I need an advisor account where total capital from all sub-accounts are pooled together instead of segregated. Each sub-account gets a pro-rata share of the cash and securities held in the pool. Below is the problem I am having when capital from each sub-account is segregated. Say at the beginning of the first month I have 1 sub-account of $100,000. During the month, this sub-account becomes fully invested in the S&P. At the end of the first month, a second sub-account from another person is opened and adds another $100,000. During the second month, no trades were made and the S&P rises 5%. However, because the capital was segregated, sub-account1 was the only account that benefited. Sub-account1 increased 5% but sub-account2 stayed flat because no trades were made so it held all cash. The owner of sub-account2 is not happy. If the total capital from both sub-accounts were pooled, then both sub-accounts start out equal at the beginning of the 2nd month. At the end of the second month, both accounts are up 2.5%. The point is to have capital additions immediately pooled with existing capital so that the new capital have returns that mirror existing capital. Do any of the brokers do this with their advisor account? Thanks.
why wouldnt you just invest the money from account 2 as soon as you get it and everything would be fair and even?
I don't want to put on trades just because there's more cash injected. I only want to add positions if my criteria is met. If I simply add more of the same, my entry is off. Also, in terms of trade execution, there is just no way of getting both accounts to have the same returns if I simply buy the same securities immediately for the 2nd sub-account. It will always be a little different.
You will not find any US broker offering what you have in mind, as described in your original post. Simply put, it is unethical and illegal. You can't commingle separate clients' funds in that way unless you are, say, a CPO running a properly set up pool. And you certainly can't have one client's performance depend on whether or not any other clients of yours -- existing or new -- get funded, and when. That's asking for trouble down the road. The returns are supposed to be different -- the accounts have different inception dates. Once the 2nd account is 1) funded by the client and 2) fully invested by you / the manager, from that point on the returns will be exactly the same. Why do you believe the returns will be "a little different"? If you are going to be managing OPM, even if "informally", I would strongly recommend that you take the time to become aware of the relevant rules, incl. your fiduciary obligations to clients. AIMR Standards of Practice Handbook would be a good start. It's all of $35 and usually available used on Amazon for less. Good luck.
When you invest in a mutual fund, aren't you getting exactly what I'm describing? Everyone is set equal. When you invest, you are automatically set equal to others and your shares get you proportional ownership of the fund. To answer your question, it will be a little different because your execution price on the 2nd account will almost always be a little (or a lot) different than the closing prices of the securities in the first account. For example, 12/31 - account 1 has 10,000 shares of XYZ and closing price was $100. 1/1 - account 2 joins, but shares are trading at $101 now so account 2 gets in at $101. At the end of January, Account 1's returns are based on $100 but account 2's returns are based on $101, so they're not equal. This is beside the point though. The point is I do not want to put on additional trades just because there's more cash. Say at 1/1 I set a stop loss on XYZ because I don't think it can run up much more, but I'm gonna let it run a little and protect myself with a stop loss. In this case it would be silly to buy more of XYZ for account 2 just because the cash is there.
i think a mutual fund works off of an end of day nav. p&l is figured on that basis. i think if you start comingleing funds you run into all kinds of regulations you have to follow. much better to use ib fa account and keep the funds seperate imho.
Why is pooling funds such a bad thing? I have shown why keeping funds separate creates problems. In the example I gave, account 1 has a positive return while account 2 stays flat. That is a fairly harmless case. How about a case where account 1 has a positive return but account 2 has a negative return? The other poster said it's unethical. Then later he says it's okay to do it if you are a CPO. What's the difference? If you do the paperwork to be a CPO then it all of a sudden becomes ethical? How does that work? If you manage money then you manage money. You don't discriminate between accounts. Returns should be distributed equally.
i think the sec has much stiffer regs because of the potential for abuse. i think if you want to take this step you need expert advice. http://www.pfsfunds.com/about.html
why is there more potential for abuse in advisors accounts than in mutual funds, CPOs, or hedge funds? nice site btw
You're not selling shares of a pooled fund to investors. That's the difference. You have to explain a lot more to investors when you do that. You're not series 65 licensed are you?