Actually, the Series 66 is the combination exam of the Series 63/65 exams. Also, you cannot take the Series 66 without FIRST having taken the Series 7. BUT...you cannot take the 7 without a sponsoring broker, which means you have to join a firm that can sponsor you for the 7 and THEN for the 66, via the U-4 form. The Series 65 exam IS the correct exam required for taking the route of becoming an investment advisor representative. It does NOT require a sponsoring broker, so no U-4, but rather a U-10 form (FINRA). State rules vary for RIA's, so it depends on what state you're in, and that will determine what exam(s) you'll need to pass. As an IAR, you can charge a performance fee, but ONLY on accredited investors. For those who are not accredited, you can only charge a fee based on AUM, usually 1%. You don't need to join a big bank or firm to start your own RIA. You can open a master account with Interactive Brokers, for example, and simply use their platform. Your clients will each have their own, separate accounts which you manage. The major hurdle is not the exam or the ADV form, or finding the RIA assistance firms to help you with the paperwork and compliance (for which there are several if you search Google). The major hurdle is to get people to part with their money and allow YOU to handle it!
You post was accurate and well written however opening a master/sub account at IB does not provide relief from SEC and State securities laws.
You're right, he would still require the license with the state and form an LLC, however there are many RIA's who take this route with IB. Here's a link with info on how IB works with RIA's. https://www.interactivebrokers.com/en/index.php?f=15459&ns=T
I'm very familiar with IB. We were introducing brokers to IB up to the end of last year, then we dropped the relationship.
Thanks for the comments, all. I am not nearly as concerned with the logistics of purely passing the needed exam, and getting setup LLC and in my primary state as an RIA, as I am with how I would get AUM. As much as I believe I know about the broad market landscape and relaying the risks as the indices hit new junctures, like SPX is starting to approach now, I don't know a ton about wealth mgmt as far as how easily people go to a different advisor and how reasonable, for example, it would be that a person with a net worth of a few $ million might be ok with putting a few 100k with me as a more defensive/strategic allocation. I would not at all be an 'insurance' type of fund that just essentially buys puts and VIX and gold and stuff, although in looking for deep value those things can come into play for allocations, but if the client did want that then obviously it could be implemented and not into decaying leveraged products, either. I'm thinking it would take very local newspaper ads as an upfront investment, but inevitably door to door and phone calls if I somehow could get it narrowed. This is obviously what it's all about as a prerequisite, getting the AUM. I don't worry as much about my strategies, because I'm not advertising as a fund that is going to beat the market with minimal drawdown. This is a fiduciary advising role about where the market is at and big picture allocations and rotations. I truly don't think there is a lot of knowledge about the actual market and interfacing with it when it comes to adversity, even from people with a lot of credentials like CFA. I have that background in actually dealing in the markets daily, even if it was more so to flip things rather than allocate with a longer focus. I would like the idea of customizing portfolios based on ability to handle a downturn, looking for income while not chasing yield, etc. Radio ads, too, and then seminars/conventions, I suppose. Certainly a head start on not just getting some AUM, via acquaintances and family friends, but also getting word out, would probably be important. I'm just seeing if people have first hand advice about this process. I do believe I have a niche and could grow into something, not by scare tactics and warn of imminent doom like is seen on some advertising, but sort of a realist about the market and unbiased/nothing to sell and take commissions off of. One specific is with a 35 year old on average, working and a 401k, how likely is it they can get into a discretionary 401k where it's not just they are limited to funds, but actually can buy ETFs, stocks, bond funds, etc, which is where I could come in? I still think I could be an advisor and help people, and obviously RIA means the other planning things in life, but I know my main thing would be indeed asset allocation, although I know I would also be utilizing knowledge of tax laws and all that. But what good is it, on that note, to know everything conceivable about MLPs and tax laws and figure good place for certain retirement funds, if the underlying investment tanks as has been seen for the last 15 months? This is where I see a lot of flaw in the status quo with the asset mgmt game. I understand that things like commodities, when they trend, they often mean business and are going to cycle all the way down, and therefore even well run companies are subject to commodity risk. Otherwise I'm sure people entering their 60s and whatnot, they have much more discretion and aren't locked into choices of only funds. Overall, it seems like a medium type of $ investment (and in terms of time) to get my own RIA off the ground and work like crazy to grow it. Given I have decent credentials to do more conventional things, if I did this, I would have a very hard time justifying working at an existing bigger RIA. Perhaps a smaller one/boutique, but the whole goal ultimately no matter what is have a book and just go at it with the strategies and also ongoing AUM acquisition search, and settle in and my math figures as a one man shop, anything north of $8 million or so, minus expenses, that is pretty good as a realistic starting point. I don't see major regulatory concerns with this kind of setup, either, and the custodian of the clients' accounts would figure to handle a lot of the paperwork, too. To me, more than regs, it would just be knowing all the tax nuances, as they change so just studying for series exam alone wouldn't be enough. Not a huge deal. The much bigger one is the process of getting AUM. It seems the client with few million in net worth willing to put in 3 to 5 hundred grand as a more strategic 'hedged' part of their wealth (not that my strategies don't have upside; alternative allocations can have huge quick run ups that provide cushion for the more insurance-like assets that maybe don't pay off as high) is a more likely kind of client. Just trying to explain where I'm coming from on this as in-depth as possible. Thanks
