Creating phantom equity to track the family's investments is a possible fix, but it would be difficult to administer and anything but liquid.

The SEC definition is also a head-scratcher for families that have banded together to form "closed" family offices-noncommercial outfits that serve several wealthy families for the sake of cutting costs and building scale. In Handler's view, these would probably have to register because they aren't focused on a single family.

Another puzzling feature of the SEC's definition is its apparent willingness to let family offices advise any number of family members. "Do they really mean there's no limit?" asked Handler. "It's not just 15 anymore; could it be 200?"

Handler also said he wonders whether family offices that became registered investment advisors solely because they cater to more than 15 individual family will be permitted to "de-register" if the new proposal goes into force as it stands.

The SEC is accepting comments on the proposal until November 18.


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