If you think the lucrative, ultra-high-net-worth family office business is out of your league, think again.

Once the Securities and Exchange Commission officially defines the term “family office” (and it took the first step in that direction yesterday, 12 Oct.), the floodgates may open for registered investment advisors to capture a chunk of that heretofore mysterious market’s assets.

As a result of the Dodd-Frank legislation—formerly known as the Wall Street Reform and Consumer Protection Act that became law in July—the SEC was charged with explicitly defining “family office” to determine who would be required to be regulated under the Investment Advisers Act of 1940.

Before Dodd-Frank became law, family offices did not have to register with the SEC under the Investment Advisers Act of 1940 if they had fewer than 15 clients. The exemption was highly coveted by family offices because it gave wealthy families privacy and enabled family offices to avoid SEC oversight and costs associated with regulatory compliance.

But the new law, which goes into effect next July, eliminated this key exemption.

Under Dodd-Frank, there still will be exemptions as long as the entity meets the SEC’s definition of a “family office.” Once exempted, the family office will continue to be excluded from the definition of “investment adviser” and, therefore, not be subject to registration or regulation by the SEC.

The family office industry, not surprisingly, is lobbying the SEC for a broad definition of “family office.”

“It is in everyone’s best interests to fashion a rule that can be applied by single family offices broadly and effectively, with little additional administrative oversight from the Commission,” attorney Martin Lybecker wrote to the SEC last month. Lybecker, an attorney for the powerhouse Washington, D.C., law firm WilmerHale, is representing The Private Investors Coalition, a lobbying group formed by over 60 single family offices.

Yesterday (October 12) the SEC proposed to define a family office as any firm that:

• Provides investment advice only to family members, as defined by the rule; certain key employees; charities and trusts established by family members; and entities wholly owned and controlled by family members.
• Is wholly owned and controlled by family members.
• Does not hold itself out to the public as an investment adviser.

The proposal is “broader than expected,” according to John Duncan, principal for the Chicago-based law firm Duncan Associates, and a nationally recognized expert on family office legal issues.

Nonetheless, a number of family offices will invariably not be able to meet the new standards and will no longer be excluded from regulation under the Investment Advisers Act.

The scope of how “family members” are defined will be critical and potentially problematic, Duncan says. In addition, some families control but do not wholly own family office firms; some trusts, while benefitting family members, were not established by them.

As a result, RIAs will have their opening to attract business from firms excluded by the definition, say industry observers.

Family offices that don’t qualify for the regulatory exemption under the SEC’s definition can either register themselves as an RIA, form a private trust company or turn to an established RIA firm for investment advisory services, Duncan said.

“It’s a terrific opportunity for investment advisors to position themselves as alpha investment advisors for family offices,” according to Duncan, whose firm specializes in helping family offices and RIA create private trusts. They are already registered and can in turn help family offices choose their other investment advisors.”

“The key for advisors,” Duncan continued, “is to be very flexible in providing different levels of advice for family offices because every family has different needs. The more flexible you can be and still provide quality service, the larger market you will have.”

For example, advisors should also consider forming multi-family private trust companies to attract family offices who don’t want to do it themselves, he suggests.

RIAs can also benefit, Duncan said, from family offices’ inclination to gravitate to smaller, boutique firms, as opposed to working with impersonal financial behemoths.

Mariann Mihailides, managing director at Chicago-based Family Office Exchange, agrees.

Many family offices are likely to find “more comfort” in a boutique RIA, in contrast to a “large institution,” Mihailides says, because of factors like flexibility and personal service.

Indeed, concern among family offices about the ramifications of Dodd-Frank became so acute that FOX is sponsoring a workshop at the Peninsula Hotel in Chicago on November 10 and 11 titled, “Is Regulation in Your Future? Structural Options for Private Wealth Management.”

“This is a major issue for our members,” Mihailides says. “It’s the first thing I hear about, and there’s a sense that everything’s up for grabs.”

Speakers will include Lybecker, who addresses “the structural implications of financial regulatory reform” and Duncan will be on a panel discussing how to form a regulated entity.

In addition, a trio of leading family office executives– Brad Fisher of Springcreek Advisors, Chris Galloway of Okabena Investment Services and Robin Satyshur of The Family Office – will explore the pros and cons of registering as an investment advisor and forming a private trust company as the Dodd-Frank deadline approaches.

And the SEC will receive public comments on the proposed rule though November 18.