An investment adviser in Illinois is granted full discretion over a client’s account but instructs the custodian to send duplicate statements directly to clients. The adviser never directly holds client funds or securities. Which of the following best describes the adviser's recordkeeping or reporting obligations regarding custody?

1. AThe adviser is considered to have custody and must comply with surprise examination requirements
2. BThe adviser is NOT considered to have custody and is exempt from surprise examination requirements✓ Correct answer
3. CThe adviser must deliver Form ADV Part 2 upon each change in client portfolio holdings
4. DThe adviser is required to provide audited financial statements to all clients

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