Recently, the Securities and Exchange Commission (“SEC”) announced its timeline for the implementation of financial reform under the Dodd-Frank Act. See Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act - Upcoming Activity.
In accordance with that timeline, the SEC has released its proposed definition for “family office” under the Dodd-Frank Act. See SEC Proposes New Family Office Definition Under Dodd-Frank Act, Release No. IA-3098 (October 12, 2010).
Repeal of 15-Client Exemption for Investment Advisers
Previously, section 203(b)(3) provided that investment advisers were eligible for exemption from registration under the Advisers Act if, during the course of the preceding 12 months, it had fewer than 15 clients and did not offer its services to the general public. The new definition, in accordance with the Dodd-Frank Act, will no longer include the 15-client exemption contained in section 203(b)(3) of the Advisers Act.
Of consequence, advisers to those companies fitting the definition of a family office will be still exempt from registration under the Investment Advisers Act of 1940 (“Advisers Act”).
Definition of Family Office
The SEC is proposing to define a family office as any firm that:
(1) Provides investment advice only to family members, as defined by the rule; certain key employees, charities and trusts established by family members and entities wholly owned and controlled by family members;
(2) Is wholly owned and controlled by family members; and
(3) Does not hold itself out to the public as an investment adviser.
Public Comments
Public comments on the proposed rule should be received by the SEC by November 18, 2010.
Effective and Compliance Dates
During the period of April to July 2011, and following the review of public comments, the SEC plans to adopt a final rule based on the submitted proposal for the definition of family office.
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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.
