SEC Finalizes Dodd-Frank Rules Affecting Investment Advisers: The SEC Adopted a Rule To Define 'Family Offices' That Will Be Excluded From the Definition of an Investment Adviser Under the ...


What is new with family offices?

The Dodd-Frank Act creates a new exclusion from the Advisers Act in Section 202(a)(11)(G) under which "family offices" are not investment advisers subject to the Advisers Act.1 Historically, family offices that fell outside the private adviser exemption have sought and obtained from the Securities and Exchange Commission ("SEC") orders under the Advisers Act declaring those offices not to be investment advisers within the intent of Section 202(a)(11) of the Advisers Act.2


Family offices, as defined by Rule 202(a)(11)(G)-1 (the "Rule") under the Advisers Act, are excluded from the Act's definition of "investment adviser," and thus, are not subject to any provisions of the Advisers Act.3 With some variations and modification, the scope of the Rule is generally consistent with the conditions of exemptive orders previously issued by the SEC.4 The SEC has typically provided an exclusion for family offices because family offices are viewed as not the sort of arrangement that the Advisers Act was designed to regulate.5 The SEC believes that disputes among family members concerning the operation of the family office could be resolved within the family unit or, if necessary, through state courts under laws designed to govern family disputes.6 It is important to note that the failure of a family office to be able to meet the conditions of the Rule will not preclude the family office from providing advisory services to family members; rather, the family office will need to register under the Advisers Act (unless another exemption is available) or seek an exemptive order from the Commission.7

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Reed Smith on:

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