Over the last two months, the Securities and Exchange Commission (SEC) voted to propose several new rules to strengthen the SEC’s oversight of investment advisers and fill key gaps in the regulatory landscape.
The SEC’s proposed rules would implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that, among other things:
- Facilitate registration of advisers to hedge funds and other private funds with the SEC.
- Implement the Dodd-Frank Act’s mandate to require reporting by certain advisers that are exempt from SEC registration.
- Increase the asset threshold for advisers to register with the SEC.
- Define “venture capital fund” and provide clarity regarding certain exemptions to investment adviser registration.
The SEC also proposed amendments to rules that would require disclosure of greater information by investment advisers and the private funds they manage, as well as amendments that would revise the Commission’s pay-to-play rule.
Additionally, a new rule was proposed that would help those managing their own family’s financial portfolios determine whether their “family offices” can continue to be excluded from the Investment Advisers Act of 1940.
Family offices are entities established by wealthy families to manage their money and provide tax and estate planning and similar services.
Historically, family offices have not been required to register with the SEC under the Advisers Act because of an exemption provided to investment advisers with fewer than 15 clients. The Dodd-Frank Act removes that exemption to enable the SEC to regulate hedge fund and other private fund advisers, but includes a new provision requiring the SEC to define family offices in order to exempt them from regulation under the Advisers Act.
The Commission is proposing to define a family office as any firm that:
- Provides investment advice only to family members, as defined by the rule; certain key employees; charities and trusts established by family members; and entities wholly owned and controlled by family members.
- Is wholly owned and controlled by family members.
- Does not hold itself out to the public as an investment adviser.
These proposed changes were the subject of a CLE on December 15, 2010, presented by Jacqueline M. Benson, Esq.