Hedge Fund Regulation - Family Office Definition - Comment Letters

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Gavel.png FINAL RULE: This page refers to the proposed rulemaking on family offices. The SEC final rule was issued at its June 22, 2011 open meeting.
Dodd-Frank Timeline, Family Office Definition
Comment Deadline Final Rule Issue Effective Date
November 18, 2010 June 29, 2011 August 29, 2011

Comment letters addressing the definition of family offices.

American Benefits Council - November 18, 2010

Family Offices
November 18, 2010

From the comment letter:

"The Council and the Committee on the Investment of Employee Benefit Assets (CIEBA), as representatives of the plan sponsor community, request that in crafting the final rule excluding 'family offices' from the definition of an investment adviser for purposes of the Advisers Act, the Commission be mindful of the role that plan sponsors play in advising employee benefit plans and plan participants. Specifically, we ask the Commission to clarify that a family office otherwise exempt from registration under the rule, or an individual employee or officer of such a family office, will not be required to register as an investment adviser merely by reason of advising an employee benefit plan sponsored by the family office for its own employees."

The letter suggests that the simple act of advising an employee benefit plan or participant should not be cause for the formal registration of that person as an adviser.

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American Bar Association - November 18, 2010

Family Offices
November 18, 2010

A summary of the comment letter, by category:

  • Expansion of Definition of "Family Members"
  • Allowing Additional Time to Address Involuntary Transfers
  • Including Former Family Members
  • Broadening the Inclusion of Family Trusts, Charitable Organizations, and Other Family Entities
  • Key Employees Should Be Included

The ABA recommends the following definition for "family office": "Any form of business entity or company (i)established by one or more family clients, (ii)controlled (directly or indirectly) by one or more family clients, or (iii)existing primarily for the benefit of one or more family clients."

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American Institute of CPAs - November 16, 2010

Family Offices
November 16, 2010

According to the letter, the AICPA believes that the definition of "family clients" should be revised to include all possible clients and arrangements within a single family office, specifically "founder," "family members," "former family members," "family trusts," charitable organizations, and other family entities," "key employees," and "involuntary transfers."

It is also suggested that an overall ban of a non-family member owning a family office is overly restrictive and would require a complete restructuring of the way traditional single family offices are run. The AICPA also offers recommendations concerning a family office holding itself out to the public as an investment adviser, grandfathering provisions, investment advisory services provided without compensation, and relief provisions.

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Perkins Coie - November 11, 2010

Family Offices
November 11, 2010

Perkins Coie writes on behalf of The Private Investor Coalition Inc., an organization wholly composed of single family offices as members.

The central thesis of the comment letter is this:

"It cannot be emphasized strongly enough that single family offices have existed for over 100 years. They were formed to implement very important and complex objectives, including investment management, corporate succession, estate, gift, and income tax planning and charitable giving issues that are important to the members of the family. Implementation of these goals has often required multifaceted structuring, through irrevocable trusts, for example, that cannot easily be changed and that contemplate lengthy time horizons for their administration. As a result, it will be extremely difficult, if not almost impossible, for many single family offices to engage in any kind of significant restructuring, solely to come into compliance with the Proposed Rule as drafted, without triggering very serious collateral consequences to the important and complex goals that were the reason for their formation."

The letter also suggests a revision of the definition of "founder" to include other persons who might perform this role and a revision of the concept of "owned and controlled," as the definition provided by the proposed rule does not adequately represent all versions of ownership and control utilized by single family offices. Perkins Coie and the coalition also offer comments on holding out, grandfathering provisions, previously issued exemptive orders, and pension plans and deferred compensation. The closing of the letter provides a cost-benefit analysis of the proposed rule.

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References

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