Yes OP = original poster I smell a new reality TV show. 10 Lawyer/Accountant cage match. LOL It can get overwhelming. My last post/remark was not really regarding the entity type or agreement eventhough this is the info. you seek. It is that, when a trader starts to manage OPM it almost always ruins them. If you are successful and making money keep doing it. Managing OPM will take a toll on your trading, definately in the begining. You need to account for this in your trading and weigh the Pro'sand Con's. I say this from pesonal experience but perhaps my mind is weak in that respect and my trading plan and strategies needed improvements at the time. No, i don't mind sharing the truth about my experiences. No need to thank me. All the best mate. If it is truly meant to be you will make it happen.
I did not understand your post. Can you be more explicit. What I am actually telling Trader01123 is that he is actually better off making her a Member of his LLC and focusing on making a lot of money for both of them, rather than who gets how much of the profit. The problem is not the LLC or agreement. He simply wants to take most of the profits for himself. Those who run hedge funds charge a management fee, maintenance fee and also share the profits. He can do the same in a combined Account and still make more money than his Investor. Having a Lawyer draft an agreement is great but that will not prevent his Investor from suing him, if he makes money in his Account and creates a loss in hers? Would you not sue yourself in such a case? He is the trader, the active Partner, the initiator of the trades, the expert. He makes a profit for himself and creates a loss for you, the passive Investor who knows nothing about trading. What a great scenario for a lawsuit.
Absolutely. First, your words are right on. There is no question about it. My post borrowed some of your words out of context to make a "point" about the OP's intent and afterward about my personal experiences regarding the subject matter.
You must use a lawyer to do this, I paid 10K 1 year ago to do the same, the lawyer ripped me off however I feel protected because of the limited liability I have. W/O having the lawyer on retainer you can get for less than 5k
Hey friend, if you are having problems with a account management agreement, wait until you draft a Limited Liability Operating Agreement!
If you paid a lawyer $10k to form an LLC then you did get ripped off. Sorry to hear about that as my brethern can be a little swarmy. I can form an LLC in 5 minutes, the real work comes in drafting the Operating Agreement but I can tell you it is not $10k worth of work . I am probably killing future income for high priced lawyers but hate to see rip offs!
For purposes of this thread, managing other peoples money comes in two forms: 1) you take possession of their money in a pooled fund and manage it; 2) You are given POA over their account to trade . Choice #1 does require an entity but if you are doing this informally with one or two small clients it is really a pain in the butt to form the entity and bring the assets in and deal with costs and accounting. Choice #2 is the best way to handle 1 or 2 clients. Have them open a new account somewhere and put in the amount they wish you to manage. Make them sign an Asset Management Agreement which lays it all out. They cover all their own costs (commissions, account fees) and you simply manage the account and get a fee. I am really making this very simple for purposes of discussion but first decide on #1 or #2.
My fear with the Power of Attorney situation is this. If he makes money for himself through his LLC and loses my money in my Account for which I gave him the POA, I'll still sue him for deliberately making me lose money? Why didn't he lose money in his Account and only in mine? "Your Honor, I don't have the foggiest idea about trading. He convinced me that he'll make my money grow. Instead I not only lost money but he made money for himself in his Account. At least for the sake of fairness, he should have duplicated his trades in my Account. Your Honor, if he lost his money as I did, I would have said, well we both lost money but that's not the case. I am the only loser. That's very unfair. He did not use due diligence in trading my Account. In fact, he was negligent and hence, the loss." With the POA, he must make sure that his Investor's Account is profitable as his own. No agreement will save him from being sued if the above scenario occurs.
SupremeTrader & OptionTrader Really great insights. yes, i was looking to do situation #2 - but i had never thought of that scenario for getting sued. while i doubt there's any way my client would be able to know about how well my own trading account performed, she could possibly subpeona for it if she lost money herself (even if she was just searching for information). however, even if the scenario itself may not pan out, there are lots of issues in regards to how/when i make trades for her as opposed to when i make trades for other accounts. if i did hers first, i screw myself. if i did mine first, i'm asking for a lawsuit. so many conflicts of interest! i'm not sure if there's any easy way to do situation #2 without driving myself mad in addressing all the issues that could potentially come up. and then to put it into contract - it could take half the years off my life! this is a main reason i was looking to see if i could buy a contract from someone else (already made) and just adjust it myself if neccessary. just too difficult Adam
The LLC he trades on his own is irrelevant here. If Merrill Lynch has their best earnings period ever but one of their account managers loses you money you cant complain if all the steps were followed. If he manages someone's money through power of attorney then all that matters is what he makes for you in your own account. There is risks in trading and if you are worried you can put plenty of clauses in the asset management agreement. First you can give him POA only over a specific amount of money, not all of your money by opening a new account with a specific amount. Second, since it is your account you get the statements monthly and can check daily at the close the progress. Third you can have a clause where if the account hits a drawdown of 50% every thing can be closed down for a period to reevaluate. If you give some power to trade your account, you cannot sue if you lose money if you were given full disclosure. If he says he will trade long and short stock positions and loses your money you are SOL. Lawsuits only work if he states he will only trade stocks and he goes long a ton of futures and blows out the account. Even then what could you sue for? He is nto merrill lynch with big pockets so you are still SOL. Bottom line in the Agreement you put in whatever safeguards you feel comortable with to protect your money. You guys should forget about suing since, losing your money through trading is not enough of a cause of action. Especially if have an agreement with full disclosures and risk parameters. Trading is risky, you do not get a do over and go sue the guy unless he is acting outside the agreed upon relationship. I put full disclosures in and let the person know about the risks of futures and options and let them certify they are aware of these risks and understand them and that they could lose their entire investment. that is the disclaimer you always see even on paid websites for trading. You cannot sue if you agree to those terms really.