Business Compliance Audits for Family Investment Offices

Corporate Investigation Consulting offers business compliance services that include audits and advisory services to single-family and multifamily investment offices nationwide that don’t qualify from SEC’s registration exclusion.

Put our highly experienced team on your side

Roger Bach
Roger Bach

Former Special Agent
(DOJ-OIG & DEA)

Timothy E. Allen
Timothy E. Allen

Former Senior Special Agent
(U.S. Secret Service & DOJ-OIG)

Chris Quick
Chris Quick

Former Special Agent
(FBI & IRS-CI)

Maura Kelley
Maura Kelley

Former Special Agent
(FBI)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent
(FBI)

Michael Koslow
Michael Koslow

Former Supervisory Special Agent
(DOD-OIG)

Marquis D. Pickett
Marquis D. Pickett

Special Agent
U.S. Secret Service (ret.)

Dennis A. Wichern
Dennis A. Wichern

Former Special Agent-in-Charge
(DEA)

Brief history: Compliance for family investment offices

Historically, family investment offices have been exempted from SEC registration as per the Advisers Act provision on investment advisers with less than fifteen clients. Today, such exemptions don’t exist. As per the Dodd-Frank Act, the SEC can regulate private fund advisers, including those in family investment offices.

Family investment offices face unique regulatory compliance issues today based on many factors, including the type. For instance, single-family investment offices providing services to one client have been historically structured like commercial advisers. As a result, single-family investment offices have for a long time required highly individualized approaches when complying with the Investment Advisers Act.

Corporate Investigation Consulting understands the unique business compliance audits and other compliance challenges faced by family investment offices. Our job is to help family offices overcome these challenges.

We dedicate time and resources to understanding every family investment office’s engagements to uncover compliance issues. Our clients get customized compliance programs that offer practical solutions in case of business compliance audits. All our clients meet SEC guidelines and other regulatory obligations.

We can handle SEC registration issues, craft compliance programs, offer ongoing compliance support, train staff on compliance, and more!

SEC Family Office guidelines

Before the Dodd-Frank Act, family investment offices just needed to have less than 15 clients to be exempt from SEC registration as per the Advisers Act. The enactment of the Dodd-Frank Act ushered new changes into how the Advisers Act applies to family investment offices.

However, the Advisers Act wasn’t originally designed to govern wealthy families managing their own assets. As a result, the Securities Exchange Commission (SEC) adopted a rule highlighting conditions (SEC’s family office rule) that family investment offices must meet for them to be excluded from Advisers Act Regulation.

Corporate Investigation Consulting helps family offices nationwide comply with the SEC’s family office rule. Talk to us: 866-352-9324 for in-depth compliance with the SEC’s guidelines. We can also help with abrupt business compliance audits by regulators and other enforcement authorities in unique circumstances like investigation or litigation.

Compliance with the SEC Family Office Rule

Corporate Investigation Consulting has legal professionals that can help family investment offices comply with the SEC’s rules on exemption. There are 3 main conditions. They include;

I. No Clients

Family investment offices shouldn’t serve any other clients other than family clients. In this case, family clients include family members or former family members who qualify as lineal descendants (with a common ancestor, who isn’t more than ten generations from the youngest generation family member). Spouses/spousal “equivalents” of family members are also considered family members.

Family clients also include “key” employees and former “key” employees of a family office, such as persons like directors, trustees, general partners, among other persons who perform a policy-making function or head a division or business unit in a family office.

Other persons who qualify as key employees of a family investment office include persons who perform an administrative, clerical or secretarial function and those whose duties include investment activities of a family office. Some estates, trusts, and companies may also qualify as family investment offices’ clients.

II. Ownership and control guidelines

Family investment offices wishing to exempt from SEC rules should also meet certain ownership and control requirements. For instance, family offices must be 100% owned by family members (clients) and be fully controlled, directly/indirectly, by family members or family entities.

Since family clients include family members and “key” employees, family members aren’t required to get exclusive ownership to a family office to meet SEC exemption rules. However, SEC’s family office rule demands that family members/entities exclusively control a family investment office. As a result, “key” employees can have a stake in an office (as an incentive to retain talent) but control remains within family members and entities like family trusts, wholly-owned companies, etc.

Since there are many other requirements to ownership and control as per the SEC’s family office rule, it’s important for family investment office to seek guidance from compliance experts.

III. Representation to the public

The last requirement for exemption is linked to an office’s representation to the public i.e., family offices should represent or hold themselves out to the public like investment advisers. While family offices can have websites, offer information on portfolio companies or other signals that they are notable investors, family offices should avoid advertisements and other public communications deemed to offer financial planning or investment adviser services to the public or non-family clients.

The SEC rules ban family offices from marketing non-public offerings among other investment products to non-family clients.

Family investment offices wishing to be exempt from SEC’s family office rule can contact Corporate Investigation Consulting on 866-352-9324. We can do business compliance audits to ensure your family office is exempt from Advisers Act regulation.

Compliance by multifamily investment offices

Multifamily investment offices may be subject to different guidelines. The family office rule doesn’t apply to multifamily investment offices. Wealthy individuals keen on enjoying the exemption should avoid setting up multifamily offices. They should also desist from offering advisory services, or engaging in other activities that don’t meet the SEC’s definition of family clients.

Family offices that engage in joint ventures, co-investments, and other deals that involve parties who don’t qualify as family clients can be subjected to investment adviser status, which attracts SEC oversight. Registered investment advisers need to maintain financial records and undergo periodic business compliance audits by the SEC. These audits investigate for compliance with federal security laws such as the Advisers Act.

Role of family investment office consultants

Setting up a family investment office isn’t easy. The complex structure of such wealth management vehicles demands experts like Corporate Investigation Consulting. What’s more, the repercussions of noncompliance to applicable family office rules can be dire.

Every aspect of family investment offices, from registration to deal structure, management, and transactions must be evaluated carefully. We have the resources to handle everything. Claim a free complimentary consultation with our experts now to understand our business compliance audits and other services Corporate Investigation Consulting offers family investment offices nationwide. Contact us today.

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