23 March 2018
On November 10, 2009, Senator Dodd (D-CT) introduced a bill that has been referred to the Senate Committee on Banking, Housing and Urban Affairs which would specifically exclude “family offices” from the definition of an Investment Adviser under the U.S. Investment Advisers Act (the “Dodd Proposal”). The Dodd Proposal was part of a much larger bill entitled the Restoring American Financial Stability Act.
The Restoring American Financial Stability Act is Senator Dodd’s proposal for reordering the regulatory landscape of the U.S. financial system in general. The proposal to exempt family offices from regulation as Investment Advisers was not mentioned in the summary of the Restoring American Financial Stability Act released by the Senate Committee, and we have not seen it mentioned in public statements by Senator Dodd or other members of the Committee.
Significantly, the Dodd Proposal did not attempt to define what type of an organization would qualify as a family office. Rather, that definition is specifically left to later SEC rulemaking. If the SEC defines a family office in a manner consistent with its prior exemptive orders in this area, the exemption will be limited to single family offices serving the lineal descendants of a single individual, their spouses and entities and charities owned by, for the benefit of or created by such individuals. However, the SEC could always take such an opportunity to narrow – or broaden – its prior interpretations of a family office.
The Dodd Proposal is obviously at odds with the Private Fund Investment Advisers Registration Act of 2009, which was the subject of our November 13th Alert. Based on public statements made by Rep. Kanjorski (D-PA) and a press release issued by the House Financial Services Committee, the Private Fund Investment Advisers Registration Act of 2009 is specifically intended to subject family offices to regulation under the Investment Advisers Act, thereby setting the stage for a conflict between the Private Fund Investment Advisers Registration Act of 2009 and the Dodd Proposal, to be resolved in future legislative proceedings.
It is not currently possible to predict which treatment of family offices will prevail. However, we will continue to monitor the progress of both proposals and will apprise you of significant developments.