Even if you knew that all of this stuff was going to happen, you still have to present it and let people decide for themselves. And there's always potential risk out there which just can go on for years and years and years without being fulfilled. If you want to educate the world about the financial markets, why not just teach? You want to sell too? OK, if you keep telling people that if the markets break a certain level, we could be back at 2008 lows, no one but a few freaks will invest with you. The rest will go home and put their money under the mattress. If you are wrong, your clients will blame you. If you are right-about anything-_they will tell themselves how smart they were to pick you. Sales is about ego nullification. You might be able to get your point across, but only to those disposed to your style. So far what I get is "I know more after 5_years than most people do about the market" That's not gonna fly very far. You want to sell, you've got to develop relationships. And listen. It doesn't matter so much the message, even if you have great material. People buy you, not the material. You wanna sell, start selling. You wanna teach, start teaching. You wanna change the investment landscape by yourself?_OK. Most people are comfortable with their views on things. Some, maybe a lot, like to lose. Few know how to win even if you showed them. You need to unlearn almost everything they taught you in school. That's the secret.
CSwim, I understand your points. I still think, though, that there is far too much a status quo, 'time in the market is what counts' type approach and 'buy and hold' for perpetuity in the asset mgmt game. Even a fool could see a 15 year SPX chart and would see how lofty this market is, and how any way one slices it, it would be brutal to not have taken a single profit and instead ride it down to literally perhaps near the lows last decade after this contrived run up for 7 years. I am a fan of core long term holdings as a smart part of a diversified portfolio, and by that I'm talking the huge companies that are entrenched and pay dividends steadily, and to never sell those barring something massively altering. I think it's more risky to be totally in cash because deficits and debt and less of a petrodollar footprint mean the effects of inflation will not be exported, and foreigners are struggling themselves, and are not able to buy as much US debt. So the dollar would sell off as would many so called blue chip stocks, except for commodity based ones. And rates might rise, too, meaning TLT and bonds themselves aren't a place to hide. I just think SPY/TLT and allocate based on age and some surveys is just way too simplistic and is exposed to a lot more risk than people think. Rates are at the zero bound and don't have a tailwind as they had for many years of decreasing rates. I want to make money, like any capitalist. I'm trying to assess the prospects for this kind of endeavor, because if I got it off the ground and worked my way into more AUM and things build, it would be terrific as I love the challenge of the markets and believe there is a real service being provided here, giving people perspective as markets hit levels and policies are made, because I think a lot of people who have a lot tied up in the markets, don't understand the perspective of say how elevated the market is, and how troublesome a lot of indicators and typical correlates like copper are. I'm not saying there isn't great research being done by other investment mgmt firms; I just think there is way too much inherent rosiness about things and people would benefit from being more tactical, and honestly irrespective of age, too, because there is a real threat of a Japan stagflationary scenario like they had 3 to 4 decades ago, and just to climb so far took great yen devaluation. So new money to work here isn't 'inevitably' going to pay off. I do think there's a good chance SPX sees say 4k within a few decades, but not intrinsically, let's put it that way. I would not just be providing broad picture analysis, but also ways to allocate based off very particular things, utilizing options and other methods like pair trades that are out of whack and that make sense on numerous fronts. I have a background with the numerous tactics out there, while also understanding the misfit of a longer term portfolio and using shorter dated options to express directional bias or a hedge. The main thing I'm asking is yes, feasibility, but more so specifics as to how to at least 'get in the door' in terms of a prospective client's possibility of putting some assets under my mgmt. I feel like I can explain very well the big picture and break it down and a lot of it is more straightforward even than many think. I also have a humility about how correlations can break down and things like that, too, which IMO is as key as anything, to respect how unpredictable things are. I think one of my strengths is sort of as an aggregator of tons of info and wary of everything from EW to TA like MAs and fibonacci, and also the big econ data and policy decisions, and things on the horizon. I feel like it would be a very much bootstrapping type thing to sell myself, but also getting in somehow and convincing people who have pretty high net worth to allocate some at least is something that seems realistic. I think I have a good grasp on the niche I see which is very much a realist, while not being gloom and doom, while also recognizing the inertia working against those of a bearish persuasion (although I think bears have to be more clever about how they express their bearishness rather than VIX type stuff because IMO a market rising forever is an indictment of the dollar and evidence of the inflation that's been created; bears are often correctly concerned about the inflation, but somehow think things priced in dollars like stocks have to fall; business cycle suggests boom and malinvestment followed by liquidation and indeed falling prices (typically), but that can reverse quickly with supply shock and also new QE injected, and also general loss in confidence in the dollar, which is backed by inertia rather than economic performance).
