The SEC has approved a new rule to define “family offices” that are to be excluded from the Investment Advisers Act of 1940.  “Family offices” are entities established by wealthy families to manage their wealth and provide other services to family members, such as tax and estate planning services. 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.

The Dodd-Frank Act removed that exemption so the SEC can regulate hedge fund and other private fund advisers. However, Dodd-Frank also included a new provision requiring the SEC to define family offices in order to exempt them from regulation under the Advisers Act.

The new rule adopted by the SEC enables those managing their own family’s financial portfolios to determine whether their “family offices” can continue to be excluded from the Investment Advisers Act.

Which family offices will be excluded from Advisers Act regulation under the rule? Any company that:

  • Provides investment advice only to “family clients,” as defined by the rule.
  • Is wholly owned by family clients and is exclusively controlled by family members and/or family entities, as defined by the rule.
  • Does not hold itself out to the public as an investment adviser.

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