SEC Proposes New Family Office Rule

by Glen Shapiro, LawAndTax-News.com, New York

15 October 2010

The United States Securities and Exchange Commission (SEC) has proposed a new rule, based on requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which would determine whether "family offices" can continue to be excluded from the Investment Advisers Act of 1940.

Family offices are entities established by families to manage their financial portfolios and provide tax and estate planning and similar services. Single family offices generally serve families with at least USD100m or more of investable assets. It has been estimated that there are 2,500 to 3,000 single family offices in the US managing more than USD1.2 trillion in assets.

Historically, family offices have not been required to register with the SEC under the Advisers Act because of an exemption provided to investment advisers with fewer than 15 clients. However, the Dodd-Frank Act removes that exemption to enable the SEC to regulate hedge fund and other private fund advisers, but includes a new provision requiring the SEC to define family offices in order to continue to exempt them from regulation under the Advisers Act.

The SEC is therefore proposing to define a family office as any firm that provides investment advice only to family members, as defined by the rule; certain key employees; charities and trusts established by family members; and entities wholly-owned and controlled by family members. It should also itself be wholly-owned and controlled by family members, and not hold itself out to the public as an investment adviser.

Public comments on the proposed rule should be received by the SEC by November 18, 2010.

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