SEC proposal targets family office investments

Washington, D.C., Oct. 12, 2010 — The Securities and Exchange Commission today proposed a new rule, based on requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, that would help those managing their own family's financial portfolios determine whether their "family offices" can continue to be excluded from the Investment Advisers Act of 1940.

Family offices are entities established by wealthy families to manage their money and provide tax and estate planning and similar 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 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 exempt them from regulation under the Advisers Act.

The Commission is 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.
  • Is wholly owned and controlled by family members.
  • Does not hold itself out to the public as an investment adviser.

Public comments on the proposed rule should be received by the Commission by Nov. 18, 2010.

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