Managing friend's portfolio

My co-worker/friend recently brought up the subject of myself managing their money. It would be about 100k worth. Do I need to have any legal agreement written down or should we open up a joint account?

Also what % fee seems appropriate?

 

Seems a can of worms. Would you still be friends with you co-worker, (and could you tolerate working with him/her), if you lose all the money?

 

Yep. If he still wants to do this, he should see what his friend is comfortable with--like what % of stocks, bonds, etc. Then buy Vanguard or some other funds with ultra-low fees, and charge what an average fee-only advisor charges. Not sure of the legality, but at least it would be fair. And there's no chance of him blowing up the portfolio while the market keeps humming along (despite some corrections like the current one).

 

No "joint account" -- brokers want a taxable entity in charge. It's one party, or the other, or an LLC/LLP. IB has Financial Advisor/Client accounts whose architecture can accommodate pretty much anything you can think of. You open an FA; he opens his own separate Universal account (with all the rights, privileges, and appurtenances thereto) and then ties you in as FA [with trading rights only]. {I'm sure in 2019 that numerous other brokers have similar arrangements.} If you really feel the need for fees, this will knock you out of Friends&Family, and right into Professional, where your own data fees will roughly double. But if you're actively trading his capital, that takes away from your own attention, and is then something truly to be compensated. Go with a flat fee for your *time*: do NOT let your trading choices be swayed in the least by a frigging $. If things need to be adjusted or ended, then they're adjusted or ended.

THE BEST WAY, IMO, is to arrange a monthly sit-down in his kitchen where, for the price of a specialty pizza and a cold pint, you examine the account and make/plan suggested moves for him to execute the next day.

 

My understanding is that as soon as you manage other people's money you're considered a professional. And thus have to pay all fees etc that are associated with this status.

This sounds like a much better suggestion.

 

1. No, you do not have to have a legal agreement but I think it makes sense to have one.
2. A joint account is not correct as to provides you with joint ownership of the capital and if set up wrong would direct that capital to you and not his family in the case of his death.
3. If this will be a long term relationship that will grow, it might make sense to create an LLC, combine your capital and be partners. You will both be capital partners and share P/L. You can be the managing partner which can provide you a higher payout of gains for that role to cover your time and effort. That way you both get a K1 at end of year. This will have a cost over and above a simple account where he pays you to trade, but that would require a 1099 and that expense might not be deductible and might subject you to registration in your state.

If you want to consider #3 and moving your relationship to Lightspeed, I'm happy to discuss this. #3 is the cleanest options.

Bob

 

They would have to pay professional data fees though, right?

 

For an LLC, yes. Think of the alternative. The investor puts up $100,000. He has costs like platform fees and market data he can’t expense. The trader has a great year and makes a net of $40,000. Let’s say the payout is 30%. The investor owes the trader $12,000. How does the investor reduce his tax bill without a business by $12,000? If the trader lives is a state where with one managed account he needs to register to get paid, will he ignore the law?

It gets too complicated without an LLC. Paying $120 to $150 per month to run a business properly is a small cost.

 

Been a long time but we decided to advertise here again so I'm back and I'll post from time to time along with a few of my colleagues from around the world.

Assuming you're in the US, look at a friends and family account https://www.interactivebrokers.com/ff/en/main.php.

slide down the page to open an account and before commencing, click on "what you need" to see the documentation required.

Assuming you qualify, you can set up a master account from where you can place trades but your friend/family member can view the statements, see what you are doing etc.

 

I will give you the best advice: don't do it. Minimal upside, huge downside.