Need a license to trade for friends and family?

Discussion in 'Professional Trading' started by IWT2008, Dec 6, 2008.

  1. IWT2008


    Putting together a small (100k) account/fund for trading equities.

    My money as well as a few close friends and family members.

    Probably will be formed as an LLC or LP (not sure yet)

    If they wanted to pay me a small percentage of profits would I need a license (7, 65, 63, ???)

    At what point is a license required???

    Thanks for the help
  2. joemiami

    joemiami Guest

    Typically, you need a license if you are trading for other people no matter how much they are paying you. The best way to avoid needing a license is forming a joint partnership or LLC based trading account "WITH" the other person. So basically you two are "in business together". I first formed a legal aggreement between him and I as to how "we" will split the profit(in my case I get 30%). He puts up the money, and I do the trading. I have 8 diferent joint partnership accounts with people this way....

    Do you have a proven profitability track record?...just curious.
  3. if you use the ib friends and family advisor account no license or paperwork is required. it is the best option for small funds starting out.
  4. joemiami

    joemiami Guest

    vhehn, I believe that IB lets you do that bcuz they are not responsible for the fact that your "friend " is paying you to make money for him, then you are working in the capacity as a paid trading advisor(thus requiring a license); and that oversight of making sure its exercised within the law is YOUR responsibility and is enforced by FED regulators, not IB.

    The best way to circumvent a big legal can of worms is form an LLC partnership account with that person and trade that way. This was the way I was instructed by my attorney.
  5. depends on the state. most states dont require anything up to about 15 clients as long as you dont take control of the money.
  6. joemiami

    joemiami Guest

    vhehn, if its a small number of accts you're managing, you may be right(in some states). Im going to check the state and federal laws, im very curious about this.

    I did the "joint partnership" account to better safeguard my payout at end of the yr.
  7. Are you trading futures or stocks or both? If futures only you don't have to have anything as long as your AUM is under $400k and have less than 15 clients. But you do have to tell them you are not required to register with the NFA.

    If you trade any kind of stocks then that depends on the state in which you live and your clients live. In my case it was a huge headache to deal with stocks (I live in WV). So I said screw it I am just going to trade futures. Futures get a better tax advantage anyway. In my case if you have 5 or fewer clients you must register with the state and be qualified. That means you have to have the series 7. Now here is the problem if you are using your own broker. Somebody has to sponsor you to even take the Series 7 exam and if someone sponsors you then they damn sure don't want you using IB or some other broker that has cut throat commissions. I have talked to a few hedge funds and they get around having to register because the entire fund is considered 1 client regardless of how many people are partners in it.

    So i just trade futures for me and my clients at some point I want to trade stocks (too many good strategies on the shelf) and then I will have to figure out a way to do it but until then I will enjoy the 60/40 tax treatment of futures.

  8. Up to 15 clients or $400k. Check out your state's rules. Each state has different requirements.

    Let me know if you need "help" for work arounds. I have many advanced solutions, many connections and am willing to barter in kind.


    -Big B

  9. I have talked to a few hedge funds and they get around having to register because the entire fund is considered 1 client regardless of how many people are partners in it.

    Are you sure this is the case?

    Can you provide the source of information? An URL would be very helpful!

    #10     Dec 21, 2008