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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Statement at Open Meeting to Adopt a Final Rule Excluding a "Family Office" from the Definition of "Investment Adviser"


Commissioner Troy A. Paredes

U.S. Securities and Exchange Commission

Washington, D.C.
June 22, 2011

Thank you, Chairman Schapiro.

By excluding a “family office” from the definition of “investment adviser,” Section 409 of the Dodd-Frank Act works to exempt “family offices” from the Investment Advisers Act. Dodd-Frank directs the Commission to define “family office” for purposes of the new family office exclusion from “investment adviser.” The recommendation before us is to do just that: to adopt a final rule to define “family office.”

I support the recommendation, but do want to speak to one of the lines the Commission has drawn in determining what is and what is not a “family office” – namely, the treatment of non-profit and charitable organizations advised by a family office.

Several commenters pressed the view that, contrary to the rule proposal, a family office should not lose the benefit of the new family office exclusion just because the family office advises a non-profit or charitable organization to which non-family clients have contributed. These commenters reasoned that the proposal’s approach could discourage certain charitable giving; that a donation, once made, is not managed on behalf of the donor; and that it should be adequate for purposes of the family office exclusion if the family controls the non-profit or charity or is its primary source of funding.

The final rule seeks a middle ground on this issue. In short, under the final rule, a family office that presently advises a non-profit or charity that at some point in its past has received non-family funds may still be allowed to advise the non-profit or charity while claiming the family office exclusion. * Furthermore, although the final rule does not permit any non-profit or charity that the family office advises to accept additional non-family funding after August 31, 2011, the non-profit or charity is permitted to accept funding during the transition period that is made in fulfillment of a pledge that a non-family donor made before August 31, 2011.

One could imagine having afforded a non-profit or charity flexibility to accept a limited percentage of non-family donations on a going forward basis without losing the benefit of the family office exclusion. That said, it is important to recognize that the change in approach from the initial rule proposal provides valuable relief, including potentially reducing transition costs, for a family office that today advises a non-profit or charitable organization that has received non-family contributions. Accordingly, I support the recommendation, which is meaningfully improved as compared to the proposal.

I would like to conclude by joining my colleagues in thanking the staff – especially those from the Division of Investment Management – for your hard work in shaping the final rule.

* To come within the family office exclusion, a family office has until December 31, 2013 to comply with the condition that the office cannot advise a non-profit or charity that is funded other than by family clients. In determining whether a non-profit or charity that the office advises is funded by non-family contributions, funds that the non-profit or charity has already spent or spends during the transition period can be offset against non-family contributions that in general predate the spending.



Modified: 06/22/2011