On October 12, the SEC proposed a new rule under the Investment Advisers Act of 1940 (Rule 202(a)(11)(G)-1) defining a "family office," as directed by the Dodd-Frank Act. This proposal is the SEC's first published Advisers Act rulemaking proposal under the Dodd-Frank Act. The Dodd-Frank Act amended the Advisers Act, effective July 21, 2011, to exclude family offices, as defined by the SEC, from the definition of an investment adviser. Under the SEC's proposed definition, a family office is a company (including its directors, partners, trustees, and employees acting within the scope of their position or employment) that: has only "family clients," is wholly owned and controlled, directly or indirectly, by family members, and does not hold itself out to the public as an investment adviser. A "family client" includes family members, key employees of the family office, charitable entities established and funded exclusively by family members, trusts or estates existing for the sole benefit of family clients, and entities wholly owned or controlled (directly or indirectly) by, and operated for the sole benefit of, family clients.
The proposal includes a grandfathering provision, as required by the Dodd-Frank Act, that includes in the definition of family office any person that was not registered or required to be registered as an investment adviser under the Advisers Act on January 1, 2010 solely because the person provided investment advice, and was engaged before January 1, 2010 in providing investment advice, to certain natural persons and entities associated with a family office. A person that is a family office solely because of the grandfathering provision remains subject to the antifraud provisions of the Advisers Act. Family offices that qualify for the exclusion from the definition of an investment adviser at the federal level would not be subject to registration as investment advisers under state securities laws. Comments on the proposed rule are due on or before November 18, 2010.