Personal advisor, trader for a friend???

Discussion in 'Professional Trading' started by compounding, Aug 18, 2003.

  1. I am a part-time individual "trader" (not quite meeting the IRS trader status) and am looking for other ways to branch out and make additional trading capital. I have no financial licenses (Series 7, etc.), but I have a friend that is interested in letting me help him invest his money. We want to setup an official/legal means of me trading his money, but not sure what is the best way to setup this relationship. I have looked a little at creating an LLC partnership, or him hiring me as an employee of another existing company he owns, etc.

    What are the factors that need to be considered and what types of relationships can we create where I get paid to either advise him or actually trade his account for him. I want to limit my risk of exposure incase he decides he is unhappy with my advice or trades. I also want to be able to take part in the profits as a means of payment.

    Any suggestions/comments/warnings would be great!
  2. Hi, I am no lawyer but the best way to do it is explicitly write in a contract that you are an amateur and that he absolves you from any legal/financial liability for any decisions he makes in taking your recommedations.

    As to potential profit, just state that he will compensate you as he sees fit per successful trades.
  3. ib friends and family account would be perfect.
  4. Re: Personal advisor, trader for a friend???

    Thanks, vhehn, I do have, and I'm planning to use, an IB Friends & Family account as it does sound like it will be perfect to use.

    I was more concerned with the legality -- federal, SEC, state regulations -- of performing as an Investment advisor, fund manager, or broker without licenses. Does anyone know the rulings behind this? I heard something about the size and number of the "customer" accounts you manage is reviewed to establish your professional status. Also, does TX have any state legislation on this or do you know where I should go to find out?

    Thanks, garfangle, for the legal contract clauses to protect myself.
  5. compounding...

    I am no lawyer or a CPA but you might want to give Robert Green CPA ( a call on this. The set up entities for traders all the time and are completely focused on tax, and business issues for the trading community. Also their real good people. I've been talking to Robert almost weekly now and I will be brining my personal tax business to them and also a few of our traders are taking their entities/tax issues and other questions to Robert.

    rttader -
  6. each state has its own rules on this.
  7. sempai


    You are generally exempt from the RIA or CTA registration requirements if you have fewer than 15 customers.
  8. I'm currently looking into a very similar situation and I live in Texas. Texas has no exemptions. From what information I've looked at, if you get paid for giving investment advice to even one person, you need to be registered.

    I'm in contact with the state regulators to figure out how to do this. As is typical of bureaucrats, they don't answer questions. They do refer you to unintelligible regulations.

    From an email received from Oscar Gonzalez,


    who I believe works for the Texas Securities Board, this is what is needed:

    Form ADV Part I sections A & B must be filled out at IARD ( Your registration fees are paid through the IARD system as well. Depending on how you register (sole proprietor or corporation) the following documents come to this office: Articles of Incorporation, By-Laws, certified balance sheet, Form ADV Part II, and a proposed contract.
    While he did not mention it, I think you have to take and pass the Series 65 test and there may be a bonding requirement. But again, why they do not have a check list of what you have to do and references to these items I have no earthly idea. Getting it out of them is like pulling teeth.

    Even though I asked, he did not expound on what the "certified balance sheet" and "proposed contract" are. I asked if you are a new business and registering for the first time how will you have a balance sheet.

    I also asked for examples of these from other applications but have not heard back yet. The regulations are very difficult to follow and they jump around from place to place.

    Good luck, I'm about to throw in the towel because of the regulatory requirements,even though I now have about 25 people who want me to advise them on how to allocate 401K money and contributions. I also have 6 who want me to trade for them.


    As I am writing this, I got another email that says you do have to take the Series 65 exam.

  9. The NASD is not going to bother with someone that is trading another persons account - that is unlicensed-that would be a money losing thing for the NASD to try and enforce. There are zillions of people out there doing it right now.

    The NASD has its plate full with people that put up a web site and offer software and all kinds of services that are not properly licensed.

    Any brokerage will supply you with a "limited trading authority"
    that gives you the right to trade an account, but not to withdraw funds from the account.

    Keep it simple.