SECURITIES AND EXCHANGE COMMISSION 

17 CFR Part 275 

[Release No. IA-3220; File No. S7-25-10] 

RIN 3235-AK66 

Family Offices 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange Commission (the “Commission”) is 

adopting a rule to define “family offices” that will be excluded from the definition of an 

investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”) and thus 

will not be subject to regulation under the Advisers Act. 

EFFECTIVE DATE: [insert date 60 days after publication in the Federal Register], 

2011. 

FOR FURTHER INFORMATION CONTACT: Sarah ten Siethoff, Senior Special 

Counsel, or Vivien Liu, Senior Counsel, at (202) 551-6787 or <IArules@sec.gov>, 

Office of Investment Adviser Regulation, Division of Investment Management, U.S. 

Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-8549. 

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission is 

adopting rule 202(a)(11)(G)-1 [17 CFR 275.202(a)(11)(G)-1] under the Investment 

Advisers Act of 1940 [15 U.S.C. 80b] (the “Advisers Act” or “Act”).1 

15 U.S.C. 80b. Unless otherwise noted, when we refer to the Advisers Act, or any 

paragraph of the Advisers Act, we are referring to 15 U.S.C. 80b of the United States 

Code, at which the Advisers Act is codified. 

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TABLE OF CONTENTS 

I. BACKGROUND 

II. DISCUSSION 

III.	 PAPERWORK REDUCTION ACT 

IV.	 ECONOMIC ANALYSIS 

V.	 FINAL REGULATORY FLEXIBILITY ANALYSIS 

VI. STATUTORY AUTHORITY 

TEXT OF RULE 

I.	 BACKGROUND 

On October 12, 2010, the Commission issued a release proposing new rule 

202(a)(11)(G)-1 that would exempt “family offices” from regulation under the Advisers 

Act.2

 We proposed this rule in anticipation of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act’s (the “Dodd-Frank Act”)3 repeal of the private adviser 

exemption from registration contained in section 203(b)(3) of the Advisers Act, effective 

July 21, 2011, upon which many family offices currently rely.4 

The Dodd-Frank Act creates in its place a new exclusion from the Advisers Act in 

section 202(a)(11)(G) under which family offices, as defined by the Commission, are not 

investment advisers subject to the Advisers Act.5 Historically, family offices that fell 

outside the private adviser exemption have sought and obtained from us orders under the 

Advisers Act declaring those offices not to be investment advisers within the intent of 

2	 See Family Offices, Investment Advisers Act Release No. 3098 (Oct. 12, 2010) [75 FR 

63753 (Oct. 18, 2010)] (“Proposing Release”). “Family offices” are entities established 

by wealthy families to manage their wealth and provide other services to family 

members. See section I of the Proposing Release for a discussion of family offices. 

3	 Pub. L. No. 111-203, 124 Stat. 1376 (2010), at section 403. 

4	 15 U.S.C. 80b-2(b)(3). This provision exempts from registration any adviser that during 

the course of the preceding 12 months had fewer than 15 clients and neither held itself 

out to the public as an investment adviser nor advised any registered investment company 

or business development company. 

5	 See section 409 of the Dodd-Frank Act. 
 

 

 

 

 

 

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section 202(a)(11) of the Advisers Act.6 Recognizing this past practice, section 409 of 

the Dodd-Frank Act instructs that any family office definition the Commission adopts 

should be “consistent with the previous exemptive policy” of the Commission and 

recognize “the range of organizational, management, and employment structures and 

arrangements employed by family offices.”7

 We received approximately 90 comments on the proposed rule, most of which 

were submitted by law firms representing family offices.8 Many urged that we adopt a 

broader exemption to accommodate typical family office structures that were not 

reflected in our previous exemptive orders.9

 Some urged us to include exceptions in 

various aspects of the rule to allow individuals or entities with no family relations to 

nevertheless receive investment advice from the family office without the protections of 

6	 See, e.g., Bear Creek Inc., Investment Advisers Act Release Nos. 1931 (Mar. 9, 2001) 

(notice) [66 FR 15150 (Mar. 15, 2001)] and 1935 (Apr. 4, 2001) (order); Riverton 

Management, Inc., Investment Advisers Act Release Nos. 2459 (Dec. 9, 2005) [70 FR 

74381 (Dec. 15, 2005)] and 2471 (Jan. 6, 2006) (order). We are troubled by comment 

letters we receive by counsel to some family offices that appear to acknowledge that their 

clients were operating as unregistered investment advisers, although they were not 

eligible for the private adviser exemption and had not obtained an exemptive order from 

us. We note that an adviser may not “rely” on exemptive orders issued to other persons. 

7	 Section 409(b) of the Dodd-Frank Act. Section 409 also includes a “grandfathering 

clause” that precludes us from excluding certain family offices from the definition solely 

because they provide investment advice to certain clients and had provided investment 

advice to those clients before January 1, 2010. See section 409(b)(3) of the Dodd-Frank 

Act. 

8	 The public comments we received on the Proposing Release are available on our website 

at http://www.sec.gov/comments/s7-25-10/s72510.shtml. 

9	 See, e.g., Comment Letter of the American Bar Association, Section of Business Law and 

Section of Real Property, Trust and Estate Law (Nov. 18, 2010) (“ABA Letter”); 

Comment Letter of Perkins Coie/Private Investor Coalition Inc. (Nov. 11, 2010) 

(“Coalition Letter”); Comment Letter of Tannenbaum, Helpern, Syracuse & Hirschtritt 

LLP (Nov. 18, 2010) (“Tannenbaum Letter”). 
 

 

 

 

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the Advisers Act.10 Some disputed our interpretation of the legislative direction we 

received to define the term “family office” consistent with our previous exemptive 

orders.11 After careful consideration of these comment letters, we are adopting rule 

202(a)(11)(G)-1, with certain modifications from our proposal as further described 

below. 

II. DISCUSSION 

We are adopting new rule 202(a)(11)(G)-1 under the Advisers Act to define the 

term “family office” for purposes of the Act. Family offices, as so defined, are excluded 

from the Act’s definition of “investment adviser,” and are thus not subject to any of the 

provisions of the Act. The scope of the rule is generally consistent with the conditions of 

exemptive orders that we have issued to family offices. As with the proposal, and as 

discussed in more detail below, our final rule in some cases has modified those 

conditions to turn the fact-specific exemptive orders into a rule of general applicability 

and to take into account the need for certain clarifications and further modifications 

identified by commenters. 

As we discussed in the Proposing Release, our orders have provided an exclusion 

for family offices because we viewed them as not the sort of arrangement that the 

10	 See, e.g., Comment Letter of Miller & Martin PLLC (Nov. 18, 2010) (“Miller Letter”) 

(recommending that non-family clients be permitted de minimis investments in family 

limited liability companies, partnerships, corporations and other entities and be permitted 

de minimis ownership stakes in the family office itself); Comment Letter of Porter Wright 

(Nov. 10, 2010) (supporting various forms of non-family client investment through the 

family office with five percent de minimis maximums for each type of exception). 

11	 See, e.g., Coalition Letter. 
 

 

 

 

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Advisers Act was designed to regulate.12 Disputes among family members concerning the 

operation of the family office could, as we noted in the Proposing Release, be resolved 

within the family unit or, if necessary, through state courts under laws designed to govern 

family disputes. In light of the purpose of the exclusion and the legislative instructions 

we received, we have not expanded the exclusion, as several commenters suggested, to 

permit family offices to provide advisory services to multiple families or to clients who 

are not family members, other than certain key employees. 

The failure of a family office to be able to meet the conditions of the rule will not 

preclude the office from providing advisory services to family members either 

collectively or individually. Rather, the family office will need to register under the 

Advisers Act (unless another exemption is available) or seek an exemptive order from the 

Commission. A number of family offices currently are registered under the Advisers 

Act. 

A. Family Office Structure and Scope of Activities 

As proposed, rule 202(a)(11)(G)-1 contains three general conditions. First, the 

exclusion is limited to family offices that provide advice about securities only to certain 

“family clients.” Second, it requires that family clients wholly own the family office and 

family members and/or family entities control the family office. Third, it precludes a 

family office from holding itself out to the public as an investment adviser. In addition to 

these conditions, we have incorporated into the rule the “grandfathering” provision 

required by section 409 of the Dodd-Frank Act.13 

12	 See Proposing Release, supra note 2, at sections I and II for a discussion of the rationale 

for the family office exclusion. 

13	 See supra note 7 and section II.A.5 of this Release. 
 

 

 

 

 

 

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1. Family Clients 

A family office excluded from the Act is limited to an office that advises only 

“family clients.”14 As discussed in more detail below, family clients include current and 

former family members, certain employees of the family office (and, under certain 

circumstances, former employees), charities funded exclusively by family clients, estates 

of current and former family members or key employees, trusts existing for the sole 

current benefit of family clients or, if both family clients and charitable and non-profit 

organizations are the sole current beneficiaries, trusts funded solely by family clients, 

revocable trusts funded solely by family clients, certain key employee trusts, and 

companies wholly owned exclusively by, and operated for the sole benefit of, family 

clients (with certain exceptions).15

 a. Family Member 	 

Under the rule, a “family member” includes all lineal descendants of a common 

ancestor (who may be living or deceased) as well as current and former spouses or 

spousal equivalents of those descendants, provided that the common ancestor is no more 

than 10 generations removed from the youngest generation of family members.16 All 

children by adoption and current and former stepchildren also are considered family 

members. 

14	 Rule 202(a)(11)(G)-1(b)(1). 

15	 The term “company” used throughout this Release and rule 202(a)(11)(G)-1 has the same 

meaning as in section 202(a)(5) of the Advisers Act, which defines “company” as “a 

corporation, a partnership, an association, a joint-stock company, a trust, or any 

organized group of persons, whether incorporated or not; or any receiver, trustee in a case 

under title 11, or similar official, or any liquidating agent for any of the foregoing, in his 

capacity as such.” 

16	 Rule 202(a)(11)(G)-1(d)(6). 
 

 

 

 

 

 

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We have expanded persons who may be considered family members in response 

to several comments we received. We had proposed to define the term “family member” 

by reference to the “founder” of the family office, and generally to include the founder’s 

spouse (or spousal equivalent), their parents, their lineal descendants, and their siblings 

and their lineal descendants.17 Commenters observed that the proposed rule implicitly 

assumed that the founder of the family office is the initial generator of the family’s 

wealth and is an individual or couple.18 They noted that in many cases, however, family 

offices are established by persons several generations remote from the initial wealth 

generator.19 Some commenters also criticized our proposed approach because it would 

treat who could be a family member differently depending on when the family office was 

established.20 For example, one commenter stated that our proposal would have allowed 

a family office that was formed a long time ago to provide services to persons that are 

currently third or fourth cousins to each other, but that a family office established today 

17	 Proposed rule 202(a)(11)(G)-1(d)(5) (defining the founders as the “natural person and his 

or her spouse or spousal equivalent for whose benefit the family office was established 

and any subsequent spouse of such individuals.” Proposed rule 202(a)(11)(G)-1(d)(3) 

(defining family members as “the founders, their lineal descendants (including by 

adoption and stepchildren), and such lineal descendants’ spouses or spousal equivalents; 

the parents of the founders; and the siblings of the founders and such siblings’ spouses or 

spousal equivalents and their lineal descendants (including by adoption and stepchildren) 

and such lineal descendants’ spouses or spousal equivalents”). 

