The SEC’s proposed rule under the Dodd-Frank Act defining which family offices will be exempt from regulation as investment advisers raises many questions requiring close attention.

In October 2010 the U.S. Securities and Exchange Commission (SEC) issued a rule proposal under the Investment Advisers Act of 1940 to define the term “family office” for purposes of a new statutory exemption from the definition of an investment adviser that will take effect July 21, 2011. The statutory exemption, established by section 409 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, implements a congressional judgment that family offices should not be regulated as investment advisers. It was needed because the Dodd-Frank Act repeals—also effective July 21, 2011—the so-called “private adviser exemption” from registration as an investment adviser under section 203(b)(3) of the Advisers Act, upon which many family offices have previously relied. This newsletter discusses the background of the proposed exemption, describes the proposed rule’s definitions and notes a number of questions that have been raised concerning it.