
definition? For those providers that have determined that they meet the 
definition, what were the determining factors?
    4. In light of new technologies and current market practices, when 
determining what constitutes ``analyses or reports concerning 
securities,'' what factors may raise investment adviser status issues? 
For example, are the factors described above appropriate? \36\ Should 
they be modified? If so, what modifications and why? What economic 
benefits and costs would result if advisers were required to consider 
the factors described above or with modifications? Alternatively, are 
there other factors that advisers should be required to consider 
regarding what constitutes ``analyses or reports concerning 
securities''? Should the Commission provide additional guidance? What 
benefits and costs would result from requiring other factors or 
providing additional guidance?
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    \36\ See supra text accompanying note 29.
---------------------------------------------------------------------------

    5. We understand that some information providers may determine that 
providing data or other information is not providing ``analyses or 
reports concerning securities'' and therefore the provider is not an 
investment adviser under the Advisers Act based on the factors above. 
Which types of information providers take this position, and on what 
basis do they consider such data and information not to be analyses or 
reports concerning securities?
    6. Which providers rely on the publisher's exclusion? On what 
basis? To what extent do they rely on Lowe to inform the determination? 
How do they determine whether their publications are ``impersonal,'' 
``bona fide,'' or of ``general and regular circulation''?
    7. Which providers rely on another exclusion from the definition of 
``investment adviser''? Which exclusion and on what basis? For example, 
do some broker-dealers that provide model portfolios to their customers 
rely on the broker-dealer exclusion from the definition of investment 
adviser? To what extent do broker-dealer model portfolio providers 
provide their portfolios to investors or to other financial 
professionals, such as investment advisers or other managers (e.g., 
banks, trust companies), which may then use the model portfolios with 
their own customers or clients? Does this have an impact on the broker-
dealer's reliance on the exclusion? How are broker-dealers typically 
compensated for providing these model portfolios? Under what 
circumstances does a broker-dealer provide a model portfolio in 
exchange for a commission or other transaction-based compensation? On 
what basis is such commission or other transaction-based compensation 
charged? Do these broker-dealers receive different forms of 
compensation?
    8. To what extent do information providers view themselves as 
having fiduciary obligations to any investors that rely on the 
information they provide (for example, when investors receive such 
information through another financial professional)? How do providers 
view the scope of such obligations? Do they view their obligations more 
narrowly than those of a traditional client-facing adviser, and if so, 
how? How do these providers address potential conflicts of interest 
that may arise during their relationships with clients or users of 
their services?
    9. How do information providers exercise discretion in providing 
information? For example, do index providers or model portfolio 
providers create indexes or portfolios at the request of their 
licensees or users based on more customized investment objectives and 
goals? In these circumstances, does the provider include or exclude 
certain companies, funds, or countries from an index or portfolio based 
on the input of its licensee or user? As another example, in 
determining which inputs or factors to prioritize in assessing a 
security's price, does a pricing service prioritize certain factors 
over others based on the input of its licensee or user?
    10. In what ways do information providers exercise discretion in 
establishing and updating their services or the information they 
provide? Is such discretion limited by a service's users? For example, 
with respect to pricing services, do users limit providers' discretion 
by contract, either by reference to standard pricing guides or 
principles or otherwise? If so, do users treat pricing services 
differently from other providers in how discretion is limited? If so, 
how and on what basis? Do the responses change when considering other 
types of information providers?
    11. To what extent, and under what circumstances, does each type of 
information provider personalize the services it offers? For example, 
what are industry practices around direct indexing and specialized 
indexes, and how prevalent are they?
    12. Do information providers adjust the services offered based on 
input from the users of their services? Do providers disclose such 
adjustments to users, including when such adjustments are made to 
address previous errors of the provider?
    13. Under what circumstances do information providers disclose 
changes or updates to the services provided, and to whom? For example, 
describe index providers' disclosures about the changes in the index 
strategy or related aspects (e.g., tracking methodology, portfolio 
structure, portfolio limitations, index data distribution channels) and 
the level of discretion that the index provider may exercise. How do 
information providers communicate these changes or updates?
    14. How, and in what form, are information providers compensated? 
Do information providers charge license, subscription, or other types 
of fees? Are there tiers of fees? For example, do pricing services' 
users pay multiple times for use of the same price? Are subscription 
fees different from engagement fees? If so, how? When an investment 
adviser or an investment company compensates information providers, is 
that compensation borne by advisory clients or fund investors?
    15. Should the Commission use its authority to exempt any of the 
information providers from the definition of ``investment adviser''? 
\37\ If so, what facts and circumstances should factor in to an 
exemption? Please explain your answer.
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    \37\ See supra note 32.
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    16. What are the economic benefits and costs associated with 
investment adviser status for each type of information provider 
identified above? Are there provisions of the Advisers Act that 
providers are unable to comply with or that would be operationally 
complex and burdensome?

