FAMILY OFFICES
and
INVESTMENT ADVISER REGULATION
after
DODD-FRANK
Matthew C. Dallett
mdallett@eapdlaw.com
(617) 239-0303
Background
“Family Office” – a company operated by a family
that is managing its own wealth
Historically, family offices have avoided investment
adviser registration by:
 Obtaining individual exemptive order from SEC
 Meeting “Private Investment Adviser” exemption
(14 clients or fewer)
Or by ignoring it . . .
Background
Dodd-Frank Act
 Eliminates Private Investment Adviser exemption
 Requires registered advisers with AUM less than
$100M to register with state(s) instead of SEC
 N/A to advisers based in NY, MN and WY
 Formalizes “Family Office” exclusion from
“investment adviser” status
 Excluded Family Offices also outside state
regulation
Family Office Exclusion
1. Only “Family Clients”
 Involuntary transferee included for 1 year
2. Owned only by Family Clients
3. Controlled only by “Family Members”
4. Does not “hold itself out to the public” as an
investment adviser
Family Office Exclusion
Family Members
 Descendants of a common ancestor no more than
10 generations back from youngest generation
 The common ancestor may be changed to adapt
to circumstances over time
 Includes
 Adoptive, step- and foster-children
 Spouses and spousal equivalents
Family Office Exclusion
Family Clients
1. Family Members
2. Former Family Members
3. Key Employees
 Incl. spouse with joint interest in AUM
4. Former Key Employees
 Limited to AUM at termination of employment
5. Estates of (1) – (4)
Family Office Exclusion
Family Clients (cont.)
6. Irrevocable trusts:
 Family Clients are sole current beneficiaries
or
 Funded solely by Family Client(s) and Family
Clients and Non-Profit/Charities are sole
current beneficiaries
7. Revocable trust
 Family Client(s) is sole grantor
8. Certain trusts established by Key Employees
Family Office Exclusion
Family Clients (cont.)
9. Non-profit, charitable foundation, charitable trust
or other charitable organization if:
 All funding came exclusively from Family
Client(s)
 For charitable lead and charitable remainder
trusts, current beneficiaries must be other
Family Clients or charitable/nonprofit
organizations
10. Any company (other than an “investment
company”) that is wholly-owned by, and operated
only for the benefit of, Family Clients.
Family Office Exclusion
Wholly owned by Family Clients
 Permits Key Employees to hold equity as an
incentive
Exclusively controlled by Family Members
 Officer’s authority ≠ “control”
No “holding out to public as an investment adviser”
 Includes identifying the company as an
investment adviser in public communications
Family Office Exclusion
A company is grandfathered under the exclusion if it
meets the definition except that it provides investment
advice to:
 An “accredited investor” who invested with the
Family Office before 1/1/10 when he or she
was a director, officer or employee
 Any company owned exclusively and
controlled by a Family Member that has
received advice from the Family Office since
before 1/1/10
 Certain investment advisers that have provided
advice to and invested alongside the Family
Office since before 1/1/10
Transition


New exclusion is now in effect
Family Offices that have been relying on former
Private Investment Adviser exemption have grace
period until 3/30/12 to:
 Restructure (if necessary) to comply with the
exclusion
 Register with the SEC or state(s), as
applicable (file by 2/14/12)
Registration requires substantial advance planning:
 Compliance procedures
 SEC/client disclosures
 Exam requirements for personnel