H.R. 2225 (112th): To amend the Investment Advisers Act of 1940 to add a definition of family office.

112th Congress, 2011–2013. Text as of Jun 16, 2011 (Introduced).

Status & Summary | PDF | Source: GPO

I

112th CONGRESS

1st Session

H. R. 2225

IN THE HOUSE OF REPRESENTATIVES

June 16, 2011

(for himself, Mr. Bachus, Mrs. Maloney, Mr. Garrett, Mr. Neugebauer, Mrs. Capito, and Mrs. Biggert) introduced the following bill; which was referred to the Committee on Financial Services

A BILL

To amend the Investment Advisers Act of 1940 to add a definition of family office.

1.

Findings

The Congress finds the following:

(1)

Family offices are not of national concern in that their advice, counsel, publications, writings, analyses, and reports are not furnished or distributed to clients on a retail basis, but are instead furnished or distributed only to persons who are members of a particular family.

(2)

Family offices do not hold themselves out to the public as investment advisers.

(3)

Family offices do not engage in the business of advising others, but instead provide a wide range of services to members of the family they serve, only one of which involves investment advice, for which they may receive compensation from the members of the family.

(4)

Since the Investment Advisers Act of 1940 was enacted, the Securities and Exchange Commission has regularly issued orders to individual family offices exempting them from all of the provisions of the Investment Advisers Act of 1940.

(5)

Section 409 of the Dodd-Frank Wall Street Reform and Consumer Protection Act expressly exempts family offices from all of the provisions of the Investment Advisers Act of 1940.

(6)

It was the intent of Congress that section 409 of the Dodd-Frank Wall Street Reform and Consumer Protection Act be interpreted broadly to encompass all family offices as they are currently organized and operated, as well as to encompass changes in the organization and operation of family offices in the future.

2.

Family office definition

Section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)) is amended—

(1)

in paragraph (11)(G), in the matter added by section 409(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, by striking , as defined by rule, regulation, or order of the Commission, in accordance with the purposes of this title;

(2)

by redesignating the second paragraph (29), as added by section 770 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as paragraph (31); and

(3)

by adding at the end the following new paragraph:

(32)

Family office

(A)

In general

The term family office means a company (including any director, partner, trustee, or employee of such company, when acting in their respective capacities as such) that—

(i)

has no clients other than family clients;

(ii)

is—

(I)

owned, directly or indirectly, by,

(II)

controlled, directly or indirectly, by, or

(III)

operated primarily for the benefit of,

family clients; and
(iii)

does not hold itself out to the public as an investment adviser.

(B)

Grandfathering

A person described under section 409(b)(3) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, but who otherwise meets the requirements under subparagraph (A), shall qualify as a family office.

(C)

Definitions

For purposes of this paragraph:

(i)

Control

The term control means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of being an officer of such company.

(ii)

Family client

The term family client means:

(I)

Any family member.

(II)

Any key employee.

(III)

Any charitable foundation, charitable organization, charitable trust, or other non-profit organization established or controlled, directly or indirectly, by persons one or more of whom is a family client.

(IV)

Any trust or estate funded exclusively by one or more family members or established primarily for the benefit of one or more family clients.

(V)

Any limited liability company, partnership, corporation, or other entity, if—

(aa)

such entity is majority-owned or controlled, directly or indirectly, by, or operated primarily for the benefit of, one or more family clients;

(bb)

the family office is giving investment advice to such entity; and

(cc)

persons who are not otherwise defined as a family client do not own interests in such entity.

(VI)

Any former family member.

(VII)

Any former key employee, if, upon the termination of such individual’s employment by the family office or family client, the former key employee shall not receive investment advice from the family office or the family client (or invest additional assets with a family office-advised trust, charitable foundation, or entity), other than with respect to assets advised, directly or indirectly, by the family office or family client immediately prior to the termination of such individual’s employment, except that a former key employee shall be permitted to receive investment advice from the family office with respect to additional investments that the former key employee was contractually obligated to make, and that relate to a family office advised investment existing, in each case, prior to the time the person became a former key employee. For purposes of this subclause, the term family office shall include any entity described under subclause (V).

(iii)

Family member

(I)

In general

The term family member means:

(aa)

Any natural person whose economic activities created or substantially contributed to the family's wealth, and such person’s spouse.

(bb)

The siblings, parents, grandparents of a person described in item (aa).

(cc)

The spouse of a person described in item (bb).

(dd)

The siblings of a person described in item (bb) or (cc).

(ee)

The spouse of a person described in item (dd).

(ff)

The lineal descendant of a person described in item (bb), (cc), (dd), or (ee).

(gg)

The spouse of a person described in item (ff).

(II)

Construction

For purposes of this clause—

(aa)

the term lineal descendant includes natural children, adopted children, and stepchildren;

(bb)

the term spouse includes spousal equivalents; and

(cc)

the terms siblings, parents, and grandparents include step-siblings, step-parents, and step-grandparents, respectively.

(iv)

Former family member

The term former family member means a spouse or a descendant who was a family member but is no longer a family member due to a divorce or other similar event.

(v)

Key employee

The term key employee means any natural person (and such person’s spouse or lineal descendant) who is an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the family office or any employee of the family office (other than an employee performing solely clerical, secretarial, or administrative functions) who, in connection with his or her regular functions or duties, participates in the investment activities of the family office. For purposes of this subclause, the term family office shall include any entity described under clause (ii)(V).

(vi)

Spousal equivalent

The term spousal equivalent means a cohabitant occupying a relationship generally equivalent to that of a spouse.

(D)

Involuntary events

If—

(i)

a person that is not a family client becomes a client of the family office as a result of the death of a family member or key employee or other involuntary transfer from a family member or key employee, or

(ii)

a person ceases to be a family client,

that person shall be deemed to be a family client until the end of the 1-year period beginning on the date that it is both legally and practically feasible for the family office to transfer the affected assets to such person, but in no event earlier than 1 year from the date that it becomes legally feasible to transfer the affected assets unless it becomes practically feasible to affect such a transfer sooner.

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