18	 See, e.g., Comment Letter of Dechert LLP (Nov. 29, 2010) (“Dechert Letter”); Comment 

Letter of Fried, Frank, Harris, Shriver & Jacobs LLP (Nov. 18, 2010) (“Fried Frank 

Letter”). 

19	 See, e.g., Coalition Letter; Comment Letter of the New York State Bar Association, 

Business Law Section, Securities Regulation Committee (Dec. 10, 2010) (“NY Bar 

Letter”). 

20	 See, e.g., NY Bar Letter; Comment Letter of Skadden, Arps, Slate, Meagher & Flom LLP 

(Nov. 17, 2010) (“Skadden Letter”). 
 

 

 

 

 

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may need to wait at least 40 or 50 years before being able to provide services to 

equivalent types of family members.21 

Some commenters recommended that the Commission address these concerns by 

leaving the term “family member” undefined,22 while others recommended that the 

Commission retain the approach of the proposed rule, but expand the rule to treat as 

family members grandparents, great-grandparents, aunts, uncles, great aunts, and great 

uncles of the founders and their spouses and children.23 Leaving the term family member 

undefined could allow typical commercial investment advisory businesses to rely on the 

exclusion (by, for example, designating an extremely remote family member as a 

common ancestor). On the other hand, attempting to expand the family member 

definition by ascending up the family tree from the founders would not address the 

difficulty in identifying the founders of the family office as identified by commenters and 

would not address the concern, depending on when the family office was founded, that 

the definition will not capture many family members of family offices established several 

generations after the initial family wealth was created. 

We are adopting, instead, an approach suggested in several comment letters that 

permits a family to choose a common ancestor (who may be deceased) and define family 

21 Skadden Letter. 

22 See, e.g., Comment Letter of Foley & Lardner LLP (Nov. 18, 2010) (“Foley Letter”); 

Miller Letter; Comment Letter of Northern Trust (Nov. 18, 2010) (“Northern Trust 

Letter”). 

23 See, e.g., Comment Letter of the American Institute of Certified Public Accountants 

(Nov. 16, 2010) (“AICPA Letter”); Comment Letter of The Blum Firm, P.C./Blum (Nov. 

18, 2010) (“Blum Letter”); Comment Letter of Hogan Lovells US LLP (Nov. 18, 2010) 

(“Hogan Letter”). 
 

 

 

 

 

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members by reference to the degree of lineal kinship to the designated relative.24 This 

approach avoids any assumptions regarding the source of family wealth and the 

inconsistent treatment of extended family members compared to the approach we 

proposed.25 In order to prevent families from choosing an extremely remote ancestor, 

which could allow commercial advisory businesses to rely on the rule, we are imposing a 

10 generation limit between the oldest and youngest generation of family members. Such 

a limit, suggested by several commenters, would constrain the scope of persons 

considered family members while accommodating the typical number of generations 

served by most family offices.26 

24	 See, e.g., ABA Letter; Comment Letter of Duncan Associates (Nov. 18, 2010) (“Duncan 

Letter”); Comment Letter of Kozusko Harris Vetter Wareh LLP (Nov. 18, 2010) 

(“Kozusko Letter”). 

25	 Moreover, the approach we are adopting has been used in other contexts to delimit 

members of a family for purposes of special regulatory treatment. See, e.g., Section 

1361(c)(1)(B) of the Internal Revenue Code of 1986, as amended (treating members of a 

family as a single shareholder of an S Corporation and defining family members as “a 

common ancestor, any lineal descendant of such common ancestor, and any spouse or 

former spouse of such common ancestor or any such lineal descendant” but providing 

that an “individual shall not be considered to be a common ancestor if, on the applicable 

date, the individual is more than 6 generations removed from the youngest generation of 

shareholders”); Nevada Revised Statutes section 669.042 (defining a family trust 

company subject to special trust company regulation as having family members within 10 

degrees of lineal kinship or 9 degrees of collateral kinship to the designated relative); 

New Hampshire Revised Statutes section 392-B:1 (defining a family trust company 

subject to special banking regulation as having family members within 5 degrees of lineal 

kinship or 9 degrees of collateral kinship to a designated relative). 

26	 See, e.g., ABA Letter (suggesting a 9 generation limit); Duncan Letter (recommending 

that the Commission follow that used for Nevada family trust companies, which allows 

for 10 degrees of lineal kinship and 9 degrees of collateral kinship and stating that other 

states’ family trust company laws with fewer degrees of kinship allowed had resulted in 

some family office clientele being outside the limitations); Kozusko Letter 

(recommending 10 generations (but not counting minors as a separate generation from 

their parents) as a size that, based on its experience and client base and on studies of 

family businesses, would comfortably accommodate most family offices but that would 

not open up the family office to abuse as a disguised commercial enterprise); Northern 

Trust Letter (stating that of the over 400 family offices they represent, some are now 

focused on their fifth through seventh generations). We have determined not to include a 
 

 

 

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Under this approach, the family office will be able to choose the common 

ancestor and may change that designation over time such that the family office clientele 

is able to shift over time along with the family members served by the family office. A 

family office exempt under the rule with a common ancestor several generations up from 

current family members will be able to serve a greater number of current collateral family 

members but fewer future lineal members. 

For example, G1 (who is deceased) founded a business and placed his fortune into 

a trust for the benefit of his heirs. G4 founded a family office to manage that wealth for 

the ever growing number of family members descended from G1 and treated G1 as the 

common ancestor for purposes of which family members the family office could advise 

under the exclusion. At the time G4 created the family office, current clients extended as 

far as G4’s great-grandchildren (or G7). Over time the family grows and additional 

generations are born. Eventually, to allow the family office to serve later generations that 

would otherwise extend beyond the 10 generation limit, the family office redesignates its 

common ancestor to an individual in G3.27 The family office can do this under rule 

202(a)(11)(G)-1 because the rule does not specify which individual the common ancestor 

is and it does not specify that it always has to be the same common ancestor. As a result 

of this redesignation, the family office is able to advise clients two generations younger, 

separate limit on degrees of permissible collateral kinship because, given our relatively 

expansive 10 generation lineal limit, a reasonable collateral limit would not in practice 

expand the range of family members covered by the rule. 

No formal documentation or procedure is required for designating or redesignating a 

common ancestor. 

27 
 

 

 

 

 

 

 

 

 

 

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but would no longer be able to advise certain branches of G1’s family tree without 

registering under the Advisers Act.28 

The rule, as proposed, treats lineal descendants and their spouses, spousal 

equivalents, stepchildren, and adopted children as family members.29 Most commenters 

generally supported our inclusion of spousal equivalents, stepchildren and children by 

adoption,30 but two commenters31 opposed the inclusion of spousal equivalents, invoking 

the Defense of Marriage Act (“DOMA”).32 Because the term “spouse” is not defined in 

the rule and a “spousal equivalent” is identified as a category of person, separate and 

distinct from a “spouse,” that meets the definition of a “family member,” we do not 

believe that the rule violates that Act. 

In response to comments we have expanded the definition to include foster 

children and persons who were minors when another family member became their legal 

guardian.33 We are persuaded by the commenters that argued that foster children and 

children in a guardianship relationship often have familial ties indistinguishable from that 

28 See Annex A for an illustration of the impact of redesignating the common ancestor. 

29 Rule 202(a)(11)(G)-1(d)(6). As proposed, we are using the definition of spousal 

equivalent currently used under our auditor independence rules. See Proposing Release, 

supra note 2, at n.24. 

30 See, e.g., Coalition Letter; NY Bar Letter. 

31 Comment Letter of Alliance Defense Fund (Nov. 18, 2010); Comment Letter of Thomas 

V. Cliff (Nov. 1, 2010). 

32	 1 U.S.C. 7. The Act provides that in “determining the meaning of any Act of Congress, 

or of any ruling, regulation, or interpretation of the various administrative bureaus and 

agencies of the United States...the word ‘spouse’ refers only to a person of the opposite 

sex who is a husband or wife.” 

33	 See, e.g., ABA Letter; Dechert Letter; Tannenbaum Letter. 
 

 

 

 

 

 

 

 

 

 

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of children and stepchildren, and that including such individuals would not cause the 

family office to resemble a typical commercial investment adviser.34 

Finally, the rule treats former family members (i.e., former spouses, spousal 

equivalents and stepchildren) as family members.35 We had proposed permitting former 

family members to retain any investments held through the family office at the time they 

became a former family member, but to limit them from making any new investments 

through the family office.36 Commenters pointed out that a former spouse’s financial 

arrangements often remain intertwined with those of the family, particularly if they 

provide for children who remain family members.37 Some argued that stepchildren of a 

divorced spouse may remain close to the family after the divorce.38 We are persuaded by 

these arguments and have modified the definition of former family member to include 

stepchildren.39

 b. Involuntary Transfers 

As proposed, rule 202(a)(11)(G)-1 prevents an involuntary transfer of assets to a 

person who is not a family client (e.g., a bequest to a friend of assets in a family office34	 See, e.g., Hogan Letter; Tannenbaum Letter. Guardianship arrangements for adults, 

however, can raise unique conflicts and issues as compared to guardianships for minors 

that we believe are more appropriately addressed through an exemptive order process 

where the Commission can consider the specific facts and circumstances, than through a 

rule of general applicability. 

35	 Rule 202(a)(11)(G)-1(d)(4)(ii). 

36	 Proposed rule 202(a)(11)(G)-1(d)(2)(vi), and (d)(4). 

37	 See, e.g., Comment Letter of Perkins Coie/Lindquist (Nov. 18, 2010) (“Lindquist 

Letter”); Comment Letter of Proskauer Rose LLP (Nov. 16, 2010). 

38	 See, e.g., Coalition Letter; Comment Letter of Kramer Levin Naftalis & Frankel LLP 

(Nov. 17, 2010) (“Kramer Levin Letter”). 

39	 Rule 202(a)(11)(G)-1(d)(7). 
 

 

 

 

 

 

 

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advised private fund) from causing the family office to lose its exclusion. Under the rule, 

a family office may continue to provide advice with respect to such assets following an 

involuntary transfer for a transition period of up to one year.40 The transition period 

permits the family office to orderly transition that client’s assets to another investment 

adviser or otherwise restructure its activities to comply with the Advisers Act. 

