Following the stock market crash of 1929 and the Great Depression which followed, Franklin D. Roosevelt’s 1932 democratic campaign platform called for regulation of the securities exchanges “to the full extent of federal power.” The current fear shared by most Single Family Offices (“SFOs”) that are not registered with the United States Securities and Exchange Commission (“SEC”) is that they may soon come to appreciate the full scope and breadth of such power exercised in the almost unfettered discretion of one of the most powerful government agencies in existence. Although the recently released final regulations, which delineate the limits of the new family office exemption, reflect a more moderate position than initially set forth in the 2010 proposed regulations, the new regulations serve to significantly limit the number of SFOs which will be exempt from registration with the SEC. Perhaps as many as one-half of all SFOs not currently registered with the SEC may now be required to do so on or before March 30, 2012.
SEC Release IA-3220 was issued on June 22, 2011, adopting rule 202(a)(11)(G)-1 (the “Final Rule”) under the Investment Advisers Act of 1940 pursuant to the dictates of the Dodd-Frank Act. The Final Rule exempts “Family Offices” from regulation under the Advisers Act. The long-standing Private Advisor Exemption which included SFOs that managed assets for up to 15 family members was repealed effective July 21, 2011. Family offices which fail to qualify for the new Family Office exemption or another exemption must register with the SEC as a registered Investment Adviser under the Advisers Act.
Consequently, SFOs may be well advised to retain counsel immediately in order to assess their level of compliance with the new Final Rule, provide time to register, seek an exemption order, or restructure to avoid SEC registration. The greatly increased clarity and specificity of the new Final Rule will exclude a significant number of previously exempt SFOs and is likely to result in greater scrutiny and concomitant greater compliance.
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