Hi guys, I am not sure where to post this question, but here it is: what would be a standard (fair) compensation for someone who has brought a client with X amount of money to a money manager? For example, I have some kind of relationship with a firm and they bring me a client with $100,000 to manage and I will actively trade that money on 2/20 basis (2% of assets/20% incentive fee). What percentage (commission) of these $100,000 I should be willing to offer to the firm in exchange for this marketing service?
I was thinking something similar to that, this would account to about 1-2% based on client's assets. Of course it will depend on the leverage each party has in the negotiating of the fee, for example a new manager may be willing to pay a higher price for his first clients. But I am still interested if there are any industry norms.
People who deliver money get between 2% and 5% of the amount, or can receive a percentage of the future performance fee if they trust the manager. One guy I know takes half of the manager's first year performance fee. That said, I am talking about private guys, and you are talking about a firm, so it is different.
I said firm as an example, but it's really a person, who has a couple of wealthy clients, and I want to offer a fair compensation for introducing me to the clients and recommending me as a money manager.
If you believe it will lead to future referrals I would be generous but being generous means you would have to live up to that level of generosity for future referrals. It's hard to offer 5% for the first referral and then 2% for the second+.
Lets say you are a money managing trader. Just say yes to whatever they suggest except showing them how well you trade. They want to make money with their capital. Just give them a better deal than they can get elsewhere. They know the going rate, you are not the first they are considering. Also require them to let their payout profits run. Their money goes into a pool and you just send them updates on their initial capital plus payouts set in the contract. What do you have? You have all the trading profits from your expertise less a little bit that is on the level of the financial industry performance. You just make a guarantee in writing in a legal contract. Lets use a small multiple of the daily ATR as an example. Use 10 points as ATR on ES. Use a payout similar to the best money managers. 40% of initial capital could be used. An ES contract is 30 points. You are considering paying out 40% of 30 points per year. 12 points a year. You make a small multiple of 10 points a day using the pool you trade. Use a 1.2 multiple of the 10 point ATR. It looks like you trade one day a year for them and 239 days for you. On a 5 min ES chart there are 81 bars a day. Each bar overlaps and each bar has volatility. Mark off 25 groups of bars. Does each group have 1/2 point swing? If they do you can make 12.5 points a day on 30 points. Here is a conservative strategy. Go in on the open of every third bar. After open exit when two ticks net is attained and wait on sidelines. Wash if you get an emotional signal. As the days go by, from earnings, set aside some profits that go to clients. Set aside 40% until you get to 12 points relative to 30 points margin. Then keep and trade the rest for the rest of the year. If they ask for profits dsitribution, give all their money back. The point is this: Anyone who trades can give a client 40% a year as a trivial cost of capital for personal trading gain.
20% of what the fund earns is standard in the biz for introductions. If fund charges 2% mgt fee, you get 20% of the 2%. Etc. I have seen this negotiated up to 50% but that's very very rare.
Of course, if you are going to do a "Madoff" you'll need to pay a high fee for more money until you can show you've paid back a high return to a few. You'll need an exponential increase in investors over time to keep the ponzie floating for a while. And, plan on eventually seeing some jail time with all the sex you can handle Is it worth it? Only if you are morally bankrupt and don't think there is judgement after death. What if you start out honestly but things aren't going well and you start inflating returns and rather than call it quits you fudge a few numbers and it eventually becomes a ponzie? You have to have a number in mind that that if reached you will call it quits. Otherwise you would be in danger of the above and unable to turn back.