We proposed to allow the family office to continue to advise a non-family client 

for four months following the transfer of assets resulting from the involuntary event.41 A 

number of commenters argued that four months is an inadequate period of time to 

transition investment advice arrangements as a result of an involuntary transfer,42 

particularly for illiquid assets such as investments in private funds.43 Some suggested 

that the family office be required to transfer the assets as soon as legally and practically 

feasible.44 Others suggested that we treat involuntary transfers in the same manner as we 

had proposed treating former family members—permitting their existing investments to 

40	 Rule 202(a)(11)(G)-1(b)(1). 

41	 Proposed rule 202(a)(11)(G)-1(b)(1). 

42	 See, e.g., Comment Letter of Davis Polk (Nov. 18, 2010) (“Davis Polk Letter”); Fried 

Frank Letter. 

43	 See, e.g., ABA Letter; Comment Letter of Withers Bergman LLP (Nov. 17, 2010) 

(“Withers Bergman Letter”). 

44	 See, e.g., Comment Letter of Barnes & Thornburg LLP (“as soon as legally and 

reasonably practical, or in the alternative, within one year”); Coalition Letter (“as soon as 

it is both legally and practically feasible, and in any event would have a grace period of at 

least one year”). 
 

 

 

 

 

 

 

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remain with the family office but prohibiting new investments.45 Still others suggested 

that the transfer period be lengthened to anywhere from one year to three years.46 

After an involuntary transfer, such as a bequest, the office would no longer be 

providing advice solely to members of a single family, and after several such bequests the 

office could cease to operate in any way as a family office. Thus, we believe that relief 

for involuntary transfers must be temporary. We are persuaded, however, that the four 

month transition period we proposed would be inadequate and have extended the period 

to one year.47 

c. Family Trusts and Estates 

Rule 202(a)(11)(G)-1 treats as a family client certain family trusts established for 

testamentary and charitable purposes. We have expanded the types of trusts that may be 

treated as a family client in response to several comments that our proposal failed to take 

into account certain aspects of trust and estate planning.48 As discussed in more detail 

45	 See, e.g., Fried Frank Letter; Comment Letter of Sidley Austin LLP (Nov. 18, 2010). 

46	 See, e.g., AICPA Letter (1 year); Comment Letter of Bessemer Securities Corporation 

(Nov. 17, 2010) (“Bessemer Letter”) (1 year); Davis Polk Letter (3 years); Dechert Letter 

(2 years); Hogan Letter (2 years); Comment Letter of Kleinberg, Kaplan, Wolff & Cohen, 

P.C. (Nov. 17, 2010) (“Kleinberg Letter”) (2 years); Kramer Levin Letter (1 year). 

47	 The one year period would not begin to run until completion of the transfer of legal title 

to the assets resulting from the involuntary event. We note also that if the involuntary 

transferee does not receive investment advice about securities for compensation from the 

family office, then the availability of rule 202(a)(11)(G)-1 would be unaffected. For a 

discussion of the Commission’s and the staff’s views on when investment advice about 

securities for compensation is provided under the Advisers Act, see Applicability of the 

Investment Advisers Act to Financial Planners, Pensions Consultants, and Other Persons 

Who Provide Investment Advisory Services as a Component of Other Financial Services, 

Investment Advisers Act Release No. 1092 (Oct. 8, 1987) [52 FR 38400 (Oct. 16, 1987)] 

(“Release 1092”). 

48	 See rule 202(a)(11)(G)-1(d)(4). Several commenters questioned whether the identity of 

the trustee matters under the rule. See, e.g., Comment Letter of SchiffHardin LLP/Debra 

L. Stetter (Nov. 18, 2010) (“Schiff/Stetter Letter”); Comment Letter of Vinson & Elkins 
 

 

 

 

 

 

 

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below, these expansions accommodate common estate planning and charitable giving 

plans and do not suggest that the family office is engaging in a commercial enterprise. 

Irrevocable trusts. The rule treats as a family client any irrevocable trust in 

which one or more family clients are the only current beneficiaries.49 We proposed 

including as a family client any trust or estate existing for the sole benefit of one or more 

family clients.50 

As suggested by commenters, the final rule disregards contingent beneficiaries of 

trusts, which commenters explained are often named in the event that all family members 

are deceased to prevent the trust from distributing assets to distant relatives or escheating 

to the state.51 If the contingent beneficiary later becomes an actual beneficiary and is not 

a permitted current beneficiary of a family trust under the exclusion (such as a family 

friend), the rule’s provisions concerning involuntary transfers allow for an orderly 

transition of investment advice regarding those assets away from the family office. 

Also in response to commenters, the rule permits the family office to advise 

irrevocable trusts funded exclusively by one or more other family clients in which the 

only current beneficiaries, in addition to other family clients, are non-profit organizations, 

charitable foundations, charitable trusts, or other charitable organizations.52 Several 

commenters noted that families often establish and fund trusts whose sole current 

LLP (Nov. 15, 2010). A trust that meets the conditions in the rule for qualifying as a 

family client is unaffected by whether the trust is managed by an independent trustee. 

49 Rule 202(a)(11)(G)-1(d)(4)(vii). 

50 Proposed rule 202(a)(11)(G)-1(d)(2)(iv). 

51 See, e.g., Comment Letter of Arnold & Porter LLP (Nov. 11, 2010); Bessemer Letter. 

52 Rule 202(a)(11)(G)-1(d)(4)(viii). 
 

 

 

 

 

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beneficiaries are both family clients and public charities.53 Such an entity may not be a 

“charitable trust” as a technical manner, but we see no reason for treating them 

differently under the rule from charitable trusts funded exclusively by family clients. 

Other commenters argued that a trust should be permitted to have current 

beneficiaries that are not family clients and that the rule instead should merely require 

that the trust be for the primary benefit of one or more family clients.54 These 

commenters argued that the family office’s provision of investment advice to these kinds 

of trusts would not change the family office’s character and that it is the trust that is the 

client of the family office, rather than the beneficiary. We disagree. Current 

beneficiaries of a trust are greatly affected by the nature and quality of investment advice 

provided to the trust and would be harmed if there were fraud committed by the family 

office in managing trust assets. Even if in small numbers, these individuals and entities 

stand to benefit substantially from the protections of the Advisers Act and do not 

necessarily have any family ties or investment sophistication to stand in the Act’s stead. 

Revocable Trusts. The rule also treats as a family client a revocable trust of 

which one or more family clients are the sole grantors.55 Accordingly, a revocable trust 

may be advised by a family office relying on the rule regardless of whether the 

beneficiaries of the trust are family members. We received several comments that argued 

that revocable trusts should be treated differently than irrevocable trusts, since the grantor 

53	 See, e.g., Comment Letter of Jones Day (Nov. 11, 2010) (“Jones Day Letter”); Comment 

Letter of McDermott Will & Emery/Edwin C. Laurenson (Nov. 18, 2010) 

(“McDermott/Laurenson Letter”). 

54	 See, e.g., Comment Letter of Dorsey & Whitney LLP/Bruce A. MacKenzie (Nov. 17, 

2010) (“Dorsey Letter”); McDermott/Laurenson Letter. 

55	 Rule 202(a)(11)(G)-1(d)(4)(ix). 
 

 

 

 

 

 

 

 

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of a revocable trust effectively controls the trust and the beneficiaries of the trust have no 

reasonable expectation of obtaining any benefit from the trust until the trust becomes 

irrevocable (generally upon the death of the grantor).56 Therefore, the identity of the 

beneficiaries of the trust should not matter so long as one or more family clients are the 

sole grantors of the trust. We agree that in the case of a revocable trust, the contingent 

nature of any beneficiary’s expectation that it will benefit from the trust’s assets supports 

disregarding a revocable trust’s beneficiaries under the exclusion, just as other contingent 

beneficiaries are disregarded. 

Estates. The final rule treats as a family client an estate of a family member, 

former family member, key employee or former key employee.57 As suggested by 

several commenters, this provision permits a family office to advise the executor of a 

family member’s estate even if that estate will be distributed to (and thus be for the 

benefit of) non-family members.58 The executor of an estate is acting in lieu of the 

deceased family client in managing and distributing the family client’s assets. Therefore, 

advice to the executor is equivalent to providing advice to that family client.59 

d. Non-Profit and Charitable Organizations 

The rule treats as a family client any non-profit organization, charitable 

foundation, charitable trust (including charitable lead trusts and charitable remainder 

56	 See, e.g., Davis Polk Letter; Comment Letter of Lee & Stone (Nov. 17, 2010) (“Lee & 

Stone Letter”). 

57	 Rule 202(a)(11)(G)-1(d)(4)(vi). For former key employees, the advice is subject to the 

condition contained in rule 202(a)(11)(G)-1(d)(4)(iv). 

58	 See, e.g., ABA Letter; AICPA Letter. 

59	 See, e.g., Comment Letter of K&L Gates/Paul T. Metzger (Nov. 17, 2010); Comment 

Letter of Levin Schreder & Carey Ltd (Nov. 18, 2010) (“Levin Schreder Letter”). 
 

 

 

 

 

 

 

 

18
 

trusts whose only current beneficiaries are other family clients and charitable or nonprofit organizations), or other charitable organization, in each case funded exclusively by 

one or more other family clients.60 We understand that some family offices currently 

advise charitable or non-profit organizations that have accepted funding from non-family 

clients.61 So that these family offices have sufficient time to transition such advisory 

arrangements or restructure the charitable or non-profit organization, we are including a 

transition period of until December 31, 2013 before family offices have to comply with 

this aspect of the exclusion.62 

We had proposed treating as a family client any charitable foundation, charitable 

organization, or charitable trust established and funded exclusively by one or more family 

members.63 Some commenters recommended that the Commission change the 

requirement that charities be established and funded “by family members” to “by family 

clients” because they asserted that family charities are often established and funded by 

family trusts, corporations or estates, and not exclusively by family members.64 We 

agree that making this change is consistent with our view of the scope of persons that 

should be permitted to be served by the family office. Several commenters also believed 

that we should not require that a charitable organization be established by family 

members or family clients in order to receive investment advice from the family office 

60 Rule 202(a)(11)(G)-1(d)(4)(v). 

61 See, e.g., Foley Letter; Comment Letter of Morgan, Lewis & Bockius LLP (Nov. 18, 

2010) (“Morgan Lewis Letter”). 

62 Rule 202(a)(11)(G)-1(e)(1). 

63 Proposed rule 202(a)(11)(G)-1(d)(2)(iii). 

64 See, e.g., Dorsey Letter; Levin Schreder Letter. 
 

 

 

 

 

 

19
 

under the exclusion because in some cases such charitable organizations may have been 

originally established by distant relatives that do not currently qualify as “family 

members.”65 We agree that as long as all the funding currently held by the charitable 

organization came solely from family clients, the individuals or entities that originally 

established it are not of import for our policy rationale.66 We have changed the rule 

accordingly. 

