The SEC staff has issued frequently asked questions on the SEC’s rule regarding exemption of family offices from registration under the Investment Adviser Act. The Dodd-Frank Act required the SEC to adopt this exemption.
Some highlights of the FAQs include:
- A board comprised of independent board members that are less than a majority does not preclude reliance on the family office exemption.
- A non-family client owning non-voting shares would cause the office to lose its qualification as a family office under the rule.
- The key employee definition does not include key employees of a family-owned operating company that is not a family office.
- In-laws do not qualify as family members when they are related through the spouse of the common ancestor or through spouses or spousal equivalents that are family members.
- The definition of family member does not include descendants of a stepchild whose parent later divorced the family member stepparent.
- Examples of spousal equivalents include same-sex domestic partners as well as opposite sex partners that have determined not to marry even though they live together in a relationship generally equivalent to married couples.
- Activities such as providing non-advisory services (such as catering, tax filing, accounting, housekeeping) to non-family members do not affect the determination of whether or not the family office may rely on the rule. However, advisory services cover a broad range of activities and a family office should consider carefully whether any of the services it provides to non-family members are advisory services that make it subject to the Advisers Act.
Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.