Proposed legislation by the Securities and Exchange Commission to have single family offices register as investment advisors is part of the financial regulatory reform negotiations currently being debated in the Senate.

But some worry that single family offices have become the unintended targets of legislation meant to tackle exploitative and dishonest advisors.

Under current law, investment advisors have to register with the SEC and comply with rules related to record keeping, compliance, advertising and marketing, solicitation, and annual disclosures. But as it stands, the Investment Advisers Act of 1940 contains an exemption for “private advisors” that have less than 15 clients and don’t act as advisors to the public or to a registered investment company. Family offices have avoided registering with the SEC by considering themselves private advisors.

Until now.

Sweeping regulatory changes being hashed out in the Senate may catch family offices with legislation intended for other targets, said Rus Prince of Prince & Associates. “Family offices are just getting caught up in the whole wave of regulation,” he said. “I don’t believe they were the intended target of the legislation since they are investing their own money and they don’t have fiduciary responsibility over the money of others.”

Many view the proposed legislation as a way to regulate hedge funds and other investment funds after Bernard Madoff and others fleeced a slew of investors.

“The legislation was proposed to protect people from unscrupulous advisors, not from themselves,” Prince said.

He said that no one even knows how many family offices there are (estimates range from 2,000 to 10,000), which would make it hard to regulate. But if legislation does pass those who run family offices will look for other alternatives, Prince said.

Some of Prince’s clients have told him that if the legislation passes they will just change from a family office to another type of structure, such as a trust. Others have said they would move the entire family office operation offshore or get rid of the entire corporate structure of the family office altogether and just invest on their own.

The reality is the proposed legislation would impact only a small group of people, said Prince, “who don’t have enough of a cache to fight over it.”

Many worry about the costs attached to registering their family offices as investment advisors. The costs include examinations they will have to undergo as advisors and the cost of making their assets under management public and accessible to the SEC or the state. “There’s a cost attached to registering as an investment advisor and everyone wants to avoid that,” Prince said.

When and if the proposed legislation will pass is anyone’s guess since it is part of a larger regulatory package now being hammered out after months of negotiations by Senator Christopher J. Dodd of Connecticut, the Democratic chairman of the Senate Banking Committee, and the rest of the Senate.

Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I., said that although registering as investment advisors will create an added regulatory burden for family offices, it will level the playing field. Currently, other types of organizations that are providing investment advisory services or guidance must register, while family offices do not giving them an advantage.

“I think the burden is not that severe and clearly does make this a level playing field which I think is important,” Bobroff said. “And from the consumer standpoint if everyone is registered than the consumer knows he is getting comparable and consistent service.”

Andrew J. Neale, a partner at Fogel Neale Partners, said that he doesn’t think family offices should be exempt from registering with the SEC.

“They are handling client’s assets so why should they be held to a lesser standard than any other investment advisor?” he said. “There has been cases of family offices that have done appallingly badly with their clients’ investments. It’s just not fair to have them exempt from registration when others aren’t.”

Bobroff said that if family offices are made to register then the question becomes, who is responsible for oversight and examination. “We know the SEC is strapped so arguably a lot of this will fall to the yet to be determined self-regulatory organization for advisors,” he said.