The Uninvited Guest: Dodd-Frank and the Family OfficeJanuary 2012
The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") significantly changed the law regarding required registration as an investment adviser pursuant to the provisions of the Investment Advisers Act of 1940 (the "Act"). Because of these significant changes every family office that provides services falling within the Act's definition of an "investment adviser" needs to determine as an urgent matter whether it is required to register as an investment adviser pursuant to Dodd-Frank. If registration is required the deadline for becoming registered is March 30, 2012.
Prior to the enactment of Dodd-Frank, there was a so-called private adviser exemption from the registration requirements of the Act that was generally available for investment advisers that had fewer than 15 clients during the preceding 12 months and that did not hold themselves out to the public as an investment adviser. Dodd-Frank eliminated this private adviser exemption and generally requires any person or entity that acts as an investment adviser to register with the SEC or a state securities commissioner and comply with the record keeping, periodic examination and other provisions of the Act (regardless of the number of clients) unless an exemption or exclusion from such registration requirement is available. Generally an investment adviser with less than $100M in assets under management registers with the state in which it has its principal place of business and an investment adviser with assets under management of $100M or more registers with the SEC.
However, Dodd-Frank also created an exclusion from the provisions of the Act for a so-called "family office." The SEC has stated that the core policy rationale behind the new family office exclusion is that a family managing its own wealth does not need the protections afforded to investors pursuant to the Act. Because a family office is excluded from the definition of an investment adviser under the Act, it is not subject to the registration, record keeping, periodic examination or other provisions of the Act and cannot be required to register as an investment adviser by a state, but is subject to state antifraud regulation. Similarly, the supervised persons of a family office cannot be required to register with a state as investment adviser representatives.
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