A number of commenters stated that “charitable organization” can have varying 

meanings when considered under trust and estate law versus under tax law.67 Some of 

these commenters suggested that we add the term “non-profit organization” to ensure that 

we capture what is generally considered a charitable organization under both trust and tax 

law and based on their view that, as long as the non-profit organization is solely funded 

by family clients, the family office providing it with investment advice under the 

exclusion should not be of concern as a policy matter.68 We intended to broadly capture 

charitable and non-profit organizations as commonly understood under both trust law and 

tax law and have modified the rule as suggested. Other commenters asked that we clarify 

that charitable lead trusts and charitable remainder trusts are included as family clients 

65	 See, e.g., Comment Letter of Goodwin Procter LLP (Nov. 17, 2010) (“Goodwin Letter”); 

Comment Letter of Willkie Farr & Gallagher LLP (Nov. 17, 2010). 

66	 We note that only the actual contributions to the non-profit or charitable organization 

need be examined for this purpose, and not any income, gains or losses relating to those 

contributions. For purposes of determining whether funding provided by a non-family 

client to the non-profit or charitable organization is “currently held” by the organization, 

the non-profit or charitable organization may offset any spending by the organization 

occurring at any time in the year of that non-family client contribution or any subsequent 

year against the non-family client contribution (i.e., the organization may treat the nonfamily client contributions as the first funding spent). 

67	 See, e.g., Goodwin Letter; Kozusko Letter. 

68	 See, e.g., Coalition Letter; Kozusko Letter. 
 

 

 

 

 

 

20
 

under the exclusion.69 The rule we are adopting today clarifies that such trusts are 

included if their sole current beneficiaries are other family clients and charitable or nonprofit organizations and if they meet the terms of other charitable organizations that may 

be advised by the family office—namely that they are funded exclusively by other family 

clients.70 We believe this treatment of charitable lead trusts and charitable remainder 

trusts ensures that they are treated consistently with other trusts and charitable or nonprofit organizations under the exclusion. 

Finally, several commenters stated that the Commission should permit the family 

office to provide investment advice under the exclusion to charitable organizations even 

if funded in part by non-family clients.71 They argued that because the contributed assets 

will not be invested for the benefit of the donors, as long as the family controlled the 

charitable entity or was its substantial contributor, it served no public policy purpose to 

preclude third party contributions.72 We are leaving this aspect of the proposal 

unchanged because a non-profit or charitable organization that currently holds non-family 

funding lacks the characteristics necessary to be viewed as a member of a family unit. 

Permitting such organizations to be advised by a family office would be inconsistent with 

69 See, e.g., Dechert Letter; Fried Frank Letter. Charitable lead trusts are entities in which a 

charity receives payments from the trust for a specified period as a current beneficiary, 

but the remainder of the trust is distributed to specified beneficiaries. Charitable 

remainder trusts are entities in which specified individuals or entities receive payments 

from the trust for a specified period as a current beneficiary, but a charity receives the 

remainder of the trust. 

70 See our discussion about family trusts in section II.A.1.c of this Release. 

71 See, e.g., Foley Letter; Kleinberg Letter. 

72 See, e.g., Ropes & Gray Letter; Skadden Letter. 
 

 

 

 

21
 

the exclusion’s underlying rationale that recognizes that the Advisers Act is not designed 

to regulate families managing their own wealth. 

As noted above, however, we do recognize that some non-profit or charitable 

organizations advised by family offices have accepted non-family client funding. Such 

organizations may need time to spend the non-family funding so that none of it is 

“currently held” by the organization or to transition advisory arrangements. The rule 

provides until December 31, 2013 before this condition to the exclusion becomes 

applicable to family offices (i.e., if the only reason the family office would not meet the 

exclusion is because it advises a non-profit or charitable organization that currently holds 

non-family client funding, the family office generally may nevertheless rely on the 

exclusion until December 31, 2013).73 To rely on this transition period, a non-profit or 

charitable organization advised by the family office must not accept any additional 

funding from any non-family clients after August 31, 2011, except that during the 

transition period the non-profit or charitable organization may accept funding provided in 

fulfillment of any pledge made prior to August 31, 2011. 

e. Other Family Entities 

To allow the family office to structure its activities through typical investment 

structures, rule 202(a)(11)(G)-1 treats as a family client any company,.

 including a pooled 

investment vehicle, that is wholly owned, directly or indirectly, by one or more family 

clients and operated for the sole benefit of family clients.74 Some commenters objected 

73 Rule 202(a)(11)(G)-1(e)(1). 

74 Rule 202(a)(11)(G)-1(d)(4)(xi). Under rule 202(a)(11)(G)-1(d)(2), control is defined as 

the power to exercise a controlling influence over the management or policies of an 

entity, unless such power is solely the result of being an officer of such entity. If any of 

these companies are pooled investment vehicles, they must be exempt from registration 
 

 

 

 

 

 

22
 

to the requirement in our proposal that these entities be wholly owned and controlled by, 

and operated for the sole benefit of, family clients to qualify for the exclusion.75 These 

commenters generally suggested modifying this aspect of the family client definition to 

require only that the entity be majority owned or controlled and operated for the primary 

benefit of family clients or similar variations.76 One commenter suggested such an 

expansion to allow employees of the family that do not qualify as “key employees” to 

have a management role in the entity.77 Others believed that non-family clients more 

broadly should be able to have a greater role in family office-advised entities.78 

We believe that the elements of ownership and benefit are important to ensuring 

that the policy objectives underlying the family office exclusion are preserved. If nonfamily clients own a portion of such an entity, they have a vested interest in how the 

assets of that entity are managed—it is the source of their ownership stake’s value. This 

is also true of a non-family client who is a beneficiary of that entity. As long as the entity 

is wholly owned by and for the sole benefit of family clients, however, we agree that, as 

with family trusts and family charitable organizations, the entity having non-family client 

as an investment company under the Investment Company Act of 1940 because the 

Advisers Act requires that an adviser to a registered investment company must register. 

See 15 U.S.C. 80b-3a(a)(1)(B). 

75	 See, e.g., Blum Letter; Kramer Levin Letter (suggesting that the requirement be modified 

to require only that the entity be controlled and 80% owned by family clients to qualify as 

a family client). 

76	 See, e.g., Coalition Letter; Kramer Levin Letter. See also Levin Schreder Letter 

(suggesting that the entity be controlled and substantially owned (80%) by family 

clients); Miller Letter (suggesting that the entity be wholly owned or controlled by and 

operated for the primary benefit of family clients). 

77	 Morgan Lewis Letter. 

78	 See, e.g., Kramer Levin Letter; Miller Letter. 
 

 

 

 

23
 

control does not change that family clients are the ultimate beneficiaries of the 

investment advice, and thus we have eliminated the requirement for control by family 

clients in the final rule. 

f. Key Employees 

The final rule treats certain key employees of the family office, their estates, and 

certain entities through which key employees may invest as family clients so that they 

may receive investment advice from, and participate in investment opportunities provided 

by, the family office. More specifically, the final rule permits the family office to 

provide investment advice to any natural person (including any key employee’s spouse or 

spousal equivalent who holds a joint, community property or other similar shared 

ownership interest with that key employee) who is (i) an executive officer, director, 

trustee, general partner, or person serving in a similar capacity at the family office or its 

affiliated family office or (ii) any other employee of the family office or its affiliated 

family office (other than an employee performing solely clerical, secretarial, or 

administrative functions) who, in connection with his or her regular functions or duties, 

participates in the investment activities of the family office or affiliated family office, 

provided that such employee has been performing such functions or duties for or on 

behalf of the family office or affiliated family office, or substantially similar functions or 

duties for or on behalf of another company, for at least twelve months.79 The final rule 

also permits the family office to advise certain trusts of key employees, as further 

described below. Finally, in addition to receiving direct advice from the family office, 

key employees (because they are “family clients”) may indirectly receive investment 

Rule 202(a)(11)(G)-1(d)(8). 79 
 

 

 

 

 

 

 

 

 

24
 

advice through the family office by their investment in family office-advised private 

funds, charitable organizations, and other family entities, as described in previous 

sections of this Release. 

Many commenters supported the inclusion of key employees as family clients.80 

They agreed that permitting investment participation by key employees of family offices 

would align their interests with those of family members and enable family offices to 

attract highly skilled investment professionals who may not otherwise be attracted to 

work at a family office.81 

Some commenters, however, urged us to include key employees of family entities 

other than the family office as family clients.82 Some reasoned that since the definition of 

key employee is based on the knowledgeable employee standard used in Investment 

Company Act rule 3c-5,83 it should be expanded to cover key employees of any entity 

related to the family office because rule 3c-5 allows knowledgeable employees to be 

employees of certain affiliated entities.84 Such an approach would extend Investment 

Company Act rule 3c-5 beyond its intended scope. That rule permits knowledgeable 

employees of affiliated entities to count as knowledgeable employees of the covered 

private fund only if the affiliated entity is participating in the investment activities of the 

80 See, e.g., ABA Letter; Coalition Letter. 

81 Id.
 

82 See, e.g., Fried Frank Letter; NY Bar Letter; Skadden Letter. 

83 See Proposing Release, supra note 2, at n.46 and accompanying text. 

84 See, e.g., NY Bar Letter; Skadden Letter. 
 

 

 

 

 

 

 

 

25
 

covered private fund.85 Because of this role, these individuals could be presumed to have 

sufficient financial sophistication, experience, and knowledge to evaluate investment 

risks and to take steps to protect themselves, even without the protection of the 

Investment Company Act.86 

Many family entities advised by the family office, however, are not involved in 

providing investment advisory services to the family office or its clients and rather have 

principal business activities in a variety of industries unrelated to investment 

management. There is no reason to expect that their key employees have a level of 

knowledge and experience in financial matters sufficient to protect themselves without 

the protections afforded by the Advisers Act.87 We agree, however, that if a person 

qualifies as a knowledgeable employee of an affiliated family office, that those 

employees should be in a position to protect themselves in receiving investment advice 

from a family office excluded from regulation under the Advisers Act.88 We have 

modified the rule to include knowledgeable employees of an affiliated family office in 

the definition of key employee.89 

85	 See Section III.B of Privately Offered Investment Companies, Investment Company Act 

Release 22597 (April 3, 1997) [62 FR 17512 (April 7, 1997)] (“3(c)(7) Release”). 

86	 See 3(c)(7) Release, supra note 85, at Section III.A.2.B. 

87	 As we explained when we adopted rule 3c-5, employees who simply “obtain 

information” but do not “participate in” the investment activities of the fund are not 

included in the definition of knowledgeable employee because they may not have 

investment experience. See 3(c)(7) Release, supra note 85, at Section III.B. 

