The U.S. Securities and Exchange Commission (SEC) has proposed a rule that could affect which family offices continue to be exempt from SEC investment advisor registration requirements.
The SEC has developed the proposed Rule 202(a)(11)(G)-1 to implement Section 409 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which may require some family offices to register as investment advisors under the Investment Advisors Act of 1940 and allow others to operate without registering.
In the proposed rule, the SEC would define a family office as a 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 advisor.
The SEC says the new rule would largely codify previous family office exemptive orders. In the exemptive orders, SEC officials were responding to the specific situations described by the applicants for the orders.
The proposed rule also includes a “grandfathering clause” that would keep the SEC from excluding certain family offices from the definition of family office solely because they provide (or had provided before Jan. 1, 2010) investment advice to certain clients.
Comments on the proposed rule are due Nov. 18.