Registered Investment Advisor

Discussion in 'Professional Trading' started by shorty_mcshort, Feb 2, 2007.

  1. I have a simple question that someone may be able to answer out there. I am currently trading futures for some neighbors and friends. I am exempt from registering with the NFA because I have under $400k and under 15 clients.

    However, I also trade stocks (for my account only) and want to trade stocks for my clients too. The problem is that I need to take the Series 7 test and in order to do that I need to be sponsored by a broker-dealer. I am currently using Interactive Brokers as my broker and I don't want to change that. How do I get someone to sponsor me and still use Interactive Brokers? I was also wondering how small hedge funds get sponsored or are they simply broker-dealers?

  2. Whare do you live? There are B/D's that have no production requirements that will give you a shot. At the end of Registered Rep magazine, you'll find quite a few.

    You'll need to fill out a U-4, and have them as your B/D prior to sitting for the exam.

    As far as sponsoring you, you'll need to call them. Worst case scenario, you may have to pay for the exam, but it's not overly expensive. I am Series 7 and 66 licensed, and w/ an independent Wealth Management firm.

    PM me if you need help, I'll give you my number, and you can call me in the evening hours. I'm on the East Coast.
  3. I live in West Virginia. I got a PM that said I should check out the Series 65 instead because there is no sponsorship criteria. After looking at it here
    it appears that might be what I am looking for.

    Let me ask you a question are you registered nationally or in your state? The SEC says that you must register with them if your assets are over $25 million but I am wondering if it is less than $25 million can I still go ahead and register with them instead of my state?

  4. Ok, I think I know where you're going with this. With the 65, you can charge a fee for your advice. i.e., you can bill hourly, or can even charge a fee for your advice, then send them to Schwabb to execute the trade. In reality, I use my 7 for the private placements as mentioned below. HOWEVER, fee-based advisory work is where you will really see things happen for you over time. Perfect example, a million dollar advisory account that you're billing at a rate of 150bps/year. That's $15,000/year. Let's say the client is a growth investor with a long time horizon. (not taking income from the account) The account does a steady 9%. Now it's at $1,090,000 paying a total of $16,350/year in RIA fees. If the account compounds another 9%, it will be at $1,188,100, and paying $17,821.50/year.

    Keep in mind that you'll either need the 7 or 22 to do private REITs, equipment leasing (basically a hedge for the protfolio that pays off well in times of rising interest rates, and inflation) Oil and Gas programs, general securities, etc.,

    Check your PM's! You'll be surprised at how small the World really is!
  5. You have a PM! I am blown away by how small the World is! It sounds like I'll be answering your questions by phone.
  6. Beside a fixed percentage of mamanegmnet fee, can a RIA charge "performance fee or incentive fee" as well?

    Does any RIA have this experience?

  7. drjmpc


    In full disclosure, this is based on my research of desiring to replicate a near identical entrepreneurial career path [except I will also provide insurance products as well]:

    As I understand it, only a Hedge Fund or Managed Futures fund can charge for performance. In your case, it sounds as if you will be running both types of funds [or a hybrid] on a micro scale. Most will refer to this as an 'incubator fund' but I prefer to categorize it as a micro fund because you're not solely using your own funds to establish a documented track record that you can then market to acquire clients.

    So it sounds like yours is going to be a challenge of organization which shouldn't be too hard to get around, but you will still want to talk with an attorney on this before you start. That said, you'll probably need to establish some sort of holding company which will inturn own the Investment Advisory Practice and the Hybrid Micro Hedged Fund. From that point, you can harvest your hedge fund "performance fee". I have over simplified it here, but these are broad strokes that work, from the research I have done. A note to be made here is that in the Investment Advisory Practice, you will typical have the clients' funds held by a Custodian [most commonly Schwab Institiutional or Fidelity for small to medium sized RIA's] where you can send orders eletronically or by phone for SCHWAB TRADING Desk personnel to execute on you/your clients behalf --- usually in basket trades.

    The Hybrid Micro Hedged Fund on the other hand would need to establish a Prime Brokerage relationship with a reputable B/D. The services are essential similar, but my understanding is that you can trade your account directly as a hedge fund [I mean you have have to as most clients are paying for you ability to trade short-term strategies repeatly over a time frame of 18 months or or longer]. Prime Brokers can also provide value added services that you may not want to be bother with on the fund side of things -- where as you should be involved on the RIA side of things. [i.e. client account reporting]

    I have heard that these guys do a pretty good job for incubator funds, and they are on my short list of Hedge Fund start up consultants for when my time comes:
  8. You can charge a "performance fee" only to Accredited Investors... and based upon a minimum of 12 months experience. That is, if you have good 1st and 2nd quarter, you still can't charge a management fee yet (you might give back the gains in the 2nd half of the year).

    If you want to go the 2/20 route (and who wouldn't), you'll likely have to become a hedge fund.. and may(?) be excluded from RIA registration.

    Could be my info on this is out of date.. if somebody knows differently, please chime in.. (like you'd NEED an invitation...:D)
  9. ggoyal


    as an investment advisor, are you allowed to trade futures personally? no matter the size of your account?
  10. Yes, but you're not allowed to "front-run" client trades.
    #10     Oct 25, 2008