Questions Related to Index Providers

    17. To what extent are users of index providers' services 
registered investment companies or other pooled

[[Page 37259]]

investment vehicles? What other types of users license indexes? Is 
there a difference in this respect between users of broad-based indexes 
and specialized indexes?
    18. Do index providers that develop broad-based indexes raise 
different investment adviser status issues as compared to those that 
develop customized or bespoke indexes? If so, what factors categorize 
or distinguish different types of indexes? Does an index that is 
specialized raise investment adviser status issues? Are there other 
parameters that we should utilize?
    19. How, if at all, do index providers limit the dissemination of 
their methodologies or indexes to only those who license such 
information? Should the limitations placed on dissemination affect the 
analysis of their status as an investment adviser?
    20. Under what circumstances, if any, is an index provider 
compensated based on the amount of assets that are managed according to 
its index? Do compensation methods for index providers differ based on 
whether they provide broad-based indexes or specialized indexes? If so, 
how or on what basis do such compensation methods differ?
    21. What are the economic benefits and costs associated with 
investment adviser status for index providers that develop broad-based 
indexes versus specialized indexes?

Questions Related to Model Portfolio Providers

    22. Do model portfolio providers raise different investment adviser 
status issues than those raised by index providers that provide 
specialized indexes? In what ways are they distinguishable?

Questions Related to Pricing Services

    23. Is there a distinction between typical pricing services in the 
market and a ``valuation specialist'' that exercises informed judgment 
in determining valuation inputs, methodologies, and the legitimacy of a 
valuation conclusion? How should any regulation reflect these 
distinctions, or any other distinction between types of pricing 
services?
    24. To what extent do the results of price challenges to a pricing 
service's values affect the prices provided to other users of pricing 
services? Are there times when a pricing service aggregates or delivers 
information from another pricing service?

