The Securities and Exchange Commission (the “SEC”) has adopted a new rule to define “family offices” to be exempt from registration under the Investment Advisers Act of 1940 (the “Advisers Act”). “Family offices” are entities established by wealthy families for the purpose of managing their wealth and providing tax and estate planning services to family members. Under the new rule, which stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act, to qualify for the exemption a family office must meet three criteria: (1) it must provide investment advice only to “family clients” (this includes family members, former family members, key employees, former key employees, and other family clients, including certain trusts, estates, and charities); (2) it must be wholly-owned by family clients and exclusively controlled by family members and family entities; and (3) it may not hold itself out to the public as an investment adviser. Family offices not meeting the exclusion must register with the SEC under the Advisers Act and with applicable state securities authorities by March 30, 2012.
Family offices that obtained exemptive orders from the SEC prior to the enactment of the new rule may continue to operate under their existing exemptive orders or may elect to operate under the new rule. Lastly, the Dodd-Frank Act’s grandfathering provision applies to the new rule. As such, the SEC may not preclude certain family offices from meeting the new exclusion solely because they provided investment advice to certain clients prior to January 1, 2010.
SEC Press Rel. No. 2011-134 (June 22, 2011)