Private Asset Management

Family Offices Face Regulatory Storm 02/18/2010

Family offices and wealth management firms are analyzing solutions to proposed Securities and Exchange Commission and Congressional regulations that could potentially rattle the traditionally secretive market. PAM Managing Editor Kristen Oliveri recently hosted a roundtable featuring Tony Guernsey, national head of wealth management for Wilmington Trust; Jamie McLaughlin, ceo of Geller Family Office Services; Carol Pepper, ceo and founder of multi-family office Pepper International; and Loraine Tsavaris, managing director of Rockefeller & Co. Although they agree that firms need to prepare themselves, some doubt that regulations will be adopted, and others see an opportunity for single- and multi-family offices to collaborate in their wake.

PAM: There’s been a lot of talk from regulators about enforcing ‘fiduciary responsibility.’ What is it and is there a difference in how different types of managers apply the standard?

Pepper: I think fiduciary responsibility is really looking at yourself as a trustee of your client. We all have a duty to know the customer and to make sure you are giving them investments that are appropriate for their sophistication level, wealth level and risk tolerance. So even if you’re a broker selling securities to receive commissions and fees, you’re still supposed to act in a fiduciary capacity.

Tsavaris: The word “fiduciary” is not in the Investment Advisor Act but it’s the congressional intention that deems investment advisors fiduciaries: to put clients first and act with utmost good faith and to provide full and fair disclosure and to not mislead clients, and to disclose and seek to minimize conflicts that could affect the client. If you’re a nationally chartered trust company, you’re regulated by the [Office of the Comptroller of the Currency], if you’re a state chartered trust company, you’re regulated by the state. The most regulated are the trust companies.

Guernsey: The problem is that it’s hard [to enforce.] What you may be doing today may be very different from what you do 30 days from now. If we’re going to buy something, we’re obligated to buy it from the cheapest price, so we don’t have people putting lipstick on the pig and selling it.

McLaughlin: The broker-dealers’ businesses models are different; they will find themselves in a regime of new standards under ...

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