Dodd-Frank 30 Day Countdown: Day 13

SEC Re-defines Family Office

With the enactment of Dodd-Frank comes the end of the exemption historically granted to family offices under the Investment Advisers Act of 1940.  In the past, investors with fewer than 15 clients could take advantage of the Act’s “private adviser exemption.”  But with Dodd-Frank eliminating this exclusion, family offices are no longer immune from registering with the SEC.

As part of its rulemaking responsibilities, the SEC recently voted on a definition of “family office” in order to help investment advisers determine if they fall under the SEC’s jurisdiction. According to the SEC, “‘family offices’ are entities established by wealthy families to manage their wealth and provide other services to family members, such as tax and estate planning services.”  Any family office that provides advice solely to family members not more than 10 generations removed from a common ancestor (as well as spouses, key employees, charities and trusts),  is owned and controlled by family members, and does not hold itself out to the public as an investment adviser, is exempt from registering under the Investment Adviser’s Act.

Historically, family offices that fell outside the private adviser exemption have sought and obtained relief from the SEC declaring those offices not to be investment advisers within the intent of the Advisers Act.  The new definition and exemption adopted by the SEC is drafted to be consistent with its previous approach to granting relief recognizing “the range of organizational, management, and employment structures and arrangements employed by family offices.”  Family offices that do not qualify for exemption under the new Dodd Frank rules have until March 30, 2012 to register with the SEC.

http://www.federalregister.gov/articles/2011/06/29/2011-16117/family-offices#p-3

-Stephanie Kane co-authored this post