It’s hard to digest and boring. I know. But it’s important stuff.
SEC staff just answered questions regarding the Family Office Rule. You’ll recall, that’s the carve out from the Dodd-Frank Act for family offices, so that family-run vehicles don’t have to register as investment advisers under the burdensome Advisers Act. There is, as we’ve previously reported, a lot of confusion among family members as to what precisely this all means. To lighten the burden, I’ve summarized some highlights of the SEC’s Q&A family office session, as reported in the Wolters Kluwer daily digest, SEC Today:Boring is in the eyes of the beholder.
Example: A family office has seven directors on its board, four of which are family members. Under the office’s governing documents, each director has equal voting power and there are no minority veto rights. According to the SEC staffers, such a family office would be deemed a legitimate family office, exempt from onerous Investment Adviser regulations, because “this arrangement would satisfy the requirement that the family office be exclusively controlled by family members or family entities, assuming there are no special shareholder agreements or other arrangements that would give someone other than a family member control over the management or policies of the office.”
Translation: Any individual or firm hoping to use a family office as a front to bypass the Advisers Act is asking for trouble. The message from the SEC is clear. Genuine families only allowed....MORE