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News January 30, 2012 Issue

Family Office FAQs Released

Wondering just where the edges of "ownership and control" might be? How far removed from the family office can key employees be found? Can your in-laws invest with you?

The staff of the Division of Investment Management answered these questions and more in the Staff Responses to Questions About the Family Office (FAQs) it posted recently on the SEC’s website.

The in-laws are out. Parents of a family member’s spouse are not considered eligible investors in a family office. Key employees can come from the family office itself, or an affiliated family office that serves the same family, but not a family-owned operating company that is not a family office.

You can read up on ownership and control yourself, but among the other things you’ll learn is that giving a non-family client non-voting shares will cause a family office to lose its qualification under the rule. Family members might still be deemed to exclusively control the family office – it doesn’t say – but no matter, the scenario fails the "wholly owned by family clients" requirement.

Wait until you see the examples of what will and won’t work for a family office’s board of directors.

Many more issues than these few questions and answers are set forth in the FAQs, under five categories:

  • Ownership and control of the family office;
  • Key employees;
  • Family members;
  • Non-advisory services; and
  • Grandfathering.

As with other FAQs posted on the SEC website, the staff said it expects to update the guidance from time to time with responses to additional questions.