Single family offices have avoided registering as investment advisers with the Securities and Exchange Commission by considering themselves private advisers.

But that could change.

"Family offices are just getting caught up in the whole wave of regulation," said Russ Prince of Prince & Associates. "I don't believe they were the intended target of the [proposed] legislation, since they are investing their own money, and they don't have fiduciary responsibility over the money of others."

The SEC has proposed legislation that would require family offices to register as investment advisers. Under current law, investment advisers have to register with the SEC and comply with rules on record keeping, advertising, and solicitation, among other things. But the Investment Advisers Act of 1940 contains an exemption for "private advisers" that have less than 15 clients and do not act as advisers to the public or to a registered investment company.

Many observers say the measure is an attempt to regulate hedge funds and other investment funds after Bernard Madoff and others fleeced a slew of investors.

"The legislation was proposed to protect people from unscrupulous advisers, not from themselves," Prince said.

Prince pointed out that no one knows how many family offices there are (estimates range from 2,000 to 10,000), which would make the SEC proposal hard to regulate.

But if the bill passes, those who run family offices will look for alternatives, Prince said. Some of his clients have told him that if the legislation passes they will just change from a family office to another type of structure, such as a trust. Others have said they would move the entire family-office operation offshore or get rid of the entire corporate structure of the family office and invest on their own.

The legislation would affect only a small group of people cannot afford "to fight over it," Prince said.

Also, Prince said, "There's a cost attached to registering as an investment adviser, and everyone wants to avoid that."

The SEC measure is part of a regulatory reform package being hammered out after months of negotiations by Senate Banking Committee Chairman. Chris Dodd, D-Conn., and the rest of the Senate.

Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I., is in favor of having family offices register as investment advisers.

Currently, other types of organizations that provide investment advisory services or guidance must register, and not having to register gives family offices an advantage, Bobroff said. "I think the burden is not that severe and clearly does make this a level playing field, which I think is important," he said. "And from the consumer standpoint, if everyone is registered, then the consumer knows he is getting comparable and consistent service."

Andrew J. Neale, a partner at Fogel Neale Partners, agrees that family offices should not be exempt from registering with the SEC. "There have been cases of family offices that have done appallingly badly with their clients' investments."

Bobroff said that if family offices are made to register, the question becomes who is responsible for oversight and examination. "We know the SEC is strapped, so arguably a lot of this will fall to the yet-to-be-determined self-regulatory organization for advisers," he said.

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