III. Implications of Investment Adviser Status

A. Registration Under, and Applicability of, the Advisers Act

    Generally, a person that meets the definition of ``investment 
adviser'' (and cannot rely on an exclusion) must register under the 
Advisers Act, unless it: (i) Is prohibited from registering under 
section 203A of the Act, or (ii) qualifies for an exemption from the 
Act's registration requirement, each as discussed below. All advisers, 
including an unregistered adviser, are subject to the Advisers Act's 
antifraud provisions.\38\
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    \38\ See section 206 of the Act, rules 206(4)-5 and 206(4)-8 
under the Act;ssee also, e.g., S. Rep. No. 1760, 86th Cong., 2d 
Sess. 7 (1960), which specifies that the antifraud provisions in 
section 206 of the Act apply to both registered and unregistered 
advisers.
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1. Advisers Prohibited From Registering Under the Advisers Act
    Section 203A of the Advisers Act prohibits certain advisers from 
registering under the Act, unless they meet an assets-under-management 
(``AUM'') threshold. In general, a small adviser with less than $25 
million in AUM 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 AUM 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 commissioner, 
are ineligible to register with the Commission. These smaller and mid-
sized advisers are regulated at the state level.\39\
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    \39\ The Act also provides several voluntary exemptions from 
registration. See, e.g., 15 U.S.C. 80b-3(b), (l), and (m). In 
addition, venture capital fund advisers and private fund advisers 
with less than $150 million in AUM in the United States (referred to 
as ``exempt reporting advisers'') are exempt from registration, but 
are required to file reports on Form ADV with the Commission and are 
subject to certain rules under the Act. See 15 U.S.C. 80b-3(l) and 
(m); 15 U.S.C. 80b-4(a); 17 CFR 275.204-4.
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    The relevant thresholds reflect an amount ``designed to distinguish 
investment advisers with a national presence from those that are 
essentially local businesses.'' \40\ Even when advisers lack such a 
``national presence,'' we are authorized to exempt from the prohibition 
on Commission registration those investment advisers for which the 
prohibition ``would be unfair, a burden on interstate commerce, or 
otherwise inconsistent'' with the purposes of the Act's provisions 
allocating authority between the Commission and state securities 
authorities.\41\ On this basis, we have exempted certain types of 
advisers from the prohibition against registration with the Commission, 
including pension consultants, internet investment advisers, and some 
pricing services.\42\
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    \40\ Exemption for Certain Investment Advisers Operating Through 
the Internet, Investment Advisers Act Release No. 2091 (Dec. 12, 
2002) [67 FR 77620, 77621 (Dec. 18, 2002)], at nn.4-5 and 
accompanying text (citing S. Rep. No. 293, 104th Cong., 2d Sess. 3-5 
(1996) (``Senate Report'')); see also Senate Report at 3-4 (``The 
states should play an important and logical role in regulating small 
investment advisers whose activities are likely to be concentrated 
in their home state. Larger advisers, with national businesses, 
should be registered with the Commission and be subject to national 
rules.'').
    \41\ 15 U.S.C. 80b-3a(c).
    \42\ See rule 203A-2(a) and (e); Rules Implementing Amendments 
to the Advisers Act of 1940, Investment Advisers Act Release No. 
1633 (May 15, 1997) [62 FR 28112 (May 22, 1997)], at n.60 and 
accompanying text (noting the Commission's adoption of a higher 
assets-under-management threshold for registration by pension 
consultants as ``necessary to demonstrate that a pension 
consultant's activities have an effect on national markets''). See 
Interactive Data Corporation, Investment Advisers Act Release No. 
1685 (Dec. 9, 1997) (notice) and In the Matter of Interactive Data 
Corporation, Investment Advisers Act Release No. 1692 (Jan. 6, 1998) 
(order) (Interactive Data Corporation (``IDC'') argued that it 
should be permitted to register despite the fact that it did not 
qualify for an exemption from the prohibition on registration. 
Specifically, IDC argued that it is the type of large, national 
investment adviser that Congress intended to be registered with the 
SEC, that prohibiting its registration would unfairly burden 
interstate commerce, and that its services have a significant 
national impact).
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    Certain providers, if they are investment advisers, may not have 
significant AUM, or regulatory assets under management (``RAUM''), 
depending on how those terms are used,\43\ but could service a 
significant portion of the financial intermediaries and other players 
in the national financial markets with broad market effects. For 
example, to the extent that many advisers rely on a single pricing 
service, and all use that service's evaluated price for a particular 
security, that pricing service may affect the national market in that 
security in a way that would not happen if the same advisers each 
reached independent determinations of, or relied on separate pricing 
services to determine, the security's price. Similarly, the decisions 
of index providers can affect domestic and global financial markets in 
some circumstances. Some analysis has shown an increase in stock price, 
among other effects, associated with inclusion in the S&P 500 
Index.\44\ As an example,

[[Page 37260]]

