Analyzing the Family Office Rule

Enacted in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) brought sweeping regulatory changes, many of which affect individuals and entities in the business of providing investment advice. Dodd-Frank amended the Investment Advisers Act of 1940 (Advisers Act) in two ways that are particularly noteworthy for family offices: It repealed the so-called “Private Adviser Exemption”¹ that exempted investment advisers with fewer than 15 clients from registration with and regulation by the Securities and Exchange Commission (SEC), and it created a new exemption for family offices that provide investment advice.² Many family offices that used to rely on the Private Adviser Exemption to avoid SEC registration must now determine whether they qualify for the family office exemption.

The SEC adopted a new rule in June 2011 (the Family Office Rule) defining a “family office” for purposes of the Advisers Act.³ The definition of family office that the SEC ultimately adopted took into account the concerns of a large number of family offices and their legal advisers, who had objected to portions of the proposed definition released in Fall 2010.⁴ As the SEC explained in the rule’s adopting release, family offices are “not the sort of arrangement that the Advisers Act was designed to regulate.”⁵