On October 12, 2010, in its first step towards implementing the provisions of Section 409 of the Dodd-Frank Act, the SEC proposed new Rule 202(a)(11)(G)-1 under the Advisers Act defining the term “family office” for the purpose of excluding them from the definition of “investment adviser” in the Advisers Act, and thereby exempting them from registration as investment advisers under the Advisers Act.

Historically, family offices that would otherwise fall within the definition of investment adviser have relied on the “private adviser exemption” under Section 203(b) of the Advisers Act, which provides an exclusion for advisers with fewer than 15 clients that do not hold themselves out as investment advisers. Throughout the years, the SEC has also provided significant exemptive relief to family offices for which the private adviser exemption was unavailable. Effective July 21, 2011, the Dodd-Frank Act renders obsolete the private adviser exemption. The proposed Rule, if adopted, would effectively codify a substantial portion of the exemptive relief provided to family offices over the years.

Comments on the rule proposal are due by November 18, 2010.