model portfolios may be used to manage large amounts of assets 
(serving, in some cases, as the basis for their providers' 
compensation), even though model portfolio providers do not have 
discretionary authority over those assets and, accordingly, may not 
have RAUM.\45\
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    \43\ See infra text accompanying note 47.
    \44\ See, e.g., Jim Hawley and Jon Lukomnik, The Long and Short 
of It: Are We Asking the Right Questions? Modern Portfolio Theory 
and Time Horizons, 41 Seattle U. L. Rev. 449, 453-456 (2018) 
(summarizing studies describing market effects of index inclusion) 
(internal citations omitted). But see Maria Kasch and Asani Sarkar, 
Is There an S&P 500 Index Effect?, FIRS 2013 (Mar. 2014), available 
at https://ssrn.com/abstract=2171235.
    \45\ As another example, when major equity index providers 
included in their emerging market indexes the ``A shares'' of 
certain Chinese companies listed in China, the weight of Chinese 
markets in those indexes increased and investors tracking those 
indexes invested in those companies. See, e.g., Division of Economic 
and Risk Analysis, U.S. Securities and Exchange Commission, Risk 
Spotlight: U.S. Investors' Exposure to Domestic Chinese Issuers 
(July 6, 2020), available at https://www.sec.gov/files/US-Investors-Exposure-to-Domestic-Chinese-Issuers_2020.07.06.pdf (noting that the 
weight of Chinese A shares in the three emerging market indexes 
ranged between 4% and 5.5% after completion of each index's 
inclusion process); see also Xie Yu, China's Bonds Win Third Key 
Index Inclusion, Wall Street Journal (Sept. 24, 2020) (reporting 
that FTSE Russell would add Chinese government debt to certain 
indices and estimating the inclusion ``could attract more than $100 
billion of foreign capital''), available at https://www.wsj.com/articles/chinas-bonds-win-third-key-index-inclusion-11600994714; 
Robin Wigglesworth, Trillions 258-59 (Portfolio 2021) (describing 
efforts by the Chinese government to affect decisions of index 
providers).
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2. Requirements for SEC-Registered Advisers
    Advisers registered (or required to be registered) with the 
Commission are subject to substantive prohibitions and requirements; 
contractual requirements; recordkeeping obligations; and oversight by 
the Commission, including periodic filings and inspection. Many of the 
rules under the Act are generally designed to apply to the variety of 
advisers' business models. Form ADV similarly is designed to facilitate 
reporting by advisers with disparate business models and client types. 
However, it is possible to differentiate application of the adviser 
regulatory regime (including reporting requirements) to a type of 
investment adviser.\46\
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    \46\ The Commission has tailored the adviser regulatory regime 
to recognize advisers in different situations. See Exemptions for 
Advisers to Venture Capital Funds, Private Fund Advisers with Less 
Than $150 Million in Assets Under Management, and Foreign Private 
Advisers, Advisers Act Release No. 3222 (June 22, 2011) [76 FR 39645 
(July 6, 2011)] (adopting rules to implement exemptions from the 
registration requirements of the Advisers Act for advisers to 
certain privately offered investment funds and stating that the 
Commission does not apply most of the substantive provisions of the 
Advisers Act to the non-U.S. clients of a non-U.S. adviser 
registered with the Commission).
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    To the extent that providers' activities may constitute investment 
advice, and have the potential to affect broadly the national 
securities markets, we request comment on all aspects of the investment 
adviser regulatory regime with respect to these providers. Such 
comments would be particularly useful given that many of the provisions 
of the Act, the rules thereunder, and Form ADV are designed primarily 
for investment advisers that provide investment advice designed for the 
objectives and needs of specific clients, which may not be the case 
with all of these information providers. We specifically request 
comment on the following:
Registration Under the Advisers Act
    25. To the extent that a provider meets the Act's definition of 
``investment adviser,'' should it register with the SEC or the states 
in which it maintains its principal office or places of business? As a 
policy matter, should Commission registration be permitted or required? 
What economic benefits and costs would result? What would be the effect 
of registration on the ability of new competitors to come into the 
marketplace? What would be the effect of registration on providers' 
ability to speak or communicate? If any type of information provider 
were required to register, what process might we provide to ensure an 
orderly transition of registration status?
    26. Some providers are currently SEC-registered while others are 
not. For each type, on what basis? For those providers that have 
registered with the Commission as investment advisers, what were the 
determining factors? How would the economic benefits and costs differ 
between providers that are currently SEC-registered and others that are 
not?
    27. Do providers have RAUM with respect to their information 
services? \47\ For example, do providers ``provide continuous and 
regular supervisory or management services'' to securities portfolios 
as required by the instructions on Form ADV for purposes of calculating 
RAUM? What range of RAUM is common? Should the Commission amend the 
Instructions to Form ADV to provide a calculation of RAUM that 
encompasses any or all providers? In particular, should the Commission 
define RAUM in a manner that explicitly applies to model portfolio 
providers?
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    \47\ Form ADV uses the term ``regulatory assets under 
management'' instead of ``assets under management.'' Form ADV 
describes how advisers must calculate RAUM and states that in 
determining the amount of RAUM, an adviser should ``include the 
securities portfolios for which [it] provide[s] continuous and 
regular supervisory or management services as of the date of 
filing'' the form. See Form ADV, Instructions for Part 1A, 
Instruction 5.b.
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    28. Should there be exemptions from the prohibition against 
registration for providers that have a ``national presence'' or can 
have a significant effect on the national markets regardless of RAUM? 
Are there factors that we should take into account in identifying those 
providers? For example, what characteristics would distinguish 
providers that have a national presence from ones that do not? Should 
registration be mandatory or optional? What would be the economic 
benefits and costs of mandatory or optional registration?
    29. Under what circumstances should a provider that acts as an 
investment adviser be required to treat as its advisory client another 
investment adviser that uses its services (the ``serviced adviser'')? 
Under what circumstances, if any, should such a provider's advisory 
client be the client, or end-user, of the serviced adviser? If a 
provider's advisory client is the end-user of the serviced adviser, to 
what extent and under what circumstances should such end-user have the 
right to approve the assignment of the advisory agreement between the 
serviced adviser and the provider? To what extent and under what 
circumstances should such end-user receive the disclosure documents of 
the provider?
Applicability of the Advisers Act
    30. Should we exempt providers that meet the definition of 
investment adviser, and are required to register with the SEC under the 
Advisers Act, from any of the provisions of the Act and rules that 
apply to SEC-registered advisers and, if so, which provisions and why? 
Would any such provisions raise operational or compliance challenges 
such that an exemption is necessary? What would be the economic 
benefits and costs of exempting providers that meet the definition of 
investment adviser, and are required to register with the SEC under the 
Act? How would such an exemption affect investors? What would be the 
effects on competition in the market for information providers if we 
were to exempt providers from some or all requirements of the Act? 
Alternatively, should any provisions of the Act or rules apply 
differently to providers? Which ones, why, and how should they apply? 
For example, should disclosure obligations differ to the extent the 
providers do not have a client-facing role?
    31. Would requiring providers to register with the SEC and become 
subject to the regulatory regime under

