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A Bit About Dodd-Frank and Employee Roles in the FO

Over 10 years old now, the 2010 Dodd-Frank regulations offer reform measures on financial institutions to prevent another financial crisis like the one in 2008. But what does this mean for FO's?

Any investment adviser with clients fewer than 15 was exempt from registration prior to the passage of this act, which means that once the act passed the government wielded more hegemony over advisers, no matter how small their collection of clients. This obviously has an impact on FO's, but the terms in the original ordinance were quite vague.

A better and more specific defined rule was imposed and replaced the old rules.

According to the new rule, a FO is “an entity which only gives advice to ‘family clients’, is wholly owned by family clients and controlled by family members, and does not hold itself out to the public as an ‘investment adviser.'"

The Securities and Exchange Commission (SEC) has defined family clients as “current and former family members, key employees, and certain charities, trusts and not-for-profit organizations funded by family members or key employees."

A key employee is defined as “a person who is either an officer, director, trustee, general partner or person in a similar capacity at the family office, an affiliate of the family office, or a person employed by the family office or an affiliate for at least twelve months who participates in the investment activities of the family office in the course of the employee’s regular duties.”

Therefore, it's important for FO's, even small SFO's, to define each employee's role with the above conditions in mind.

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