The United States Securities and Exchange Commission has made its definition of “family office” more narrow, which some say could possibly force offices to lose clients or incur heavy costs to comply under the new rule.
According to a statement by SEC, private family offices will be exempt from regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act only if they advise family clients, do not project themselves as investment advisers and are completely controlled by the family.
But Mike Holden, chief operating officer of GenSpring multi family office in the US told CampdenFO that this could be detrimental to family offices that have so far not felt the need to register with the SEC.
He said: “Single family offices that are not grandfathered will need to assess whether their current clients meet the definitions under the rule. Some may face a choice of registering or being forced to discontinue serving some clients.”
Family offices have traditionally not had to register with the SEC under the Advisers Act 1940 as advisers with fewer than 15 clients were exempt, allowing the wealthy families to maintain a much sought-after level of privacy. But the new SEC ruling has repealed this exemption.
Holden reckons that this will impact smaller multi family offices that have so far relied on this exception. He said: “Many firms that fall into this category will face a difficult choice since the incremental cost of complying could be material given their size.”
Although there is not much difference in terms of the family office definition provided by SEC in October last year, the new rules narrow the term some more – now a family office is limited to serving families not beyond its 10th generation, which could possibly affect operations of some of the country’s oldest family offices.
With GenSpring already registered with the SEC, the ruling will not affect it, but Holden reckons the added restrictions could see a consolidation of the family office industry in the US.
“The rules may create new opportunities for partnering as small firms and affected single family offices weigh their options. Some will choose to join forces with firms that already have the necessary registration and compliance infrastructure in place,” he said.