[[Page 37261]]

the Act in its current form cause them to alter their business models, 
consolidate, or exit the market? \48\ How would this affect investors?
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    \48\ See, e.g., Kathleen H. Moriarty, Should Index Providers Be 
Regulated as Investment Advisers Under the U.S. Investment Advisers 
Act of 1940, Journal of Index Investing (2021), at 67-68, available 
at https://jii.pm-research.com/content/iijindinv/11-12/4-1/54.full.pdf.
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    32. At least one regulatory framework for index providers exists 
outside of the United States, under the European Securities and Market 
Authority (``ESMA'') and its EU Benchmarks Regulation (``BMR'').\49\ 
Some of the BMR's key provisions include requiring EU administrators of 
a broad class of benchmarks to be authorized or registered by a 
national regulator, and for these administrators to implement various 
governance systems and other controls to ensure the integrity and 
reliability of their benchmarks. Administrators are also required to 
provide a code of conduct specifying requirements and responsibilities 
regarding input data. Although the BMR affects U.S.-based index 
providers that wish to have market access in the EU, it does not 
directly affect their business in the United States. Should any U.S. 
regulatory action, if adopted and implemented, be aligned with the 
framework placed by the BMR in the EU? Are there particular components 
of the BMR that should or should not be applied to index providers in 
the United States, and why? What has been the effect of the BMR on the 
provision of benchmarks and indexes in the EU? Has the BMR served as a 
barrier to entry for new benchmark and index providers?
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    \49\ Regulation (EU) 2016/1011.
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Reporting Obligations and Public Disclosure
    33. What information do registered advisers and investment 
companies currently submit to the Commission with respect to their 
information providers? What information, if any, should registrants be 
required to submit? What information currently required should be 
modified and why? Should some of the information be provided 
confidentially to the Commission? If so, which types of information and 
why?
    34. Should Form ADV require specific information about advisers' 
use of information providers? Should we require additional or different 
information on Form ADV for providers that meet the definition of 
investment adviser and are required to register with the SEC under the 
Advisers Act? If so, what information? What would be the economic 
benefit and cost of requiring additional or different information on 
Form ADV?

B. Related Investment Company Act Matters

    Analysis under the Investment Company Act of whether a person is an 
investment adviser of a fund generally relies on two main elements:
    (i) The person regularly furnishes advice to the fund with respect 
to the desirability of investing in, purchasing or selling securities 
or other property, or is empowered to determine what securities or 
property should be purchased or sold by the fund; and
    (ii) The person acts pursuant to a contract with the fund.\50\
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    \50\ See 15 U.S.C. 80a-2(a)(20)(A).
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    In addition, the Investment Company Act includes in the definition 
of an investment adviser to a fund a person who, pursuant to a contract 
with an investment adviser of an investment company, ``regularly 
performs substantially all the duties'' undertaken by such investment 
adviser.\51\
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    \51\ See 15 U.S.C. 80a-2(a)(20)(B).
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    An investment adviser of a fund under the Investment Company Act is 
subject to certain requirements and limitations. Among other things, 
this status may trigger prohibitions related to self-dealing and other 
types of overreaching of a fund by its affiliates (including its 
investment adviser), ineligibility criteria for certain affiliated 
persons (including investment advisers), and requirements related to 
the approval of compliance procedures and practices by the fund's board 
of directors.\52\ In addition, the Investment Company Act contains 
specific requirements related to shareholder and board approval of the 
fund's advisory contract (including of any assignment of the 
contract).\53\
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    \52\ In addition, among other provisions related to its 
relationship with a fund, an adviser under the Investment Company 
Act is subject to regulations related to loans, purchases or sales 
of assets, or the receipt of commissions or similar compensation in 
connection with such purchases and sales. See 15 U.S.C. 80a-17.
    \53\ 15 U.S.C. 80a-15(a); 15 U.S.C. 80a-15(c).
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    The Investment Company Act sets out certain exceptions to its 
definition of investment adviser of a fund, including for persons 
distributing their publications to subscribers, providing statistical 
information without regularly furnishing advice or making 
recommendations concerning specific securities, compensated under the 
supervision of a court, or persons excluded by rule or regulation.\54\
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    \54\ See 15 U.S.C. 80a-2(a)(20).
---------------------------------------------------------------------------