88	 Some commenters pointed out that a family may establish more than one family office 

for tax or other structuring reasons and recommended that the definition of key employee 

include employees of multiple family offices that serve the same family. See, e.g., Davis 

Polk Letter; Fried Frank Letter. 

89	 Rule 202(a)(11)(G)-1(d)(8). “Affiliated family office” is defined as “a family office 

wholly owned by family clients of another family office and that is controlled (directly or 
 

 

 

 

 

 

26
 

A few commenters suggested that we include as family clients long-term 

employees of the family, even if they do not meet the knowledgeable employee 

standard.90 Expanding the family client definition in this way would exclude from the 

Advisers Act’s protections individuals for whom we have no basis on which to conclude 

that they can protect themselves.91 We therefore decline to make the change suggested 

by commenters. 

We have made two other changes to definitions relating to key employees in 

response to recommendations from commenters. First, in response to commenters and to 

reduce uncertainty identified by commenters we have included a definition of “executive 

officer,” which is virtually identical to the definition of the same term used in Advisers 

Act rule 205-3 and Investment Company Act rule 3c-5.92 Similar to those rules, this 

indirectly) by one or more family members of such other family office and/or family 

entities affiliated with such other family office and has no clients other than family clients 

of such other family office.” Rule 202(a)(11)(G)-1(d)(1). 

90	 See, e.g., NY Bar Letter; Skadden Letter. Similarly, a few commenters suggested that we 

define key employees using the accredited investor standard from Regulation D under the 

Securities Act of 1933. See, e.g., Comment Letter of Schulte Roth & Zabel LLP (Dec. 8, 

2010); Lee & Stone Letter. We believe the knowledgeable employee standard more 

accurately encompasses employees that are likely to be financially sophisticated and to 

not need the protections of the Advisers Act. 

91	 Exemptive orders issued in the past 10 years generally did not permit family offices to 

provide investment advice to non-key employees. The two exemptive orders issued to 

family offices permitting such advice contained grandfathering provisions that restricted 

these employees’ investments to the existing ones and prohibited the advisers from 

establishing new advisory relationships with a non-family member. Adler Management, 

L.L.C., Investment Advisers Act Release Nos. 2500 (Mar. 21, 2006) [71 FR 15498 (Mar. 

28, 2006)] (notice) and 2508 (Apr. 14, 2006) (order); Longview Management Group LLC, 

Investment Advisers Act Release Nos. 2008 (Jan. 3, 2002) [67 FR 1251 (Jan. 9, 2002)] 

(notice) and 2013 (Feb. 7, 2002) (order). 

92	 Commenters recommending this change include the Fried Frank Letter and the Skadden 

Letter. Paragraph (d)(3) of the rule, however, differs from rule 205-3 and section 3c-5 in 

that it does not include executives in charge of sales because such a function is not 

applicable to a family office. 
 

 

 

 

 

 

 

 

27
 

definition delineates executive officers that should have enough financial experience and 

sophistication to invest without the protection of the Advisers Act. Second, the final rule 

clarifies that family clients include trusts of which the key employee generally is the sole 

contributor to the trust and the sole person authorized to make decisions with respect to 

the trust.93 

Commenters recommended that we permit a trust established by a key employee 

with his or her lineal descendants or immediate family members as beneficiaries to be a 

family client, to allow typical estate planning by key employees.94 We do not believe it is 

appropriate to broadly permit trusts for which the key employee is not the sole person 

authorized to make investment decisions to be a family client. Since a non-family client 

will be making investment decisions for this type of trust, and its beneficiaries are not 

family members or key employees, this type of trust stands to benefit from the 

protections of the Advisers Act. However, we are persuaded that it is appropriate to 

allow the family office to advise trusts for which the key employee is the sole person 

making investment decisions.95 Permitting the family office to provide advice to this 

type of entity tracks a parallel concept included in the definition of “qualified purchaser” 

under the Investment Company Act96 and thus creates consistency in entities considered 

not to need investor protection under our rules because investment decisions are made 

93	 Rule 202(a)(11)(G)-1(d)(4)(x). The grantor of the trust could also be a current or former 

spouse or spousal equivalent of the key employee if, at the time of contribution, the 

spouse or spousal equivalent held a joint, community property, or other similar shared 

ownership interest in the trust with the key employee. 

94	 See, e.g., Withers Bergman Letter (suggesting lineal descendants); Kleinberg Letter 

(suggesting immediate family members). 

95	 Rule 202(a)(11)(G)-1(d)(4)(x). 

96	 Section 2(a)(51)(A)(iii) of the Investment Company Act. 
 

 

 

 

 

28
 

solely by individuals that we have already concluded should have sufficient financial 

experience and sophistication to act without the protection provided by our regulations. 

Some commenters urged us to even further expand the definition of key employee 

to include their spouses and spousal equivalents (even if not with respect to joint 

property) or all of their immediate family members.97 There is no reason to believe that 

the key employee’s spouse or immediate family members independently have the 

financial sophistication and experience to protect themselves when receiving investment 

advice from the family office. Such individuals are not considered to be knowledgeable 

employees under Advisers Act rule 205-3 or Investment Company Act rule 3c-5. We see 

no basis for following a different approach in this context. The premise of the rule is to 

allow families to manage their own wealth. Key employee receipt of family office advice 

is permitted because their position and experience should enable them to protect 

themselves and to allow family offices to attract talented investment professionals as 

employees. This underlying rationale does not support as a general rule including key 

employees’ family members unless there is a joint property interest involved. 

Several commenters disagreed with the 12-month experience requirement for key 

employees who are not executive officers, directors, trustees, general partners, or persons 

serving in similar capacities of the family office, arguing that employees a family office 

would hire into these roles would presumably possess adequate knowledge and 

sophistication in financial matters regardless of whether he or she met the 12-month 

experience requirement.98 We believe that the 12-month experience requirement is an 

97	 See, e.g., Kleinberg Letter; Kramer Levin Letter. 

98	 See, e.g., ABA Letter; Comment Letter of Cadwalader, Wickersham & Taft LLP (Nov. 

18, 2010) (“Cadwalader Letter”). 
 

 

 

 

 

29
 

important part of limiting employees who receive investment advice without the protections 

of the Advisers Act (or family membership) to those employees that are likely to be in a 

position or have a level of knowledge and experience in financial matters sufficient to be able 

to evaluate the risks and take steps to protect themselves. In addition, commenters’ 

argument is equally applicable in a private fund or performance fee context, and we see 

no basis for distinguishing treatment of key employees of family offices from key 

employees of private funds or qualified client advisers under Investment Company Act 

rule 3c-5 and Advisers Act rule 205-3, respectively.99 We therefore adopt this 

requirement as proposed. 

Finally, as proposed, the final rule prohibits key employees (including their trusts 

and controlled entities) from making additional investments through the family office 

upon the end of the key employees’ employment by the family office, but will not require 

former key employees to liquidate or transfer investments held through the family office 

to avoid imposing possible adverse tax or investment consequences that might otherwise 

result.100 While some commenters supported this limitation,101 one commenter expressed 

objections to it, asserting that former key employees of family offices often continue to 

have a close relationship with the family and it should be the family’s decision whether to 

99	 This analysis is consistent with our analysis in the 3(c)(7) Release where we stated that 

the 12-month experience requirement was designed to limit investments to employees 

that have the requisite experience to appreciate the risks of investing in the fund. 3(c)(7) 

Release, supra note 85, at Section III.B. As is the case under rule 3c-5, an employee 

need not work for a particular family office for the entire 12-month period. The time 

performing substantially similar functions or duties by that employee for or on behalf of 

another company may be counted toward the 12 month requirement. See 3(c)(7) Release, 

supra note 85. 

100	 Rule 202(a)(11)(G)-1(d)(4)(iv). 

101	 See, e.g., ABA Letter; Coalition Letter. 
 

 

 

 

 

 

 

30
 

terminate their family office’s services to them.102 We are including key employees as 

family clients because their particular role in the family office causes us to believe that 

the employee should be in a position to protect him or herself without the need for the 

protections of the Advisers Act. Once the employee is no longer in that role, this policy 

rationale no longer holds true to the same degree. Accordingly, we are adopting this 

aspect of the rule as proposed.103 

2. Ownership and Control 

The final rule requires that, to qualify for the exclusion from regulation under the 

Advisers Act, the family office must be wholly owned by family clients and exclusively 

controlled, directly or indirectly, by one or more family members or family entities.104 

Our final rule expands who may own the family office from “family members,” as 

proposed, to “family clients.” However, the rule continues to require that control of the 

102	 Schiff/Stetter Letter. 

103	 A number of commenters requested that we clarify the extent to which a family office 

could provide investment advice to an employee benefit plan or pension plan sponsored 

by the family office without registering under the Act. See, e.g., Comment Letter of the 

American Benefits Council/Committee on the Investment of Employee Benefit Assets 

(Nov. 18, 2010); Coalition Letter; Withers Bergman Letter. In our view, a family office 

or other employer that merely establishes an employee benefit plan or pension plan and 

selects one or more investment advisers for that plan would not be an investment adviser 

subject to the Advisers Act because it would not be an “investment adviser” within the 

meaning of section 202(a)(11). A family office (as defined in rule 202(a)(11)(G)-1) thus 

would not be required to register under the Act if, in addition to providing advice to 

family clients, its advisory activities are so limited. However, a family office providing 

additional advisory services to an employee benefit plan all of whose participants are not 

family clients may be required to register under the Act unless another exemption is 

available. 

104	 Rule 202(a)(11)(G)-1(b)(2). We have added the word “exclusively” to clarify that 

“control” cannot be shared with individuals or companies that are not family members or 

family entities. A family entity is defined as any of the trusts, companies or other entities 

set forth in paragraphs (v), (vi), (vii), (viii), (ix), or (xi) of subsection (d)(4) of rule 

202(a)(11)(G)-1, but excluding key employees and their trusts from the definition of 

family client solely for purposes of this definition. 
 

 

 

 

 

 

 

31
 

family office remain, directly or indirectly, with family members and their related 

entities. 

Commenters urged us to expand both who could own the family office and who 

could control a family office under the rule.105 Some stated that many family offices are 

owned by family trusts, and that allowing family members to indirectly own and control 

the family office did not provide sufficient clarity that such a trust could own and control 

the family office.106 Commenters also pointed out that many family offices permit their 

employees to own equity interest in family offices as an incentive to attract and retain 

talented employees, and urged us not to prohibit such arrangements.107 These 

commenters asked us to explicitly broaden the ownership requirement from “family 

members” to “family clients” to permit these types of arrangements. Other commenters 

argued more broadly that the “wholly owned and controlled” aspect of the proposed 

definition does not adequately reflect the variety of organizational arrangements already 

in place at family offices and that the Commission should focus as a policy matter solely 

on whether the family office is being operated for the benefit of members of a single 

family.108 

Commenters persuaded us to expand who may own the family office from 

“family members” to “family clients.” This change is consistent with the intent behind 

our proposed language (which contemplated that the family could own the family office 

105 See, e.g., Coalition Letter; Comment Letter of McDermott Will & Emery/Richard L. 

Dees (Nov. 18, 2010) (“McDermott Dees Letter”). 

