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The SEC Division of Investment Management recently provided guidance on whether certain key employee trusts would qualify as family clients under the rule.

Recognizing the need for family offices to attract and retain talented investment professionals as employees, the family office rule permits family offices to include as family clients certain non-family members, including those employees whose position and experience should enable them to protect themselves (“key employees”) and certain investment entities through which those key employees may invest in opportunities connected to the family office. Included in the category of key employee investment entities that would meet the definition of a family client is “[a]ny trust of which: Each trustee or other person authorized to make decisions with respect to the trust is a key employee; and each settlor or other person who has contributed assets to the trust is a key employee or the key employee’s current and/or former spouse or spousal equivalent… .”

The SEC staff believes it is within the intent of the family office rule for a non-key employee to make administrative decisions for a trust, provided investment decisions are made by a key employee.

The SEC staff also believes it generally is consistent with the intent of the family office rule for one key employee to make investment decisions on behalf of another key employee’s trust.


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