Hedge Fund Manager obtains RIA

[Dominic]

What I'm thinking about doing is:

marketing/selling the signals to the general public

and/or

offering new clients the ability to place funds into existing hedge fund or open privately managed accounts.

We will be receiving the signals from a third party who asked for us to become RIA.

I'm a little lerious about becoming an RIA (per third party); it seems that I might be setting myself up if anything went wrong down the road, compared to staying a regular HF manager.

Your thoughts?

Dominic

"I'm not sure what you're getting at with the privately managed accounts. Creating a FF account with IB or having all your clients sign over to you custodial and discretionary authority and running individual trading accounts?" [/B][/QUOTE]

 

[Dominic]

Quote from Cache Landing:

What is your interest in opening privately managed accounts rather than having them join your HF?

Seems new investors are somewhat more comfortable having funds in PMA where they have more control and transparency than when funds are in a HF.

 

[Cache Landing]

Quote from Dominic:

Seems new investors are somewhat more comfortable having funds in PMA where they have more control and transparency than when funds are in a HF.

This is true but there is a reason for it. The transparency comes from additional regulation. This additional regulation restricts the amount of freedom that you have regarding investment strategies. IOW, if you're already successful with a certain strategy it might be detrimental to your performance to adjust your style to meet requirements.

Personally I believe that if a person is restricted to long only equity/index investing, the person might as well be stashing money in an ETF every month because they are very unlikely to beat the market in the long run. OTOH if a good trader is allowed to trade a successful strategy then above average returns are possible. That said, I would rather have my money with a HF as long as I'd done my homework first.

 

[Cache Landing]

Quote from Dominic:

What I'm thinking about doing is:

marketing/selling the signals to the general public

and/or

offering new clients the ability to place funds into existing hedge fund or open privately managed accounts.

We will be receiving the signals from a third party who asked for us to become RIA.

I'm a little lerious about becoming an RIA (per third party); it seems that I might be setting myself up if anything went wrong down the road, compared to staying a regular HF manager.

Your thoughts?

Dominic

"I'm not sure what you're getting at with the privately managed accounts. Creating a FF account with IB or having all your clients sign over to you custodial and discretionary authority and running individual trading accounts?"

[/B][/QUOTE]

If I were you I would have clients partner in existing fund as long as the limits aren't exceeded. Then if you really want to proved a signal service you can do that also, but neither of the two require the 65. I understand that the third party wants you to get it for credibility, but you would be taking on all the liability with that. Just something to think about.

 

[Dominic]

Quote from Cache Landing:

If I were you I would have clients partner in existing fund as long as the limits aren't exceeded. Then if you really want to proved a signal service you can do that also, but neither of the two require the 65. I understand that the third party wants you to get it for credibility, but you would be taking on all the liability with that. Just something to think about. [/B][/QUOTE]


Thats the problem I'm facing; our fund is close to full. We have a great signal to sell/market, yet obtaining the RIA status could set us up for liabilities down the road.

So if I obtained RIA status and then sold the signals to a new client (through newsletter) who then wanted to place funds into our hedge fund at a later time, a conflict could arise which might result is potential lawsuit?

 

[2cents]

Quote from whoknows?:

Yes, they are different things.
In short: I think the 66 (or 65) is to allow you to take a fee, basically.
RIA, I think, allows you to open separately managed accounts and/or collect money in a pool (in your company name).

Not sure though. I will be finding out soon enough.

guys your reg environment is complete madness... been in the industry 20 years and also headed regional compliance / rep risk oversight functions at one time, therefore am familiar with the whys etc... but i can't believe people are actually able to go thru all those hoops on their own, and manage to build & run a fund successfully within a normal lifetime... those are $ & time barriers to entry and to feed all manners of otherwise worthless "trainers", admin worms etc, nothing else, they do little if anything to protect the retail investor properly, which is after all the stated objective... why don't u give yrselves a break and take a look at the UK environment for a change...

whatever...

 

[Cache Landing]

Quote from Dominic:


Thats the problem I'm facing; our fund is close to full. We have a great signal to sell/market, yet obtaining the RIA status could set us up for liabilities down the road.

So if I obtained RIA status and then sold the signals to a new client (through newsletter) who then wanted to place funds into our hedge fund at a later time, a conflict could arise which might result is potential lawsuit?

Maybe. Not to mention the conflicts of interest that you have to spell out for every client. Let's say you recommend someone to buy SPX long term but at the current time you are shorting SPX because short term strength is weak. You have to provide this info to all your clients. It can get difficult.

The other problem is the signals you're selling. If you're selling the same signals to all clients then you're not following the guidelines provided for an RIA. Each client needs to be sat down and interviewed to determine what investments will be appropriate for them. If you don't do this and they lose money they can file complaints against you in that you weren't fullfilling your fiduciary responsibilities. Those investments might be outside their risk tollerance.

I realize that the RIA thing sounds nice to people but they should realize that it doesn't prepare anyone to give good stock picks. It only familiarizes someone with the laws governing the markets and the technicalities of what each type of security does. Really for what you're trying to do, an RIA doesn't mean squat.

 

[Cache Landing]

Quote from 2cents:

guys your reg environment is complete madness... been in the industry 20 years and also headed regional compliance / rep risk oversight functions at one time, therefore am familiar with the whys etc... but i can't believe people are actually able to go thru all those hoops on their own, and manage to build & run a fund successfully within a normal lifetime... those are $ & time barriers to entry and to feed all manners of otherwise worthless "trainers", admin worms etc, nothing else, they do little if anything to protect the retail investor properly, which is after all the stated objective... why don't u give yrselves a break and take a look at the UK environment for a change...

whatever...

I agree, but you're acting as if anyone has a choice in the matter. If you want to give investment advice you have to certify.

I'm not understanding where you're trying to go with your statement.

 

[2cents]

Quote from Cache Landing:

I agree, but you're acting as if anyone has a choice in the matter. If you want to give investment advice you have to certify.

I'm not understanding where you're trying to go with your statement.

just rambling... admitedly ;-) as regards giving investment advice though, be it via signals or whatever, i am def on the side of tough barriers to entry... there are tons of jokers & scams in that space. cheers

 

[Cache Landing]

Quote from 2cents:

just rambling... admitedly ;-) as regards giving investment advice though, be it via signals or whatever, i am def on the side of tough barriers to entry... there are tons of jokers & scams in that space. cheers

Agreed. I don't use signals myself but I don't want to see this guy get into trouble. He seems like a good enough person.