106 See, e.g., Dorsey Letter; Comment Letter of McGuire Woods LLP (Nov. 18, 2010). 

107 See, e.g., AICPA Letter; Davis Polk Letter; Dechert Letter. 

108 See, e.g., Coalition Letter; Levin Schreder Letter; McDermott Dees Letter. 
 

 

 

 

 

32
 

indirectly) and more clearly allows family members to structure their ownership of the 

family office for tax or other reasons. We also agree with suggestions that the rule permit 

key employees to own a non-controlling stake in the family office to serve as part of an 

incentive compensation package for key employees. We remain convinced, however, 

that for our core policy rationale to be fulfilled—that a family office is essentially a 

family managing its own wealth—the family, directly or indirectly, should control the 

family office. Accordingly, the final rule provides that while family clients may own the 

family office, family members and family entities (i.e., their wholly owned companies or 

family trusts) must control the family office.109 

3.	 Holding Out 

As proposed, the final rule prohibits a family office relying on the rule from 

holding itself out to the public as an investment adviser.110 Commenters supported this 

prohibition.111 Holding itself out to the public as an investment adviser suggests that the 

family office is seeking to enter into typical advisory relationships with non-family 

109	 We note that, as proposed, we are not limiting the exclusion to a family office that is not 

operated for the purpose of generating a profit. We also note that some family offices 

may be structured such that all or a portion of family client investment gains are 

distributed as dividends from the family office (when family clients own the family 

office) and that a not-for-profit requirement would preclude this family office structure. 

We were persuaded by several commenters who cautioned against limiting the exclusion 

for family offices to those that operate on a not-for-profit basis, arguing that it would be 

difficult to administer and is unnecessary given the limited clientele that a family office 

may advise and rely on the exclusion. See, e.g., AICPA Letter; Davis Polk Letter; 

Kozusko Letter. 

110	 Rule 202(a)(11)(G)-1(b)(3). For purposes of this rule, despite language under rule 

203(b)(3)-1(c) regarding holding out, a family office could not market non-public 

offerings to persons or entities that are not family clients since such activity would not be 

consistent with a family office that only provides investment advice to family clients and 

does not hold itself out to the public as an investment adviser. 

111	 See, e.g., Coalition Letter; ABA letter. 
 

 

 

 

 

33
 

clients, and thus is inconsistent with the basis on which we have provided exemptive 

orders and are adopting this rule.112 

4.	 Multifamily Offices 

The exclusion we are adopting today does not extend to family offices serving 

multiple families, as urged by several commenters.113 Comments we received did not 

persuade us that the rule could be drafted to distinguish in any meaningful way between 

such offices and family-owned commercial advisory firms that offer their services to 

other families.114 Moreover, they did not persuade us that the protections of the Advisers 

Act, including the application of the anti-fraud provisions of the Act, would not be 

relevant to a family obtaining services from an office established by another family with 

which it could have conflicts of interest. Families, of course, may have conflicts among 

members leading to disputes. But, as discussed in our Proposing Release, the premise of 

the exclusion is that such disputes could be worked out within the family unit or, if 

necessary, by state courts under laws that facilitate resolution of family disputes. In a 

multifamily office, these clients would be without the protections of the Advisers Act or 

112	 See footnote 56 of the Proposing Release, supra note 2. In response to one commenter’s 

request, we clarify that a family office that is currently registered as an investment 

adviser and expects to de-register in reliance on rule 202(a)(11)(G)-1, will not be 

prohibited from relying on the rule solely because it held itself out to the public as an 

investment adviser while it was registered under the Advisers Act. See Dechert Letter. 

113	 See, e.g., Cadwalader Letter; Comment Letter of Lowenstein Sandler PC (Nov. 12, 

2010); Comment Letter of Stradling Yocca Carlson & Rauth (Nov. 16, 2010). 

114	 We note that under section 208(d) of the Advisers Act, it is unlawful for any person 

indirectly to do anything that would be unlawful for such person to do directly under the 

Advisers Act or rules thereunder. Therefore, if several families that are unrelated through 

a common ancestor within 10 generations have established a separate family office for 

each of the families, but have staffed these family offices with the same or substantially 

the same employees such employees are managing a de facto multifamily office. As a 

result, these family offices may not claim the family office exclusion. 
 

 

 

 

 

 

34
 

family relationships for preventing or handling any discriminatory or fraudulent treatment 

of different families. 

B. Grandfathering Provisions, Transition Period and Effect of Rule on 

Previously Issued Exemptive Orders 

The Dodd-Frank Act prohibits us from excluding from our definition of family 

office persons not registered or required to be registered on January 1, 2010 that would 

meet all of the required conditions under rule 202(a)(11)(G)-1 but for their provision of 

investment advice to certain clients specified in section 409(b)(3) of the Dodd-Frank 

Act.115 We have incorporated this required grandfathering into paragraph (c) of our 

rule.116 We received two comments on such incorporation. One commenter suggested 

that we incorporate the grandfathering provision only by reference to section 409(b)(3) of 

the Dodd-Frank Act.117 We believe that incorporating the grandfathering provision of 

Dodd-Frank Act is a more user friendly approach for those attempting to comply with the 

Advisers Act compared to directing them to look up the grandfathering provision in a 

separate statute. Another commenter requested clarification of the Dodd-Frank 

grandfathering provision.118 We believe clarification or interpretation of this provision 

would involve applying the provision to specific facts, and this release is not an 

115	 See section 409(b)(3) and (c) of the Dodd-Frank Act. 

116	 We note that section 409(c) of the Dodd-Frank Act provides that “a family office that 

would not be a family office, but for section 409(b)(3) of the Dodd-Frank Act, shall be 

deemed to be an investment adviser for the purposes of paragraphs (1), (2) and (4) of 

section 206 of the Advisers Act.” This provision is reflected in paragraph (3) of rule 

202(a)(11)(G)-1(c). 

117	 Coalition Letter. 

118	 AICPA Letter. 
 

 

 

 

35
 

appropriate means to provide such a clarification. Therefore, we are adopting 

paragraph (c) of the rule as proposed. 

Several commenters suggested that we provide a transition period to allow family 

offices time to determine whether they meet the exclusion or to restructure or register 

under the Advisers Act if they do not.119 We recognize that the time period between the 

adoption of this rule and the repeal of the private adviser exemption from registration 

contained in section 203(b)(3) of the Advisers Act, effective July 21, 2011, may not be 

sufficient for every family office to conduct such an evaluation, restructure or register. 

Accordingly, the rule provides that family offices currently exempt from registration 

under the Advisers Act in reliance on the private adviser exemption and that do not meet 

the new family office exclusion are not required to register with the Commission as 

investment advisers until March 30, 2012.120 We believe that this aspect of the rule is 

necessary or appropriate in the public interest and is consistent with the protection of 

investors, and the purposes fairly intended by the policy and provisions of the Advisers 

Act. 

119	 See, e.g., Lee & Stone Letter (to provide time to restructure certain “club deals” in which 

clients of the family office may have engaged); Comment Letter of Paul, Hastings, 

Janofsky & Walker LLP (Nov. 17, 2010) (requesting an expanded grandfather provision 

to allow more time for an orderly restructuring); Ropes & Gray Letter. 

120	 Rule 202(a)(11)(G)-1(e)(2). See also Letter from Robert E. Plaze, Associate Director, 

Division of Investment Management, U.S. Securities and Exchange Commission, to 

David Massey, Deputy Securities Administrator, North Carolina Securities Division and 

President, NASAA (Apr. 8, 2011) available at 

http://www.sec.gov/rules/proposed/2010/ia-3110-letter-to-nasaa.pdf (stating that the 

Commission would potentially consider extending the date by which these advisers must 

register and come into compliance with the obligations of a registered adviser until the 

first quarter of 2012). Because initial applications for registration can take up to 45 days 

to be approved, family offices that determine they will need to register with the 

Commission should file a complete application, both Part 1 and a brochure(s) meeting the 

requirements of Part 2 of Form ADV, at least by February 14, 2012. 
 

 

 

 

 

36
 

We have determined not to rescind exemptive orders previously issued to family 

offices under section 202(a)(11)(G) of the Advisers Act. As discussed above, the 

Commission has issued orders under section 202(a)(11)(G) of the Advisers Act to certain 

family offices declaring them and their employees acting within the scope of their 

employment to not be investment advisers within the intent of the Act. In some areas 

these exemptive orders may be slightly broader than the rule we are adopting today, and 

in other areas they may be narrower. We proposed not to rescind these exemptive orders 

and requested comment. All commenters addressing this subject supported our proposal. 

Thus, family offices currently operating under these orders may continue to rely on them. 

III. PAPERWORK REDUCTION ACT 

Rule 202(a)(11)(G)-1 does not contain a “collection of information” requirement 

within the meaning of the Paperwork Reduction Act of 1995.121 Accordingly, the 

Paperwork Reduction Act is not applicable. 

IV. ECONOMIC ANALYSIS 

We are adopting rule 202(a)(11)(G)-1 in anticipation of the Dodd-Frank Act’s 

repeal of section 203(b)(3) of the Advisers Act, which provides an exemption from 

registration for certain private fund advisers, and in light of the Dodd-Frank Act’s 

directive that the Commission define family offices that will be excluded from regulation 

under the Advisers Act.122 The rule we are adopting today defines a family office as a 

company that, with limited exceptions, has only family clients, is wholly owned by 

family clients and controlled by family members and/or family entities, and does not hold 

121 44 U.S.C. 3501 et seq. 

122 See section 409 of the Dodd-Frank Act. 
 

 

 

 

 

37
 

itself out to the public as an investment adviser. The definition of family office provided 

in the rule is designed to limit the exclusion from Advisers Act regulation solely to those 

private advisory offices that we believe the Advisers Act was not designed to regulate 

and to prevent circumvention of the Adviser Act’s protections by firms that are operating 

as commercial investment advisory firms. 

As a preliminary matter, and as discussed earlier, as a result of the repeal of 

section 203(b)(3) of the Advisers Act a number of private advisory offices that may 

consider themselves to be family offices and that are not currently registered as 

investment advisers in reliance on that provision will be required to register under the 

Advisers Act after July 21, 2011 unless those advisers are eligible for a new exemption. 

The benefits and costs associated with the elimination of section 203(b)(3) are 

attributable to the Dodd-Frank Act. However, while Congress also adopted a family 

office exclusion, it directed the Commission to adopt rules defining the terms of that 

exclusion, subject to the terms of section 409 of the Dodd-Frank Act, and thus we discuss 

below the costs and benefits of our determination of which private advisory offices are 

deemed family offices and therefore excluded from regulation. 

