Family offices continue to grow, form, and diversify their portfolios and businesses. However, regulatory changes are in place or could happen soon, which will reshape how those entities function. This impacts the operational structures a family office uses and the structures created to deal with investments. Ultimately, family office recruiters must be aware of this and offer assistance.
Family office executive search is crucial when searching for a human capital director and other executive leadership talent. Ultimately, you must work closely with companies that have a proven track record. Let’s learn more about how regulatory changes impact family office recruitment and staffing.
Understanding the New Acts and Those Regulatory Changes
The CTA (Corporate Transparency Act) was passed in 2021 as part of a National Defense Authorization Act. It requires limited liability companies and corporations to disclose the beneficial owners to the FinCEN (Financial Crimes Enforcement Network) upon registration and formation. Essentially, the goal of the CTA is to prevent tax evasion, money laundering, and other illegal activities.
You also have the ENABLERS Act. This focuses on anti-money laundering regulations and prevents tax professionals and advisors from using offshore schemes to avoid tax. Its goal is to expand the definition of a financial institution under the BSA (Bank Secrecy Act) and the obligations of gatekeepers, which include law firms, payment processors, investment advisors, and more.
Family businesses must understand these regulatory changes and the new acts. The goal is often to continue the family legacy. Though a wealth management firm can help with financial planning, you’ll need family office recruitment to get the very best talent to work with your existing team and locate new human capital.
How Regulatory Changes Impact Family Offices
Both the ENABLERS and CTA acts directly impact family offices, which means they must do their due diligence and use more transparency. Compliance and research are at the heart of your operations. Therefore, you’ll need family office services to help you with tax planning and finding new family office candidates.
If you don’t comply with the regulations, you could damage your reputation or see severe penalties.
Overall, the CTA applies to companies formed and registered in the US. However, it also extends to foreign companies registered to do business here. Therefore, the Act’s primary focus might be on United States companies, but the scope shifts to foreign entities with a US presence. They must report their ownership information.
The ENABLERS Act could also shift into international waters to anyone offering services to US clients. This could apply to family office executive search, especially if the recruiting firm finds candidates who work online from different countries.
Tips for Staying Compliant as Family Offices
Whether an advisor helps the family office or family members do this, it’s important to be aware of the new regulations and ensure that you stay compliant. Family office recruitment can be beneficial because the firm you choose will already have family office professionals who understand things like succession planning, wealth management, and compliance issues for single and multi-family offices.
Here are a few tips to stay compliant with your family office:
1. Maintain/Establish Accurate Ownership Records
It’s important to keep your beneficial ownership data updated and readily available for any regulatory inquiries. Recruiters who take on multi- or single-family office clients will often have professionals in mind to keep track of this information.
2. Implement Strong Internal Compliance Policies
You should develop a strong compliance program and maintain it at all times. This includes routine training for your staff, a well-defined escalation process, and clear procedures to report violations.
Ultimately, you want to keep your family business running smoothly, and family members need to know what that entails. An executive search firm can help you find professionals who understand compliance.
3. Conduct Due Diligence on Necessary Professionals
Before you talk to tax advisers and others, you should verify their credentials and learn about their track record. This will help you determine that they stick to ethical standards and don’t use tax schemes.
Likewise, a family office executive search can help you find candidates for wealth management, succession planning, and staying compliant with the family business.
4. Monitor New Regulatory Developments
Family offices must stay informed about best practices and regulatory changes by attending conferences, participating in associations, and collaborating with other family businesses. Likewise, family office recruiters can help you deal with changing regulations by finding candidates appropriate for the task.
5. Adopt a More Risk-based Approach
Assess the risks the family office might face and ensure that you act accordingly. This could involve more due diligence for high-risk investment structures and relationships.
Why Regulatory Changes Are Happening
You might wonder why there are regulatory changes to your family office. Here are a few reasons:
Questions Raised About Sustained Privacy
The SEC wants to investigate private fund managers and has since the 2008 financial crisis. It considers the family office as volatile because family members might disagree on management processes within the family business.
Government Calls for Regulation
Typically, the family office is exempt from registering. However, like several industries, the government is pushing to remove that exemption so that every family office comes under SEC review.
Underwriting Concerns
Insurance carriers aren’t as willing to help family offices, though there is a new capacity that has started. Therefore, some existing carriers wish to expand the underwriting to include them. However, disclosure is the biggest issue.
Family offices don’t have to file the Form ADV to disclose investment strategies, relationships, and business operations. Therefore, they’re completely private.
Resources That Might Help
Staying updated about new regulations isn’t easy. However, family offices might enjoy perusing these resources to gain more information about the ENABLERS and CTA Acts.
- The American Bar Association – This resource center is dedicated primarily to the Corporate Transparency Act. It offers legal analysis and updates for family office needs.
- The Family Office Association – You can find insights and resources about regulatory compliance for the family office here.
Where to Turn for Family Office Recruitment
Laws are always a headache, especially for a family office. However, they can help family offices prioritize transparency and reevaluate things, which isn’t altogether bad.
If you’re interested in a family office executive search firm, The Quest Organization can assist. Contact us by calling 212-971-0033 or emailing info@questorg.com.
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