The SEC staff issued a December 2014 IM Guidance Update (the “Family Office Guidance Update”) concerning whether certain key employee trusts qualify as family clients under Rule 202(a)(11)(G)-1 (the “Family Office Rule”) under the Investment Advisers Act (the “Advisers Act”). The Family Office Rule provides an exception from the Advisers Act definition of investment adviser for families that manage their own wealth. Among other things, the exception requires that the investment advice provided must be provided only to “family clients”. In recognition of the fact that family offices need to attract and retain talented investment professionals as employees, the Family Office Rule permits family offices to include as family clients certain non-family members, including “[a]ny trust of which each trustee or other person authorized to make decisions with respect to the trust is a key employee; and each settlor or other person who has contributed assets to the trust is a key employee or the key employee’s current and/or former spouse or spousal equivalent . . .”
The SEC staff had been asked (i) whether certain trust decision-making powers can be split between a key employee and a non-key employee; and (ii) whether the key employee who contributed assets to the trust must also be the key employee authorized to make decisions with respect to that trust. According to Family Office Guidance Update, a trust would qualify as a “family client” if a non-key employee makes non-investment decisions for the trust, provided investment decisions are made by a key employee. In addition, the Family Office Guidance Update states that the SEC staff believes it is within the intent of the Family Office Rule for one key employee to make investment decisions on behalf of another key employee’s trust.