The Securities and Exchange Commission, the powerful US financial regulator, has adopted the rules under which certain family offices will not fall under a 1940 piece of legislation, clearing up concerns that they would have been subject to tough new controls passed by Congress last year.

The SEC approved the rule that defines those family offices that are excluded from the definition of an investment advisor as set out in the Investment Advisers Act of 1940, which means they are not subject to regulation under the piece of legislation.

The implementation of the Family Office Rule stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In October last year, the SEC issued its proposed approach to the Family Office Rule, receiving a large number of industry responses from organisations concerned about the impact of such legislation on their business.

In practice, the final Family Office Rule significantly expands the family members and entities that may seek advice from a family office and still qualify for the “family office” exclusion from registration, lawyers say.

To be excluded from the 1940 Act, a family office must have no clients other than “family clients” (as defined); be wholly owned by family clients and be exclusively controlled (directly or indirectly) by one or more family members (as defined) and/or family entities, and must not hold itself out to the public as an investment advisor.

In the case of what is meant by "family members”, the term applies to all lineal descendants, including adopted, step and foster children, of a common ancestor, who may be living or deceased, and such lineal descendant’s spouses or spousal equivalents, provided that the common ancestor is no more than 10 generations removed from the youngest generation.