Which broker's advisor account can do this?

Discussion in 'Retail Brokers' started by timmyz, Jul 22, 2005.

  1. timmyz


    okay you are not selling shares. that doesn't mean it's not possible to pool the funds according to proportional interest. you can set up the account agreement so that each client owns his or her proportional interest.

    for example, the existing pool has $100K of securities with 1 client.
    Client 1 owns 100% of the $100K worth of securities.
    Client 2 comes along and invests another $100K.
    The pool now has $200K and each client owns 50%.
    Both Client 1 and Client 2 now own $50K of securities + $50K cash.
    Both clients will have the same returns going forward.

    what is wrong with this? why can't the brokers make this happen? it can be easily explained, much easier than explaining why client 2's account is down while client 1's account is up for the month.
    #11     Jul 27, 2005
  2. Why are you so worried about investor two? If I were investor one I'd be pissed I only got half the return I would have if investor two hadn't invested, especially if the guy hesitated while I took risk. Why don't you just tell investor two he'll get a money market return until a signal is generated. Afterall you are only 50% invested in month two if he comes in and your performance feflects that.
    #12     Jul 27, 2005
  3. timmyz


    in the example i gave, investor 2 suffers. it can easily be the case where investor 2 gains but investor 1 suffers instead. suppose investor 1 is fully invested when investor 2 joins. i can then only buy securities for investor 2. at the end of the month, investor 2 has a gain while investor 1 has a loss.
    #13     Jul 27, 2005
  4. JackR


    Taking your example to an extreme.

    Client A starts out with $50K. After a year of your brilliant management Client A's account, your only account, is now worth $100K and is fully invested in stocks, bonds, and options.

    Client A tells his friends how you have made 100% in a year. Four friends invest $100K on the same day. Value of the commingled funds is now $500K. Client A is allocated 1/5 of $500K. (1/5 of invests @$20K and 4/5 cash @$80K)

    You feel it is not the time to invest. You are right. The value of the invested portion of the portfolio declines by 50% to $50K. Overall value is now $450K

    Client A says he wants out of the arrangement. He gets 1/5 of the $50K investment ($10K after sale) and $80K (4/5 of the $400K uninvested cash).

    He gets out with a 10% loss because his friends got in at the high. I don't think his friends would be very happy. Do you think this would be ethical? Legal?
    #14     Jul 27, 2005
  5. timmyz


    The math is exactly how a mutual fund or hedge fund works. You put your money into the fund, you get your proportional share, and the value of your share rises and falls with the fund. There is nothing unethical or illegal with what you described.

    The 4 new investors have put their money with you. Had the securities appreciated by 100%, and only the original investor benefited, would that have been okay for you then?

    Always look at the other side of the argument.
    #15     Jul 27, 2005
  6. JackR


    You are not a mutual fund. I would not put myself in the position of being one. People get a little touchy about their money and you could easily discover just how touchy. You can get releases signed, agreements not to sue, agreements to arbitrate. etc. It does not matter what you get signed. They can still sue and you will have to spend the money to defend yourself even if their claims are dismissed at the first presentation to a judge. Let's not get into State and Federal law.

    Going back to your original question - there are probably no US firms offering what you want because what you want is what you described, a mutual fund, not an advisor account.
    #16     Jul 27, 2005
  7. timmyz


    so why can't an advisor pool client money together like a mutual fund? why can't the broker make this happen?

    we have established that there is nothing wrong with pooling funds. it's only fair to all investors that funds are pooled.
    #17     Jul 27, 2005
  8. you dont have to convince us you are right. you only need to be concerned with what the regulations say when you pool money. you need expert advice to avoid pitfalls.
    #18     Jul 27, 2005