Dear Traders - I am in the process of setting up a CTA firm. I have a very good historical performance record. However, my weak link is the marketing. I am going to hire one marketing guy. What kind of compensation should I pay him? Any suggestions would be appreciated. Thanks Cooltraderabhi.
The process is never ending until you have incorporated and put together a ddoc. Don't even worry about marketing until you have a ddoc, which is only after you pass your exams. Also, past performance prior to registration as a CTA is not considered performance that you can use in your ddoc. Listing at Autumn Gold, IASG.com, Barclayhedge, and Stark is a good way to get exposure. Just make sure your calculations for performance are net of fees and you should be all right.
I don't agree with this post. Marketing consideration is a part of assembling a business plan. Don't even think about registering without a completed business plan. Registration can be expensive, and shouldn't be started until it is shown that the business is viable. The NFA is very specific about when in the client engagement process they must be provided the ddoc. So make sure you follow that. Also, it is perfectly acceptable to include proprietary performance in your ddoc. You just need to adhere to the guidelines that the NFA sets out. In terms of paying for marketing. I'm going to assume that the marketing person being referred to is actually a salesperson (there is a big difference). It would perhaps be more correct to call them fundraisers. Typical payment for capital introduction is 20% of the profit incentive. At least that is typical of prime brokers.
The fact that you are referring to this person as a marketing guy suggests that you don't know much about that side of the business. Be very careful! This is not like any other business where you can simply throw your name out through traditional advertizing channels and methods. You'll get into trouble in a hurry.
Hi, I agree I dont know much about the sales side of the business. However, I have been trading for several years now and well versed with all the compliance with the NFA. However, in addition to having a fee sharing agreement with the brokers and fund raisers, I also play to have in house business development person. What kinda compensation should I pay him? Thanks- Cooltraderabhi.
Without ddoc and registration, completing exams appears to be the start of when "performance" may start to be reported.
IANAL - but you can report prior proprietary performance in your ddoc. Like Epic mentioned, there are restrictions on how you do this. You need to disclose everything for the past 5 years, from what I gather, so that you can't just cherrypick a good 6 month run and use that. Here is the guide from NFA: http://www.nfa.futures.org/nfa-compliance/publication-library/disclosure-document-guide.pdf As for marketing, I think you shouldn't wait until your ddoc is done to do some thinking because marketing involves figuring out your niche. I presume anyone with good returns has a fair shake but there is more to it than that. You want to think about what can differentiate you. Heck, some investors might love someone who doesn't make great returns but who has a nice 'dampening' effect on the volatility of their overall portfolio.
If I were to give 25% share of my company to the business development guy, would that be a reasonable amount?
Have you talked to incubators? It seems like they want an arm and a leg, and a potential windfall if you do well. However, they can allocate $$ to get you going. In general, I'd only give a % of company for something well-specified in return - like a certain AUM guarantee for a certain time period. Your development guy must be NFA registered to own more than 10%. I'm not a lawyer but that's one of the rules I've read.