Friends and Family questions

[newwurldmn]

Consider SEparate managed accounts with a management firm to corral your expenses. costs are much lower because you don't issue K1's and your investors will have more flexibility.
The management firm can be a simple LLC and if you are small and trust your investors you can probably get away without a lot of regulatory stuff. Small btw can be like 50MM.

 

[Steve Alexander]

I am starting a Friends and Family account at IB. I have created a General Partnership for the time being. I will use this GP and the Freinds and Fam account until I reach 10 or so clients then create an LLC and begin the process to become a RIA and get my 65. I will move all the clients to the new account and hopefully transition to a full-time money manager.


My Father and I have a strategy that is producing a semi SPY correlated return that is around 25% - 30%.
We have a few people asking us to manage their money. So this is my plan.

What am I missing??? Is this a good plan?? Is there a terrible pitfall waiting for me?

There is a HUGE pitfall waiting for you if you stick to the General Partnership setup. In a GP every member is liable for the actions of every other member. If anyone in the partnership has an auto accident, or harms someone, every other member is liable. You could lose EVERYBODY's money from a DUI accident, for example. Form a corporation or an LLC now, not later. It's fairly inexpensive, considering the possible consequences of not doing so.

 

[Joebone]

There is a HUGE pitfall waiting for you if you stick to the General Partnership setup. In a GP every member is liable for the actions of every other member. If anyone in the partnership has an auto accident, or harms someone, every other member is liable. You could lose EVERYBODY's money from a DUI accident, for example. Form a corporation or an LLC now, not later. It's fairly inexpensive, considering the possible consequences of not doing so.

Thanks for the warning. This was what I needed to push me over the edge. We have decided to go with the LLC now. any reason to go for an LLP instead??

 

[Joebone]

Consider SEparate managed accounts with a management firm to corral your expenses. costs are much lower because you don't issue K1's and your investors will have more flexibility.
The management firm can be a simple LLC and if you are small and trust your investors you can probably get away without a lot of regulatory stuff. Small btw can be like 50MM.

So we are considering going with Interactive Brokers. Can you be more specific about this?

 

[panganp]

I am starting a Friends and Family account at IB. I have created a General Partnership for the time being. I will use this GP and the Freinds and Fam account until I reach 10 or so clients then create an LLC and begin the process to become a RIA and get my 65. I will move all the clients to the new account and hopefully transition to a full-time money manager.


My Father and I have a strategy that is producing a semi SPY correlated return that is around 25% - 30%.
We have a few people asking us to manage their money. So this is my plan.

What am I missing??? Is this a good plan?? Is there a terrible pitfall waiting for me?

Sounds good. Why start with an LP and then move to an LLC? Why not LLC from the start? Maintaining an RIA registration is a pain in the buttocks. Takes time and money. Be good to run a breakeven analysis. Also depending on the state you are in your limit may be much less than 10 if dealing with securities. For small advisors dealing in securities, the clients threshold is determined by the state, while for small advisors dealing in futures or forex, the threshold is 15 (determined by the CFTC).

 

[Joebone]

Sounds good. Why start with an LP and then move to an LLC? Why not LLC from the start? Maintaining an RIA registration is a pain in the buttocks. Takes time and money. Be good to run a breakeven analysis. Also depending on the state you are in your limit may be much less than 10 if dealing with securities. For small advisors dealing in securities, the clients threshold is determined by the state, while for small advisors dealing in futures or forex, the threshold is 15 (determined by the CFTC).

Going for LLC from the start now. After consideration, it seems like a no-brainer.

The strategy is mostly options. Is that going to make a difference?

 

[panganp]

Good question. Depends on which options. If exchange listed options on securities it is SEC/State, if options on futures/forex it is CFTC. You do CBOE SPDR options right? That would be SEC/State. If you wanted to migrate to the oversight of the CFTC you could consider replicating your strategy with ES options. BTW I am located outside of the US ATM, I'm no expert on the US regulatory framework as of now.

 

[Joebone]

Good question. Depends on which options. If exchange listed options on securities it is SEC/State, if options on futures/forex it is CFTC. You do CBOE SPDR options right? That would be SEC/State. If you wanted to migrate to the oversight of the CFTC you could consider replicating your strategy with ES options. BTW I am located outside of the US ATM, I'm no expert on the US regulatory framework as of now.

These are ETF options. Currently, have no plans to trade futures options.