iPaladin CEO Featured in Crain Currency Article Regarding CTA's Disruptive Nature & the Opportunity for Family Offices

The following is an abridged version of an article titled, "Corporate Transparency Act 'disruptive' for family offices, but there's opportunity as well", originally published on March 08, 2024 by Crain Currency. Written by Nora Macaluso. For the full article please click here.

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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. 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. 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.”

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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 “There’s a complete lack of transparency in the document folder system,” with most companies relying on outdated technology that doesn’t work well with the complex nature of a family business, she said.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.

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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.”

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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."

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.”

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To learn more about how iPaladin can help your family office turn the CTA's disruptive nature into a positive evolution of your business, please schedule a one-on-one discussion here.

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