The Proposed Rule provides a clear definition which is consistent with other regulatory provisions. However, it does not clearly draw bright line standards or indicia to determine whether investment advice is based on entity objectives versus beneficial owner objectives. Generally, investment advice to any entity with a small number of beneficial owners would consider the objectives of the owners collectively. Surely a conclusion based upon such fine distinctions is cumbersome, if not unworkable. The relationship should be the only test.
Residence can vary without the adviser's knowledge.
The Act prohibits a State from imposing books and records or bonding requirements on an adviser which differ from those imposed by the State where the adviser maintains its principal office, assuming that the adviser is registered there. The requirements imposed by various States respecting financial statements are widely disparate. The later may be procured by the cash basis adviser only at substantial cost and with great effort. Likewise, for example, the State of Hawaii requires errors and omissions insurance while the State of adviser's principal office may not even require a surety bond. While the Executive Summary recognizes this potential, incorporation of its conclusions in the rule would give them the force of law.