The problem with trying to be tactical is you are asking your clients to make trading decisions. If they were good at making investment decisions they wouldn't need you. It's difficult enough to be a successful trader. Now you want to educate people so they can make more profitable decisions about their money. Most successful business people know that investment is another profession from theirs. So they will hire someone with a track record to run their money. Maybe some know they could do a better job themselves, but don't have time. You might be right about a few of your ideas, but they need to be tested in the markets.
It's the investment world. There are so many variables and so many different goals people have that are invested. I think a lot of people have a lot more at risk than they might realize. It is not written in the Constitution that stocks must go up. A lot of people have done well for themselves in their own profession and should maybe not be exposing so much of their hard earned money in an arena like stocks, and instead focus on preserving wealth while having the chance to capitalize on good risk/reward propositions that are offered in alternative asset classes and certain equities. I've already delineated my awareness of the difference between fiduciary with RIA vs. running a fund with big time clients. Certain tactical moves are prudent at different times, but I know that this is much more long term based. I don't question my enthusiasm for this. I think it would come down to getting all the paper work type stuff done and being setup, and then getting a website going that has a summary of what I bring to the table contrasted to the status quo, and then hopefully attain some acquaintance type AUM and get what I could off reputation to at least talk to more people, and then have to inevitably do the pure salesman type stuff. On that note this is why Edawrd Jones type stuff would not be for me, because it'd be the same except not getting to keep everything and plus non-competes, and more limited asset strategies, while I also understand that they have the reputation. I think as I said there is a trend towards customization and smaller boutique in so many sectors of the economy, and investment mgmt maybe hasn't had as much of that. I think a lot of people even if they buy individual securities have essentially a high correlation to SPY, and then hope if things get rough, their TLT-type allocation will pick up the slack. I think this is doable but would be a heck of an undertaking and require 18+ months of pure investment without reward in terms of income. I'm guessing few if any people here on ET have gone this indy route in this fashion, but am just seeing what people have to say and hopefully some specific advice from some. As to the experience argument, I understand how that would work in terms of trust between people, but in terms of new ideas and enthusiasm for looking into different perspectives, not to mention arguably a whole new paradigm here as credit expansion is hitting the skids having arrived at ZIRP, I think there is plenty of benefit to 'newness'. And I have spent a lot of time day in day out watching the market and trading in it and have a good grasp of the kinds of things that truly matter vs intraday/week noise. And awareness of what contrarianism is; not stepping in front of a persistent trend but rather going with the flow often instead of trying to be a hero and pick tops/bottoms (although as a longer term investor if there is deep value believed to be there, then it's ok to at least initiate if it gets into a historically lower price level and things like maybe RSI perhaps line up if it should be hitting support, and maybe sell some on a likely pop or who knows). I think a lot of people really don't grasp how the market operates, and what has propelled the market to these lofty levels, and it takes more than a subscription to a major financial paper to be able to discern what matters. Of course as a fiduciary you don't promise anything but you apply different approaches and integrate the client's profile like maybe not able to handle a big down turn so sell proactively instead of wait until crucial moments like has happened lately in SPY. One other thing is the idea that getting established and LLC'd and everything, that lends itself some credibility, and I did go to a good school with a relevant degree, and things of that nature. It's tough to think about making fairly big investments like leasing office space upfront prior to having AUM, but then again that is what brings credibility, too, having a location.