The SEC recently granted an order under Section 202(a)(11)(G) of the Investment Advisers Act of 1940 (“Advisers Act”) declaring that a particular “family office” and its employees, when acting within the scope of their employment, are not required to register as investment advisers pursuant to Section 203(a) of the Advisers Act. The SEC granted this order because it found that the applicant and its employees are not within the intent of Section 202(a)(11) of the Advisers Act which defines the term “investment adviser”. Section 202(a)(11)(G) allows the SEC to designate by rule, regulation, or order that certain persons are not within the intent of the definition of an “investment adviser.”
This particular “family office” filed an application on behalf of itself and its employees for an order based on the following:
- The applicant and its employees operate as a “family office” providing advisory services to family members only. This includes estate accounts, entities, trusts, and foundations all of which are wholly owned, funded, and for the benefit of the family and its lineal descendents.
- The applicant is and will at all times be owned, directly or indirectly, exclusively by one or more family members and its Board of Directors will at all times be, at a minimum, made up by members of the family.
- The applicant provides advice regarding various investments in addition to other services but does not and will not provide investment advice to any person that is not a family member.
- The applicant only charges fees that are sufficient to cover its costs for providing services. The applicant’s fee structure is not designed to generate a profit.
- The applicant will not hold itself out to the public as an investment adviser and will not be listed in the phone book or any other directory as an investment adviser.
- The applicant will not engage in any advertising or conduct marketing activities and it will not solicit or accept as an investment advisory client any person that is not a family member.
The applicant also indicated that they were currently operating under the registration exemption provided in Section 203(b)(3) of the Advisers Act (also known as the private advisor exemption) because it only had eight clients but indicated that this number would continue to grow when children of the family are no longer minors and leave their childhood households. However, the applicant is not prohibited from registering with the SEC because it has assets under management of at least $25,000,000.
Based on the information provided by the applicant, the SEC granted an order declaring that the applicant and its employees are not persons within the intent of Section 202(a)(11) of the Advisers Act. This means that registration is not required.
Posted by Bryan Hill
Labels: How to Become RIA, Investment Advisor Registration, Registration, SEC