I 

112TH CONGRESS 

1ST SESSION H. R. 2225 

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

family office. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 16, 2011 

Mr. HENSARLING (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 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. FINDINGS. 

4 The Congress finds the following: 

5 (1) Family offices are not of national concern 

6 in that their advice, counsel, publications, writings, 

7 analyses, and reports are not furnished or distrib8 uted to clients on a retail basis, but are instead fur9 nished or distributed only to persons who are mem10 bers of a particular family. 


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1 (2) Family offices do not hold themselves out to 

2 the public as investment advisers. 

3 (3) Family offices do not engage in the business 

4 of advising others, but instead provide a wide range 

5 of services to members of the family they serve, only 

6 one of which involves investment advice, for which 

7 they may receive compensation from the members of 

8 the family. 

9 (4) Since the Investment Advisers Act of 1940 

10 was enacted, the Securities and Exchange Commis11 sion has regularly issued orders to individual family 

12 offices exempting them from all of the provisions of 

13 the Investment Advisers Act of 1940. 

14 (5) Section 409 of the Dodd-Frank Wall Street 

15 Reform and Consumer Protection Act expressly ex16 empts family offices from all of the provisions of the 

17 Investment Advisers Act of 1940. 

18 (6) It was the intent of Congress that section 

19 409 of the Dodd-Frank Wall Street Reform and 

20 Consumer Protection Act be interpreted broadly to 

21 encompass all family offices as they are currently or22 ganized and operated, as well as to encompass 

23 changes in the organization and operation of family 

24 offices in the future. 


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1 SEC. 2. FAMILY OFFICE DEFINITION. 

2 Section 202(a) of the Investment Advisers Act of 

3 1940 (15 U.S.C. 80b–2(a)) is amended— 

4 (1) in paragraph (11)(G), in the matter added 

5 by section 409(a) of the Dodd-Frank Wall Street 

6 Reform and Consumer Protection Act, by striking ‘‘, 

7 as defined by rule, regulation, or order of the Com8 mission, in accordance with the purposes of this 

9 title’’; 

10 (2) by redesignating the second paragraph (29), 

11 as added by section 770 of the Dodd-Frank Wall 

12 Street Reform and Consumer Protection Act, as 

13 paragraph (31); and 

14 (3) by adding at the end the following new 

15 paragraph: 

16 ‘‘(32) FAMILY OFFICE.— 

17 ‘‘(A) IN GENERAL.—The term ‘family of18 fice’ means a company (including any director, 

19 partner, trustee, or employee of such company, 

20 when acting in their respective capacities as 

21 such) that— 

22 ‘‘(i) has no clients other than family 

23 clients; 

24 ‘‘(ii) is— 

25 ‘‘(I) owned, directly or indirectly, 

26 by, 


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1 ‘‘(II) controlled, directly or indi2 rectly, by, or 

3 ‘‘(III) operated primarily for the 

4 benefit of, 

5 family clients; and 

6 ‘‘(iii) does not hold itself out to the 

7 public as an investment adviser. 

8 ‘‘(B) GRANDFATHERING.—A person de9 scribed under section 409(b)(3) of the Dodd10 Frank Wall Street Reform and Consumer Pro11 tection Act, but who otherwise meets the re12 quirements under subparagraph (A), shall qual13 ify as a family office. 

14 ‘‘(C) DEFINITIONS.—For purposes of this 

15 paragraph: 

16 ‘‘(i) CONTROL.—The term ‘control’ 

17 means the power to exercise a controlling 

18 influence over the management or policies 

19 of a company, unless such power is solely 

20 the result of being an officer of such com21 pany. 

22 ‘‘(ii) FAMILY CLIENT.—The term 

23 ‘family client’ means: 

24 ‘‘(I) Any family member. 

25 ‘‘(II) Any key employee. 


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1 ‘‘(III) Any charitable foundation, 

2 charitable organization, charitable 

3 trust, or other non-profit organization 

4 established or controlled, directly or 

5 indirectly, by persons one or more of 

6 whom is a family client. 

7 ‘‘(IV) Any trust or estate funded 

8 exclusively by one or more family 

9 members or established primarily for 

10 the benefit of one or more family cli11 ents. 

