We reported this week on the bombshell news that the Corporate Transparency Act — a new regulation that would make small businesses, including family offices, report on the management and equity structures of companies they control — was declared unconstitutional by a federal judge. Industry experts are telling us that regardless of what just transpired, the battle is far from over. Nora Macaluso shares how experts suggest family offices should forge on with complying with the requirements.
Foundation Source, which provides services to private family foundations, has appointed industry veteran Mark Casady to its board of directors. Casady is the former chairman and CEO of LPL Financial and brings with him a wealth of industry insights as well as a deep background in technology and fintech.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: Corporate Transparency Act ‘disruptive’ for family offices, but there’s opportunity as well
By NORA MACALUSO
Family offices for the first time have to report detailed information about entities they control and the people behind them as they prepare to comply with the Corporate Transparency Act — despite a federal judge recently declaring the rule unconstitutional.
“The legal battle around the CTA is far from over,” said Charmaine Tang, president of Orca AG, a Switzerland-based technology company serving complex clients including family offices.
In the case against it, the Financial Crimes Enforcement Network (FinCEN) said it’s only holding off on enforcing the law against the plaintiffs, which include members of the National Small Business Association. That means everyone else needs to prepare.
“Until there is more clarity and additional guidance available, our clients are still gathering beneficial-ownership information to comply with CTA reporting requirements,” Tang said.
Companies are required to report by Jan. 1, 2025, information about the management and equity structure of companies and trusts they control and the individuals behind them, or beneficial owners.
That’s a daunting task for some. The CTA is “the most disruptive regulation that’s surfaced over my 30-year career in private wealth/family office management,” Jill Creager, founder and CEO of St. Petersburg, Florida-based iPaladin LLC, said in an interview before the judge’s ruling. IPaladin offers the Digital Family Office platform, which helps family offices manage operations.
“Many family offices are dealing with anywhere from 50 to 500 reporting companies,” most likely special-purpose entities formed to hold maybe one private investment and one cash account, yet owned by from one to 70 family members or trusts, Creager said.
“FinCEN is asking for information that has never been disclosed to any regulatory agency,” she said. That can be “a complexity problem for a family office. It’s the ownership layers that are the problem.”
CATALYST FOR COMPLIANCE UPGRADES
Yet the CTA could be a catalyst for family offices to invest in technology systems that haven’t been updated since the 1990s, Creager and others said.
Document management is a huge problem for many family offices, Creager said. “There’s a complete lack of transparency in the document folder system,” with most companies relying on outdated technology that doesn’t work well with the complex nature of a family business, she said.
“Traditional document folders fail to capture the intricate realities woven through interrelated documents,” Creager said. “Similarly, collaborative workflows between the family office and outside counsel cannot be effectively managed with Excel spreadsheets or basic one-to-one tracking systems.
"You can’t put a spider web in an Excel spreadsheet.”
“This is an opportunity to get the budget dollars you need to improve the infrastructure of the office,” Creager said. Many family offices haven’t done that, and “CTA work is an opportunity to streamline these outdated systems and accelerate other office goals — like improved governance, continuity and sustainability — with the same stroke,” she said.
DEEPENING CLIENT RELATIONSHIPS
The legislation has also created confusion for some attorneys and accountants, as it’s not always clear which profession has jurisdiction to handle CTA work for their clients, Creager said. “There are a lot of law firms taking the position that they’re not going to manage the reporting for their clients,” she said. “That pushes the burden back on the family office to do all this work.”
The CTA compliance requirement could be an opportunity for law firms to deepen private client relationships, Creager said. “Traditionally attorneys have been hired to set up these companies and then maybe hear from their clients if the operating agreement needed to be amended,” she said. “Now you have a situation where you can really have an ongoing relationship with your clients.”
TIME TO MODERNIZE
Orca’s Tang said increasing compliance and regulatory requirements involving transparency, reporting and disclosure “cannot be ignored.”
“Family office principals, executives and next-generation family members are compelled to operationalize, professionalize and modernize as succession, transition and increased global compliance are looming,” said Tang, whose technology company serves complex clients including family offices, global families, private equity, venture capital and investment firms, foundations, corporations and professional service firms.
“Operational excellence is one of the foundation pillars of a family office,” Tang said. "[The] optimal combination of technology and people [within the office and at outsourced providers] will be critical,” she said.
“There is not one tool or one magic bullet that can be all things to all family offices,” she said. However, technology can empower family office professionals to become “more efficient and focus on their highest and best use.”
TREND TOWARD TRANSPARENCY
Family offices should “identify reportable individuals, gather required data and prepare the report but hold off on filing for a bit while we watch the court case and look out for further FinCEN guidance,” said Jennie Cherry, a partner in the New York office of the law firm Kozusko Harris Duncan.
Non-U.S. companies are already reporting information to comply with the Foreign Account Tax Compliance Act, and other countries have been instituting more disclosure requirements in recent years, Cherry said. “To me, this feels like the next step in that worldwide movement toward transparency,” she said. “But from the U.S. standpoint, it’s a sea change."
Said Tang: “We see an overall trend in the compliance and regulatory environment requiring increased transparency, reporting and disclosure of information and data.”
For most companies, Cherry said: “This is going to be fine. We’re just not used to it yet. We’ll get used to it.”
Foundation Source names Casady to its board of directors
By MARCUS BARAM
Foundation Source, a provider of cloud-based services for private foundations, just appointed Mark Casady, former chairman and CEO of LPL Financial, to its board of directors.
Casady, also the founder of Vestigo Ventures, has four decades of experience in financial services.
The appointment comes on top of Vestigo’s recent investment in Foundation Source.
Other recent appointments to the board include former Fidelity Charitable President Pamela Norley and Tiburon Strategic Advisors founder Charles "Chip" Roame.
“We are delighted to welcome Mark to our experienced board of esteemed industry veterans,” said Joseph Mrak III, Foundation Source CEO. “Mark’s intimate knowledge of wealth managers and his deep understanding of the technology shaping the financial services ecosystem will be invaluable as we evolve to become the go-to source of enterprise-caliber charitable-giving solutions and provide the best of what fintech has to offer to donors, nonprofits, and their financial and philanthropic advisers.”
LOOSE CHANGE
Marshall Wealth Management rebrands as Novus Wealth Group: The firm, led by founder Brad Marshall, manages close to $370 million in total client assets.
Wealth manager Osaic adds Sturkie Wealth and $240 million in assets: Sturkie, led by founder Stephen Sturkie and based in South Carolina, works primarily with retirees, pre-retirees and small-business owners.
Sushi master opens restaurant at Grand Hyatt Vail: The menu at the 110-seat Makoto Vail features the traditional Japanese cooking of Makoto Okuwa, “combined with his own innovative style” and a Suntory highball machine.
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