A new white paper released this month by Charles Lowenhaupt, chairman and chief executive of Lowenhaupt Global Advisors, highlights the “unprecedented intrusion” into the world of the single-family office represented by the rules issued last month under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“Every US single-family office must now choose between registration with the SEC and reorganization in ways that change how the family office has operated and the benefits the office can offer to family members,” writes Lowenhaupt.

The paper, Limiting Freedom From Wealth: The Impact of New SEC Rules on Families and Single-Family Offices in the United States, delineates some important implications of the new rules, including that any gift made by a family member must be deducted from the asset base of the family office, regardless of whether the gift is outright or in trust. Furthermore, the rules “considerably limit the kind of trust which can be written and managed by the family office if it will benefit a non-family member, whether a devoted nurse, a former mistress, an influential teacher or a friend.”

As Lowenhaupt points out, the effect of this is that any gift given by one family member now has a far greater bearing on the other members of the office and its staff, thus nurturing the seeds of family discontent. This also creates a conflict of interest, as “the family office will necessarily recommend against any such gift that threatens the operation of the office.”

“In fact, the rules effectively make it impossible for a family office to serve its core functions, which include delivering investment advice, maintaining confidentiality, and following practices that ensure objectivity and alignment with the family’s interest,” writes Lowenhaupt.

To view the full white paper on the practical implications of the legislation and rules, click here.