The drafters of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") included an exclusion from the definition of "investment adviser" under the Investment Advisers Act of 1940 (the "Advisers Act") for any family office, as that term is defined by the SEC. In response, the SEC adopted rule 202(a)(11)(G)-1 to define the term "family office" for the purpose of the Dodd-Frank exclusion. This rule went into effect on August 28,2011.
Under this new rule, a family office must meet the following three requirements in order to fall within the scope of the exclusion and avoid the registration requirements of the Advisers Act:
1. Except in limited circumstances, a family office must have no clients other than "family clients," meaning (i) current and former family members (which includes any lineal descendants from a common ancestor not more than ten generations removed from the youngest generation of family members); (ii) current key employees (as well as former key employees, subject to certain restrictions); (iii) their spouses, spousal equivalents, or, under certain circumstances, former spouses; and (iv) the estates of these parties, as well as various types of trusts and charitable organizations controlled or funded solely by current or former family members or current key employees.
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