Managing Funds

Discussion in 'Professional Trading' started by naifwonder, Apr 16, 2008.

  1. I have had several potential investors keeping a close eye on one of my systems for quite some time now, and they are at the point where they want to start implementing it live. I have been doing some research on the process of setting up an organizational structure to undertake such an endeavor, and there is a wealth of information out there. I saw another thread here on ET, and it clarified things for me greatly. That thread can be found at the link below:

    Before I go any further, I want to make it clear that I will, of course, be consulting a lawyer before doing anything final, but first want to get some information on my own. In fact, if anyone could recommend a good lawyer for what I will be explaining below (I'm located in NY), it would be greatly appreciated.

    Anyway, back to the matter at hand.. Some of the people that want to get involved with this system want to trade it on their own, and others want me to trade for them. I would personally prefer to do all the trades myself, but I do not want to lose potential clients for the time being. What would be the licenses required to do something like this, and are there any conditions under which I can bypass these requirements?

    I will be starting out small - around $100k with 3-5 investors. If there are caps on how much capital/how many investors I can take without a license, that would also be very helpful to know. The fee structure will be as follows:

    1) If I am the one managing the account, a % of profits will be charged based on a high watermark structure.

    2) If the person them self is trading, I will still charge a % of profits made, albeit lower than what it would be if I was the one managing the account directly. In addition, a flat fee will also be charged (this is still up for debate). Investors will most likely be limited on how long they can trade by themselves, after which point they can opt into the managed account program.

    As for managing the accounts directly, from what I have read so far, it seems best to form an LLC and take investors on as limited partners. As for the people trading themselves, what would be the requirements for this? Once again, do I need any licenses for this, and are there are any ways to bypass these requirements?

    I am also aware that Interactive Brokers has a "Friends and Family Account" structure which seems like a potential solution to this endeavor. A link containing more information on this is located below:

    If the solution above is viable for what I am doing on the small scale that it will start at, than I would prefer to do that. In regards to the Friends and Family account, does anyone know if I would need any licensing for this given my client base and starting capital size (around $100k with 3-5 investors)?

    I am trying to keep the start-up cost for this endeavor low, but at the same time, I understand the value of properly investing in something worth while, and don't plan on cutting corners. If licensing is mandatory for any of this, I will get them. Just have to find a sponsor.

    Any help would be greatly appreciated.