When managing client accounts through a group account structure ( say for example the IB version of Friends and Family ) are there any rules about who a client can be? I went on the website and it talked about the total asset value has to be less than 25 million, and you can't have more than 15 clients. Aside from that, it doesn't seem to say anything about whether they are actually family or friends. Can't it be anybody? It also says something about soliciting clients. How else is a person supposed to drum up business without "soliciting" clients either through meetings with new people or maybe a website of some sort to demonstrate trading ability?
I'm not a lawyer, but I believe most States offer exemptions from registration for family, friends, and business associates residing in the same state. You don't need to register with the SEC or CFTC for single state. Once you go multi-state, the exemption(s) disappears at the State and Federal level... They you have to register/qualify in all states where the "clients" reside. Check with your lawyer or Google. The answers are out there. A quick search found a brief description of the exemptions (search terms "security registration exemption family friends"): Federal Intrastate Exemption: http://www.cuttingedgecapital.com/t...securities-offering-registration-requirement/ California exemption: http://www.cuttingedgecapital.com/the-california-friends-and-family-exemption/ Use this as a starting point for discussion with your lawyer, not a definitive answer. Also, if you search for "Hedge fund" on ET, there is a good thread with links to a few websites that specialize in meeting the legal and regulatory requirements for forming hedge funds/CTAs.
There is a lot of incomplete/outdated information on websites (such as the 15 client thing). If you're ever planning to trade money for somebody else in the United States for compensation you should consult a lawyer. Each state has its own separate rules too in addition to the federal laws & regulations. Some important stuff in this area was also recently changed by the Dodd-Frank Act. A lot depends on what state you're in. Some states require virtually everybody wanting to trade somebody else's money for compensation to have to register as an investment adviser and become licensed.
This isn't exactly true. There is a big difference between not needing to register a securities offering vs. not needing to register as an investment adviser. You need to make sure you comply with all these laws (and regulations made under each of them), plus their state law equivalents: Investment Advisers Act of 1940 Investment Company Act of 1940 Securities Act of 1933 Securities Exchange Act of 1934
I should have mentioned in my original post, I'm Canadian. Anyway, my question is with regards to who clients can be and what constitutes soliciting them. Let's say I meet a guy and after talking he wants to invest money in some strategy I'm using. There's nothing saying he can't right? He'd be a new friend, but a friend none the less right? Also, would creating a website be considered soliciting clients if it was made perfectly clear on the website that I'm not a financial advisor and all risks are the clients?
There is an exemption from having to register as an investment adviser for "Foreign Private Advisers" as defined in Section 202(a)(30) of the Investment Advisers Act of 1940. To qualify you must not have any place of business in the U.S., you cannot have more than 14 U.S. people as clients, you must be trading less than $25 million for the U.S. people, and you must not hold yourself out to the public in the U.S. as an investment adviser. If you're having a website, it's a good idea to consult an attorney to make sure you don't violate the "hold itself out" provision. Solicitation tends to become a major issue if instead of trading separate accounts for your clients you're pooling their money together kind of like a hedge fund does because then you need to make sure you aren't violating the Investment Company Act of 1940 or the Securities Act of 1933.
I just wanted to stress that in the past the SEC has interpreted a similar "hold itself out" provision pretty broadly so most websites would be extremely bare bones so as not to contain information about the adviser's services. The idea is to not let it be known generally that you are available to provide investment advice to U.S. people or will accept any new U.S. clients.