In proposing the rule, we requested comment on all aspects of our cost benefit 

analysis, including the accuracy of our estimates of costs and benefits, identification and 

assessment of any costs and benefits not discussed in our analysis, and data relevant to 

these costs and benefits.123 While some commenters predicted that many private 

advisory offices would have to restructure or apply for an exemptive order and thus incur 

Section V of the Proposing Release. 123 
 

 

 

 

38
 

substantial costs if the definition of family office were not expanded,124 no estimates of 

such costs were provided..

 We discuss these comments more specifically below. 

A. Benefits 

As discussed in the Proposing Release, we expect that rule 202(a)(11)(G)-1 will 

result in several important benefits. First, family offices, as defined by this rule, will not 

be subject to the mandatory costs of registering with the Commission as an investment 

adviser and the associated compliance costs. Some investment advisers currently 

registered with us may qualify as family offices under the rule and have the choice to 

deregister. These reduced regulatory costs should result in direct cost savings to these 

family offices, and thus to their family clients. 

Second, the rule will benefit family offices, as defined by the rule, and their 

clients by eliminating the costs of seeking (and considering) individual exemptive orders. 

Without rule 202(a)(11)(G)-1, the repeal of the exemption contained in section 203(b)(3) 

would result in a great number of family offices having to apply for exemptive relief and 

thus incurring significant costs for these family offices and their clients. We estimate that 

a typical family office will incur legal fees of $200,000 on average to engage in the 

exemptive order application process, including preparation and revision of an application 

and consultations with Commission staff.125 The rule will benefit family offices and their 

family clients by eliminating the costs of applying to the Commission for an exemptive 

order that the Commission would grant and the associated uncertainty that they might not 

obtain such an order. Estimates of the number of family offices in the United States vary 

124	 See, e.g., Jones Day Letter; Withers Bergman Letter. 

125	 We included the same estimate in the Proposing Release. We received no comments on 

this estimate. 
 

 

 

 

 

 

39
 

widely—ranging from less than 1,000 to 5,000.126 If all of these family offices qualify 

for the new exclusion and otherwise would have applied for an exemptive order, the rule 

will provide a benefit ranging from $200 million to $1 billion by eliminating the costs of 

applying for those exemptive orders.127 

Finally, the rule also will benefit the Commission by freeing staff resources from 

reviewing and processing large numbers of family office exemptive applications resulting 

from the repeal of section 203(b)(3) of the Advisers Act that the Commission would grant 

and allowing the staff to target its work more efficiently, and thus will indirectly benefit 

public investors. 

B. Costs 

We recognize that some private advisory offices that today consider themselves to 

be family offices likely will incur expenses to evaluate whether they meet the terms of 

the exclusion. One commenter estimated that such an office would incur expenses of 

$25,000 to $35,000 to hire a consulting firm or law firm to determine if it meets the 

exclusion provided by the rule.128 If all family offices estimated to exist in the United 

States noted above129 hire a consulting firm or law firm to determine if they meet the 

126	 See, e.g., Pamela J. Black, The Rise of the Multi-Family Office, FINANCIAL PLANNING 

(Apr. 27, 2010) (estimating 2,500 to 3,000 single family offices); Robert Frank, Minding 

the Money—‘Family Office’ Chiefs Get Plied with Perks; Club Membership, Jets, THE 

WALL STREET JOURNAL (Sept. 7, 2007), at W2 (estimating 3,000 to 5,000 family offices 

in the United States); Second Annual Single-Family Office Study, the Family Wealth 

Alliance (2010) (estimating 2,500 U.S.-based single family offices); Creating a Single 

Family Office for Wealth Creation and Family Legacy Sustainability, Family Office 

Association (2009) (estimating 1,000 single family offices worldwide). 

127	 $200,000 cost of applying for an exemptive order multiplied by a range of 1,000 family 

offices to 5,000 family offices. 

128	 Lindquist Letter. 

129	 See supra note 126 and accompanying text. 
 

 

 

 

 

 

40
 

exclusion at such a cost, they would incur an aggregate cost ranging from $25 million to 

$175 million for this evaluation.130 

Some of these private advisory offices may decide to restructure their businesses 

to meet the conditions imposed by rule 202(a)(11)(G)-1. Many commenters stated that 

the proposed definition of family office was too narrow, and that if it was adopted 

without changes, absent an exemptive order, many such advisory offices would be 

required to restructure themselves in order to qualify as family offices.131 Restructuring 

or obtaining an exemptive order, some commenters asserted, would result in substantial 

costs to the advisory office and its clients.132 We expect that each such office will weigh 

the costs of such restructuring under its particular circumstances against the costs and 

burdens of registration or seeking an exemptive order. 

Our final rule broadens the definition of “family client” and “family office” from 

that proposed, particularly concerning permissible clients of the family office and 

ownership of the family office.133 As a result, we expect that substantially fewer private 

advisory offices will need to confront these trade-offs than would have been the case 

under our proposal. Nevertheless, we recognize that some offices may decide to 

restructure their businesses in order to meet even the expanded family office definition 

under the final rule, rather than register or seek an exemptive order. The costs of any 

such restructuring will be highly dependent on the nature and extent of the restructuring, 

130 ($25,000 evaluation cost) x (1,000 family offices) = $25 million. ($35,000 evaluation 

cost) x (5,000 family offices) = $175 million. 

131 See, e.g., Lindquist Letter; Lee & Stone Letter; Withers Bergman Letter. 

132 See, e.g., Coalition Letter; Lee & Stone Letter. 

133 See Section II of this Release for discussion of these expansions. 
 41
 

which we understand may vary significantly from office to office. No commenters 

provided an estimate of the costs to carry out any necessary restructuring. 

We do not expect that the rule will impose any significant costs on family offices 

currently operating under a Commission exemptive order. We are permitting these 

family offices to continue to rely on their exemptive orders. They may choose, of course, 

to qualify for exclusion under the rule. We expect that most of these family offices will 

satisfy all the conditions of the rule without changing their structure or operations. However, 

these family offices may incur one-time “learning costs” in determining the differences 

between their orders and the rule. We estimate that such costs will be no more than $5,000 

on average for a family office if it hires an external consulting firm or law firm to assist in 

determining the differences. Because the terms of these advisers’ exemptive orders were 

similar to rule 202(a)(11)(G)-1, these family offices should incur significantly lower costs to 

evaluate the new rule than family offices that do not have an exemptive order. There are 13 

family offices that have obtained exemptive orders. Accordingly, we estimate that these 

family offices collectively would incur outside consulting or legal expenses of $65,000 to 

discern the differences between their orders and the rule. 

Finally, if there were any family offices that previously registered with the 

Commission, but now may de-register in reliance on the new family office exclusion in 

the Advisers Act, the rule may have competitive effects on investment advisers that may 

compete with the family office for the provision of investment management services to 

family clients since these third party investment advisers would bear the regulatory costs 

associated with compliance with the Advisers Act or state investment adviser regulatory 

requirements. We do not expect that the rule will impact capital formation. 
 

 

 

42
 

V. FINAL REGULATORY FLEXIBILITY ANALYSIS
 

The Commission has prepared the following Final Regulatory Flexibility Analysis 

(“FRFA”) regarding rule 202(a)(11)(G)-1 in accordance with section 604 of the 

Regulatory Flexibility Act.134 We prepared an Initial Regulatory Flexibility Analysis 

(“IRFA”) in conjunction with the Proposing Release in October 2010.135 

A. Need for the Rule 

We are adopting rule 202(a)(11)(G)-1 defining family offices excluded from 

regulation under the Advisers Act because we are required to do so under section 409 of 

the Dodd-Frank Act. 

B. Significant Issues Raised by Public Comment 

In the Proposing Release, we requested comment on the IRFA. None of the 

comment letters we received specifically addressed the IRFA. None of the comment 

letters made specific comments about the proposed rule’s impact on smaller family 

offices. 

C. Small Entities Subject to the Rule 

Under Commission rules, for purposes of the Advisers Act and the Regulatory 

Flexibility Act, an investment adviser generally is a small entity if it: (i) has assets under 

management having a total value of less than $25 million; (ii) did not have total assets of 

$5 million or more on the last day of its most recent fiscal year; and (iii) does not control, 

is not controlled by, and is not under common control with another investment adviser 

that has assets under management of $25 million or more, or any person (other than a 

134 5 U.S.C. 604(a). 

135 See Proposing Release, supra note 2, at Section VI. 
 

 

 

 

 

 

43
 

natural person) that had $5 million or more on the last day of its most recent fiscal 

136 year.

We do not have data and are not aware of any databases that compile information 

regarding how many family offices will be a small entity under this definition, but since 

family offices only are established for the very wealthy and given the statistics included in 

the Proposing Release showing that they generally serve families with at least $100 million 

or more of investable assets and have an average net worth of $517 million, we believe it is 

unlikely that any family offices would be small entities.137 

D. Projected Reporting, Recordkeeping, and other Compliance 

Requirements 

Rule 202(a)(11)(G)-1 imposes no reporting, recordkeeping or other compliance 

requirements. 

E. Agency Action to Minimize Effect on Smaller Entities 

The Regulatory Flexibility Act directs the Commission to consider significant 

alternatives that would accomplish the stated objective, while minimizing any significant 

impact on small entities. In connection with the rule, the Commission considered the 

following alternatives: (i) the establishment of differing compliance or reporting 

requirements or timetables that take into account the resources available to small entities; 

(ii) the clarification, consolidation, or simplification of compliance and reporting 

requirements under the rule for small entities; (iii) the use of performance rather than 

136	 17 CFR 275.0-7(a). 

137	 See Proposing Release, supra note 2, at n.2 and accompanying text. One commenter 

(Comment Letter of Robert Stenson (Oct. 18, 2010)) cited a 1999 survey which estimated 

that 32% of family offices had investment assets of less than $100 million. However, this 

commenter did not indicate how many family offices had assets under management of 

less than $25 million and thus qualified as “small entities” as defined in Advisers Act rule 

0-7, supra note 136 and accompanying text. 
 44
 

design standards; and (iv) an exemption from coverage of the rule, or any part thereof, for 

small entities. 

Rule 202(a)(11)(G)-1 is exemptive and compliance with the rule is voluntary. We 

therefore do not believe that different or simplified compliance, timetable, or reporting 

requirements, or an exemption from coverage of the rule for small entities, is appropriate. 

The conditions in the rule are designed to ensure that family offices operating under the 

rule provide advice only to the family itself and not the general public and, accordingly, 

the protections of the Advisers Act are not warranted. Reducing these conditions for 

smaller family offices would be inconsistent with the policy underlying the exclusion and 

would harm investor protection. 