12 ‘‘(V) Any limited liability com13 pany, partnership, corporation, or 

14 other entity, if— 

15 ‘‘(aa) such entity is major16 ity-owned or controlled, directly 

17 or indirectly, by, or operated pri18 marily for the benefit of, one or 

19 more family clients; 

20 ‘‘(bb) the family office is 

21 giving investment advice to such 

22 entity; and 

23 ‘‘(cc) persons who are not 

24 otherwise defined as a family cliVerDate Mar 15 2010 21:45 Jun 20, 2011 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H2225.IH H2225

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1 ent do not own interests in such 

2 entity. 

3 ‘‘(VI) Any former family mem4 ber. 

5 ‘‘(VII) Any former key employee, 

6 if, upon the termination of such indi7 vidual’s employment by the family of8 fice or family client, the former key 

9 employee shall not receive investment 

10 advice from the family office or the 

11 family client (or invest additional as12 sets with a family office-advised trust, 

13 charitable foundation, or entity), other 

14 than with respect to assets advised, 

15 directly or indirectly, by the family of16 fice or family client immediately prior 

17 to the termination of such individual’s 

18 employment, except that a former key 

19 employee shall be permitted to receive 

20 investment advice from the family of21 fice with respect to additional invest22 ments that the former key employee 

23 was contractually obligated to make, 

24 and that relate to a family office ad25 vised investment existing, in each 


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1 case, prior to the time the person be2 came a former key employee. For pur3 poses of this subclause, the term ‘fam4 ily office’ shall include any entity de5 scribed under subclause (V). 

6 ‘‘(iii) FAMILY MEMBER.— 

7 ‘‘(I) IN GENERAL.—The term 

8 ‘family member’ means: 

9 ‘‘(aa) Any natural person 

10 whose economic activities created 

11 or substantially contributed to 

12 the family’s wealth, and such 

13 person’s spouse. 

14 ‘‘(bb) The siblings, parents, 

15 grandparents of a person de16 scribed in item (aa). 

17 ‘‘(cc) The spouse of a person 

18 described in item (bb). 

19 ‘‘(dd) The siblings of a per20 son described in item (bb) or 

21 (cc). 

22 ‘‘(ee) The spouse of a person 

23 described in item (dd). 


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1 ‘‘(ff) The lineal descendant 

2 of a person described in item 

3 (bb), (cc), (dd), or (ee). 

4 ‘‘(gg) The spouse of a per5 son described in item (ff). 

6 ‘‘(II) CONSTRUCTION.—For pur7 poses of this clause— 

8 ‘‘(aa) the term ‘lineal de9 scendant’ includes natural chil10 dren, adopted children, and step11 children; 

12 ‘‘(bb) the term ‘spouse’ in13 cludes spousal equivalents; and 

14 ‘‘(cc) the terms ‘siblings’, 

15 ‘parents’, and ‘grandparents’ in16 clude step-siblings, step-parents, 

17 and step-grandparents, respec18 tively. 

19 ‘‘(iv) FORMER FAMILY MEMBER.—The 

20 term ‘former family member’ means a 

21 spouse or a descendant who was a family 

22 member but is no longer a family member 

23 due to a divorce or other similar event. 

24 ‘‘(v) KEY EMPLOYEE.—The term ‘key 

25 employee’ means any natural person (and 


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1 such person’s spouse or lineal descendant) 

2 who is an executive officer, director, trust3 ee, general partner, or person serving in a 

4 similar capacity, of the family office or any 

5 employee of the family office (other than 

6 an employee performing solely clerical, sec7 retarial, or administrative functions) who, 

8 in connection with his or her regular func9 tions or duties, participates in the invest10 ment activities of the family office. For 

11 purposes of this subclause, the term ‘fam12 ily office’ shall include any entity described 

13 under clause (ii)(V). 

14 ‘‘(vi) SPOUSAL EQUIVALENT.—The 

15 term ‘spousal equivalent’ means a cohabi16 tant occupying a relationship generally 

17 equivalent to that of a spouse. 

18 ‘‘(D) INVOLUNTARY EVENTS.—If— 

19 ‘‘(i) a person that is not a family cli20 ent becomes a client of the family office as 

21 a result of the death of a family member 

22 or key employee or other involuntary trans23 fer from a family member or key employee, 

24 or 


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1 ‘‘(ii) a person ceases to be a family 

2 client, 

3 that person shall be deemed to be a family cli4 ent until the end of the 1-year period beginning 

5 on the date that it is both legally and prac6 tically feasible for the family office to transfer 

7 the affected assets to such person, but in no 

8 event earlier than 1 year from the date that it 

9 becomes legally feasible to transfer the affected 

10 assets unless it becomes practically feasible to 

11 affect such a transfer sooner.’’. 

Æ 


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