SEC Proposes New Family Office Rule
Friday, October 15, 2010
The United States Securities and Exchange Commission (SEC) has proposed
a new rule, based on requirements under the Dodd-Frank Wall Street Reform and
Consumer Protection Act, which would determine whether "family offices"
can continue to be excluded from the Investment Advisers Act of 1940.
Family offices are entities established by families to manage their financial
portfolios and provide tax and estate planning and similar services. Single
family offices generally serve families with at least USD100m or more of investable
assets. It has been estimated that there are 2,500 to 3,000 single family offices
in the US managing more than USD1.2 trillion in assets.
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. However, the Dodd-Frank Act removes that exemption
to enable the SEC to regulate hedge fund and other private fund advisers, but
includes a new provision requiring the SEC to define family offices in order
to continue to exempt them from regulation under the Advisers Act.
The SEC is therefore proposing to define a family office as any firm that provides
investment advice only to family members, as defined by the rule; certain key
employees; charities and trusts established by family members; and entities
wholly-owned and controlled by family members. It should also itself be wholly-owned
and controlled by family members, and not hold itself out to the public as an
Public comments on the proposed rule should be received by the SEC by November