    Certain providers may implicate the Investment Company Act's 
provisions relating to an investment adviser of an investment company. 
For example, index providers, particularly to the extent the index 
provider maintains a bespoke index created for a single fund, could 
meet the definition of an investment adviser to a fund under the 
Investment Company Act. This may be the case if the index is maintained 
with an eye to the specific needs of a fund. To the extent that no 
exception from the definition applies, the index provider could 
implicate the Investment Company Act's definition of investment adviser 
of an investment company, including when the index provider does not 
contract directly with a fund, but instead indirectly with the fund's 
investment adviser. A similar analysis may apply to other providers, as 
well.
    We request comment on certain aspects of the Investment Company Act 
regime with respect to providers. We specifically request comment on 
the following:
    35. How do providers analyze whether they meet the Investment 
Company Act's definition of ``investment adviser'' of a fund under each 
element of the definition? What are the economic benefits and costs 
associated with whether a provider meets the Investment Company Act's 
definition of ``investment adviser'' of a fund? Would the application 
of the definition to providers serve as a material barrier to entry for 
new entrants?
    36. To what extent do providers contract directly with funds? For 
example, do providers typically enter into contracts with the fund's 
adviser, or an affiliate of the adviser? If a fund's adviser delegates 
services to a provider, what duties does the adviser retain and what 
duties does the adviser delegate? Does the fund or its adviser make an 
affirmative determination made whether the provider is acting as an 
investment adviser under the Investment Company Act?
    37. The Investment Company Act excludes from the definition of 
investment adviser of a fund ``a person whose advice is furnished 
solely through uniform publications distributed to subscribers 
thereto.'' To what extent do providers distribute uniform publications? 
If so, how do these providers interpret ``uniform''? Do providers that 
rely on the Advisers Act publisher's exclusion also rely on this 
exception and, if so, on what basis?
    38. To the extent a provider to a fund is an investment adviser of 
the fund, the fund and its provider would need to comply with various 
provisions of the Investment Company Act. What would be a reasonable 
amount of time for a

[[Page 37262]]

registered investment company to come into compliance with these 
provisions? Are there measures we can take to assist with the 
transition? Are there provisions of the Investment Company Act that 
present unique challenges for providers?
    39. Rule 38a-1 under the Investment Company Act requires a fund's 
board, including a majority of its independent directors, to approve 
policies and procedures reasonably designed to prevent violation of the 
Federal securities laws by the fund and certain service providers.\55\ 
To what extent do funds currently extend their compliance program to 
information providers, where such entity is not considered an 
investment adviser or one of the rule's other named service providers 
(principal underwriters, administrators and transfer agents)? Does this 
analysis differ depending on the provider? Should we amend Rule 38a-1 
to incorporate information providers within a fund's compliance 
program, rather than requiring registration of information providers as 
investment advisers? What would be the costs and benefits of such an 
approach?
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    \55\ See rule 38a-1 under the Investment Company Act.
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    40. In circumstances where a fund's adviser contracts with an 
information provider, how much information is provided to the fund's 
board regarding the providers on an ongoing basis? Do fund boards 
approve the engagement of providers in these circumstances? Does this 
differ depending on the provider?
General Request for Comment
    This request for comment is not intended to limit the scope of 
comments, views, issues, or approaches to be considered. In addition to 
information providers, investment advisers and investment companies, 
advisory clients and other investors, we welcome comment from other 
market participants and particularly welcome statistical, empirical, 
and other data from commenters that may support their views or support 
or refute the views or issues raised by other commenters.

    By the Commission.

    Dated: June 15, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-13307 Filed 6-21-22; 8:45 am]
BILLING CODE 8011-01-P