Our prior exemptive orders have not made any differentiation based on the size of 

the family office. In addition, as discussed above, we expect that very few, if any, family 

offices are small entities. The Commission also believes that rule 202(a)(11)(G)-1 will 

decrease burdens on small entities by making it unnecessary for most of them to seek an 

exemptive order from the Commission to operate without registration under the Advisers 

Act. As a result, we do not anticipate that the potential impact of the rule on small 

entities will be significant. 

The rule specifies broad conditions with which a family office must comply to 

rely on the exclusion; the rule leaves to each family office how to structure its specific 

operations to meet these conditions. The rule thus already incorporates performance 

rather than design standards. For these reasons, alternatives to the rule appear 

unnecessary and in any event are unlikely to minimize any impact that the rule might 

have on small entities. 
 

 

45
 

VI. STATUTORY AUTHORITY 

We are adopting rule 202(a)(11)(G)-1 [17 CFR 275.202(a)(11)(G)-1] pursuant to 

our authority set forth in sections 202(a)(11)(G) and 206A of the Advisers Act [15 U.S.C. 

80b-2(a)(11)(G) and 80b-6A]. 

LIST OF SUBJECTS IN 17 CFR PART 275 

Reporting and recordkeeping requirements, Securities. 

TEXT OF RULE 

For the reasons set out in the preamble, Title 17, Chapter II of the Code of Federal 

Regulations is amended as follows. 

PART 275 – RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 

1940 

1. The authority citation for Part 275 continues to read in part as follows: 

Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(17), 80b-3, 80b-4, 80b-4a, 80b6(4), 80b-6a, and 80b-11, unless otherwise noted. 

* * * * * 

2. Section 275.202(a)(11)(G)-1 is added to read as follows: 

§ 275.202(a)(11)(G)-1 Family offices. 

(a) Exclusion. A family office, as defined in this section, shall not be 

considered to be an investment adviser for purpose of the Act. 

(b) Family office. A family office is a company (including its directors, 

partners, members, managers, trustees, and employees acting within the scope of their 

position or employment) that: 

(1) Has no clients other than family clients; provided that if a person that is 

not a family client becomes a client of the family office as a result of the death of a 
 46
 

family member or key employee or other involuntary transfer from a family member or 

key employee, that person shall be deemed to be a family client for purposes of this 

section 275.202(a)(11)(G)-1 for one year following the completion of the transfer of legal 

title to the assets resulting from the involuntary event; 

(2) Is wholly owned by family clients and is exclusively controlled (directly 

or indirectly) by one or more family members and/or family entities; and 

(3) Does not hold itself out to the public as an investment adviser. 

(c) Grandfathering. A family office as defined in paragraph (a) above shall 

not exclude any person, who was not registered or required to be registered under the Act 

on January 1, 2010, solely because such person provides investment advice to, and was 

engaged before January 1, 2010 in providing investment advice to: 

(1) Natural persons who, at the time of their applicable investment, are 

officers, directors, or employees of the family office who have invested with the family 

office before January 1, 2010 and are accredited investors, as defined in Regulation D 

under the Securities Act of 1933; 

(2) Any company owned exclusively and controlled by one or more family 

members; or 

(3) Any investment adviser registered under the Act that provides investment 

advice to the family office and who identifies investment opportunities to the family 

office, and invests in such transactions on substantially the same terms as the family 

office invests, but does not invest in other funds advised by the family office, and whose 

assets as to which the family office directly or indirectly provides investment advice 

represents, in the aggregate, not more than 5 percent of the value of the total assets as to 
 47
 

which the family office provides investment advice; provided that a family office that 

would not be a family office but for this subsection (c) shall be deemed to be an 

investment adviser for purposes of paragraphs (1), (2) and (4) of section 206 of the Act. 

(d) Definitions. For purposes of this section: 

(1) Affiliated Family Office means a family office wholly owned by family 

clients of another family office and that is controlled (directly or indirectly) by one or 

more family members of such other family office and/or family entities affiliated with 

such other family office and has no clients other than family clients of such other family 

office. 

(2) Control means the power to exercise a controlling influence over the 

management or policies of a company, unless such power is solely the result of being an 

officer of such company. 

(3) Executive officer means the president, any vice president in charge of a 

principal business unit, division or function (such as administration or finance), any other 

officer who performs a policy-making function, or any other person who performs similar 

policy-making functions, for the family office. 

(4) Family client means: 

(i) Any family member; 

(ii) Any former family member; 

(iii) Any key employee; 

(iv) Any former key employee, provided that upon the end of such individual’s 

employment by the family office, the former key employee shall not receive investment 

advice from the family office (or invest additional assets with a family office-advised 
 

 

48
 

trust, foundation or entity) other than with respect to assets advised (directly or indirectly) 

by the family office immediately prior to the end of such individual’s employment, 

except that a former key employee shall be permitted to receive investment advice from 

the family office with respect to additional investments that the former key employee was 

contractually obligated to make, and that relate to a family-office advised investment 

existing, in each case prior to the time the person became a former key employee. 

(v) Any non-profit organization, charitable foundation, charitable trust 

(including charitable lead trusts and charitable remainder trusts whose only current 

beneficiaries are other family clients and charitable or non-profit organizations), or other 

charitable organization, in each case for which all the funding such foundation, trust or 

organization holds came exclusively from one or more other family clients; 

(vi) Any estate of a family member, former family member, key employee, or, 

subject to the condition contained in paragraph (d)(4)(iv) of this section, former key 

employee; 

(vii) Any irrevocable trust in which one or more other family clients are the 

only current beneficiaries; 

(viii) Any irrevocable trust funded exclusively by one or more other family 

clients in which other family clients and non-profit organizations, charitable foundations, 

charitable trusts, or other charitable organizations are the only current beneficiaries; 

(ix) Any revocable trust of which one or more other family clients are the sole 

grantor; 

(x) Any trust of which: (A) each trustee or other person authorized to make 

decisions with respect to the trust is a key employee; and (B) each settlor or other person 
 49
 

who has contributed assets to the trust is a key employee or the key employee’s current 

and/or former spouse or spousal equivalent who, at the time of contribution, holds a joint, 

community property, or other similar shared ownership interest with the key employee; 

or 

(xi) Any company wholly owned (directly or indirectly) exclusively by, and 

operated for the sole benefit of, one or more other family clients; provided that if any 

such entity is a pooled investment vehicle, it is excepted from the definition of 

“investment company” under the Investment Company Act of 1940. 

(5) Family entity means any of the trusts, estates, companies or other entities 

set forth in paragraphs (v), (vi), (vii), (viii), (ix), or (xi) of subsection (d)(4) of this 

section, but excluding key employees and their trusts from the definition of family client 

solely for purposes of this definition. 

(6) Family member means all lineal descendants (including by adoption, 

stepchildren, foster children, and individuals that were a minor when another family 

member became a legal guardian of that individual) of a common ancestor (who may be 

living or deceased), and such lineal descendants’ spouses or spousal equivalents; 

provided that the common ancestor is no more than 10 generations removed from the 

youngest generation of family members. 

(7) Former family member means a spouse, spousal equivalent, or stepchild 

that was a family member but is no longer a family member due to a divorce or other 

similar event. 

(8) Key employee means any natural person (including any key employee’s 

spouse or spouse equivalent who holds a joint, community property, or other similar 
 

 

50
 

shared ownership interest with that key employee) who is an executive officer, director, 

trustee, general partner, or person serving in a similar capacity of the family office or its 

affiliated family office or any employee of the family office or its affiliated family office 

(other than an employee performing solely clerical, secretarial, or administrative 

functions with regard to the family office) who, in connection with his or her regular 

functions or duties, participates in the investment activities of the family office or 

affiliated family office, provided that such employee has been performing such functions 

and duties for or on behalf of the family office or affiliated family office, or substantially 

similar functions or duties for or on behalf of another company, for at least 12 months. 

(9) Spousal equivalent means a cohabitant occupying a relationship generally 

equivalent to that of a spouse. 

(e) Transition. 

(1) Any company existing on July 21, 2011 that would qualify as a family 

office under this section but for it having as a client one or more non-profit organizations, 

charitable foundations, charitable trusts, or other charitable organizations that have 

received funding from one or more individuals or companies that are not family clients 

shall be deemed to be a family office under this section until December 31, 2013, 

provided that such non-profit or charitable organization(s) do not accept any additional 

funding from any non-family client after August 31, 2011 (other than funding received 

prior to December 31, 2013 and provided in fulfillment of any pledge made prior to 

August 31, 2011). 

(2) Any company engaged in the business of providing investment advice, 

directly or indirectly, primarily to members of a single family on July 21, 2011, and that 
 51
 

is not registered under the Act in reliance on section 203(b)(3) of this title on July 20, 

2011, is exempt from registration as an investment adviser under this title until March 30, 

2012, provided that the company: 

(1) During the course of the preceding twelve months, has had fewer than 

fifteen clients; and 

(2) Neither holds itself out generally to the public as an investment adviser 

nor acts as an investment adviser to any investment company registered under the 

Investment Company Act of 1940 (15 U.S.C. 80a), or a company which has elected to be 

a business development company pursuant to section 54 of that Act (15 U.S.C. 80a-54) 

and has not withdrawn its election. 

By the Commission. 

Elizabeth M. Murphy 

Secretary 

June 22, 2011 
       

       

       

       

   

   

       

Annex A 

The following diagram illustrates the effect of a family office redesignating its common 

ancestor. In the first chart, the green/shaded boxes indicate persons in various 

generations that are “family members” of the family office. The double-outlinedboxes 

indicate persons in various generations that are outside the 10-generation limit and thus 

may not be advised by the family office under the exclusion. The lower diagram shows 

the impact of redesignating the common ancestor from an individual in generation 1 to an 

individual in generation 5. The single-outlined boxes indicate the new group of family 

clients that the family office may advise and maintain its exclusion. The green/shaded 

boxes indicate individuals that previously the family office could advise, but that are no 

longer “family members” due to the redesignation. The double-outlined boxes indicate 

individuals that were too remote from the common ancestor in both cases to be 

considered “family members.” 

G10

G14

G10

G14

G6

G9

G13

G6

G9

G13

G5

G8

G10

G12

G5

G8

G10

G12

Ancestor for Original Family Office

G1

Branch 1 of the Family

G2 G2

G3 G3

G4 G4 G4

G5 G5

G6 G6 G6

G7 G7 G7

G8 G8 G8 G8

G9 G9

G10 G10 G10

G11 G11

G12 G12

G13 G13

G14 G14 G14

Branch 2 of the Family

G2

G3 G3

G4 G4 G4

G5 G5

G6 G6 G6

G7 G7 G7

G8 G8 G8 G8

G9 G9

G10 G10 G10

G11 G11 G11

G12 G12 G12

G13 G13

G14 G14

Branch 2 of Family is below

Generations Not Part

of Family Office

Ancestor for New Family Office

G13

G14