The SEC has proposed a rule that would exempt "family offices" from the definition of an investment adviser under the Investment Advisers Act of 1940. Family offices are generally entities created by families to manage significant family assets and provide tax and estate planning services. The recently enacted Dodd-Frank Act eliminates an exemption that family offices used to rely on to avoid registration under the Advisers Act. The exemption used to allow advisers will less than 15 clients to avoid registration with the SEC. The Dodd-Frank Act removed this exemption so that more regulation could be applied to hedge funds, but in passing the Act Congress required the SEC to define family offices in order to exempt them from the Advisers Act.

The new rule would define a family office as any firm that (1) provides advice about securities only to certain family members and key employees; (2) is wholly owned and controlled by family members; and (3) does not hold itself out to the public as an investment adviser.

The Commission estimates there are as many as 3,000 single family offices managing more than $1.2 trillion in assets. Comments on the proposed rule are due by November 18, 2010.