SEC Release Excluding "Family Office" From The Definition Of "Investment Adviser" Under The Investment Advisers Act of 1940

Anderson Kill White Paper

PUBLISHED ON: November 14, 2011

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The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) removed an exemption for investment advisers with fewer than 15 clients permitting the Securities and Exchange Commission (the “Commission”) to further regulate hedge funds and other private fund advisers. However, Dodd-Frank also included a provision requiring the Commission to define “family offices” in order to exempt them from regulation under the Investment Advisers Act.

In its June 22, 2011 Release, the Commission adopted Rule 202(a)(11)(G)-1 under the Advisers Act in which it proposed a definition of “family office” which became effective on August 22, 2011. Such Rule states that a family office is any company that (i) provides investment advice only to “family clients”, (ii) is wholly owned by family clients and is exclusively controlled by family members and/or family entities, and (iii) does not hold itself out to the public as an investment adviser. The new rule adopted by the Commission 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.

The adopted rule also includes a “grandfathering” provision for the benefit of advisors that satisfy the definition of “family office” but for the fact that they provide investment advice to certain non-family clients. They would also not need to register.

“Family Offices” outside of the exemption must register by March 30, 2012.