Trading for friends and family

Discussion in 'Professional Trading' started by Sayid, Nov 1, 2011.

  1. Maverick74

    Maverick74

    As Bone said, only do this if you are willing to lose these friends or family forever. The problem with family and friends is if you make money, they will think you are cheating them and if you lose their money they will accuse you of fraud.

    What I would suggest is to manage their money at no cost to them. no fees of any kind. Then take that track record and raise outside capital from strangers. This way they know that you are not using them in any shape or form.
     
    #11     Nov 3, 2011
  2. hitnrun

    hitnrun

    the most important issue in your using family & friends money for trading

    make sure you return there money otherwise don't bother

    keep it private . where it's a loan to you for interest

    keep it simple. It's not a business

    if your confident you can guarantee returning there money & give them a fair interest rate

    then go for it

    you don't want to harm your relationship with them over money

    if people trust you & know they will be repaid then it's mutually beneficial

    Not a investment .. that is where people feel they can lose since there are taking a shot
     
    #12     Nov 3, 2011
  3. newwurldmn

    newwurldmn

    LLP's are crazy expensive to operate. You need accountants and administrators because you have comingled assets and the partnership is a legal entity by itself.

    It's even cheaper to set up as an Registered Investment Advisor. No K1's. With some relatively standard client suitability documents and a proper structure you can have a strong case when they do try to sue you. You may not even need an LLC and certainly don't need an LLP.

    The OP's problem will be this:

    He loses 20% because that's what happens sometimes.
    His friends get pissed and sue him. They claim that they weren't experts and relied on his advice on the risk he was taking. His response will be, "they did know." The court will ask him to prove it and he won't be able to and he will be liable for losses personally.

    With a proper set up he can say, "they are considered sophisticated investors with enough net worth to take this risk." They're not understanding is a fault of their competence not mine. Secondly as an RIA you will be able to say, "if they didn't like me, they could have fired me any day and closed the positions themselves (as they own the account and it is separate from everyone elses).

    Setting up an RIA with a lawyer will cost almost nothing. If the amounts are small enough you might be able to do it for a few hundred dollars. I don't think you even need an LLC as the real protection comes from "know your client" but I am not a lawyer.
     
    #13     Nov 3, 2011
  4. Maverick74

    Maverick74

    RIA's cannot charge performance fees unless the client has 750k or more in their account. You also have to be set up with a broker to hang your license. And yes, you will need a series 7 and a 63 or 65.
     
    #14     Nov 3, 2011
  5. Eddiefl

    Eddiefl


    Well, i would hope the OP is at a level where he can generate returns of 2.0% per year or maybe even an astonishing 2.0% per quarter. Obviously, due diligence is needed and honesty on his behalf.

    If he is not at that level, dont ask for money. Or ask from an Uncle you never really liked that much haha, j/k.

    The setup is NOT awful, its basically a personal loan between family, which has been done for eons. Why is it ok, if you are opening a subshop, bar, mechanic shop, gas station.

    Are any of those really less risky than trading?


    Ef
     
    #15     Nov 3, 2011
  6. newwurldmn

    newwurldmn

    This is not true. You don't need those series and you don't need to hang your license. I'm letting my licensce expire on the advice of my lawyer.

    If you exceed certain balances you need to file with the state and the SEC. I think there is another exam (which I was exempted from as a CFA).

    My lawyer never said anything about the 750k, but I am over that limit in each account anyway.
     
    #16     Nov 3, 2011
  7. Grinder

    Grinder

    Exactly. Couldn't have said it better myself.
     
    #17     Nov 3, 2011
  8. bone

    bone

    I think that the OP is getting some valuable feedback for his posting - even if there is no definitive direction for him at the moment.

    Lots to consider, both on the familial relationships level and the legal / fiduciary levels.
     
    #18     Nov 3, 2011
  9. Maverick74

    Maverick74

    What do you think the term "registered" in registered investment advisor means? LOL. It means, you are "registered". And you are dead wrong about the licenses. And the 750k.

    http://taft.law.uc.edu/CCL/InvAdvRls/rule205-3.html
     
    #19     Nov 3, 2011
  10. Maverick74

    Maverick74

    State Registered Investment Advisers

    In general, RIAs managing assets totaling less than $100 million must register with the state securities agency in the state where they have their principal place of business.[7]

    Licensing Requirements

    Agents of the RIA who are charged with providing investment advice are called an "Investment Adviser Representative" (IAR). These IARs must generally complete the FINRA (List of Securities Examinations) Series 66 in addition to the Series 7 or Series 65 Exams, or by meeting the exam waiver requirement by holding one or more of the following pre-qualifying designations; Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC); Personal Financial Specialist (PFS), Chartered Financial Analyst (CFA), or Chartered Investment Counselor (CIC).[10][11]

    http://en.wikipedia.org/wiki/Registered_Investment_Advisor
     
    #20     Nov 3, 2011