Thursday, April 09, 2015

In-Law Is Family Under “Family Office” Exception, Application Claims

By Amy Leisinger, J.D.

D-W Investments LLC, a multi-generational single-family office providing services to the family and descendants of Myron A. Wick, Jr., has requested an SEC order declaring it to be a person not within the intent of the Investment Advisers Act to the extent that it cannot satisfy all of the conditions to be a “family office” as defined in Rule 202(a)(11)(G)-1 under the Act. The application notes that, other than the provision of services to the sister of a spouse of a lineal descendant and her membership interest, the office complies with the conditions of the “family office” rule. Moreover, the application states, the additional client has long been treated as an immediate member of the Wick family and has been receiving advisory services from the office for many years (In re D-W Investments LLC, File No. 803-00226, March 30, 2015).

The “family office” rule provides three general conditions for exclusion from the definition of “investment adviser” and regulation under the Advisers Act: (1) each of the persons served by the office must be a “family client” and the office must have no investment advisory clients other than the family clients; (2) the office must be owned and controlled by “family members” and/or “family entities” as described in the rule; and (3) the office must not hold itself out to the public as an investment adviser.

Other than the provision of services to the sister-in-law of a lineal descendant and her membership interest in the office itself, the application states, the office meets the requirements of the “family office” rule. The application noted that the sister-in-law has less than a 3 percent membership interest in the office and that her trust has less than a 2 percent interest in the office and stressed that neither has a management role in, or exercises control over, the office. This client is an integral part of the Wick Family, which “knows, trusts and respects her as if a member of the immediate family,” the application states, and including her in the definition of “family” for the purpose of the “family office” rule “simply recognizes and memorializes the familial ties and intra-familial relationships that already exist.”

Absent relief, the application explained, the office would be required to register under Advisers Act Sec. 203(a), even though it does not hold itself out to the public as an investment adviser or market non-public offerings to any person or entity other than family clients. Adding the sister-in-law as a family client will not change the nature of the office into that of a commercial advisory firm and there is no public interest to be served by requiring the office to register, according to the application, because the office will not offer its services to anyone other than the “extended” Wick Family.

Citing previous SEC orders exempting similar family arrangements, the office requests an exception in the form of a Commission order declaring it not to be a person within the intent of the Advisers Act.

The application is No. 803-00226.