How do I start a business managing people's money?

S

Steven676

I have been trading/investing in stocks for 6 years and I have a fantastic track record. Now friends and family want me to manage their money for them. I'd be managing about $1.5 million to start.

I want to do this the legal, legitimate way. Does anyone know what I should do? A lawyer I talked to said I could set up a LLC and use it as a holding company, make my clients limited partners, and draw up contracts with them about my fee schedule and all the details. He said it'd cost probably 20k to start, then $1,500 each time I add a client. Others have suggested I let them keep their money in their accounts, but they sign me up for trading authority.

Additional info: My plan is to collect a fee of 15% of the cumulative outperformance of the money vs. the S&P500. So if the portfolio goes up 20% while the market goes up 15%, I collect .75% of the original portfolio amount. If the market goes down or the portfolio underperforms, I get nothing.

Thank you so much for any replies!
 
Quote from Steven676:

I have been trading/investing in stocks for 6 years and I have a fantastic track record. Now friends and family want me to manage their money for them. I'd be managing about $1.5 million to start.

I want to do this the legal, legitimate way. Does anyone know what I should do? A lawyer I talked to said I could set up a LLC and use it as a holding company, make my clients limited partners, and draw up contracts with them about my fee schedule and all the details. He said it'd cost probably 20k to start, then $1,500 each time I add a client. Others have suggested I let them keep their money in their accounts, but they sign me up for trading authority.

Additional info: My plan is to collect a fee of 15% of the cumulative outperformance of the money vs. the S&P500. So if the portfolio goes up 20% while the market goes up 15%, I collect .75% of the original portfolio amount. If the market goes down or the portfolio underperforms, I get nothing.

Thank you so much for any replies!
More...

Of course, starting a business requires a solid business plan. I recommend consulting a business plan expert with expertise in setting up financial institutions. He will be formulating what are the checklist that you need to do as well as reviewing your business strategies that you are going to implement. The primary reason is that you cannot just implement whatever you like particularly that these type of businesses are regulated and controlled by the government because of the massive frauds that happen in the past.

Then once the plan are completed, you start by properly registering your business with the government. Setting up your office then working with your clients.
 
It would be easier to have them sign you up as authorized to trade their acct.

I would do this for my family for free.
 
OK lets say its not family. Im actually asking this -- would this be an easier and much cheaper path to go?

Set up an LLC or C corp as a financial consulting business and also to protect yourself. Then do the authorization to trade paperwork, but under the corp name.

Or because you are actually physically trading/managing other people's money/brokerage accounts, does this entail a whole bunch of other logistics?
 
I don't know who you trade with, but the best option is setting up a Friends & Family account with IB. Each individual has their own account and you are the authorized trader, but all accounts are combined into an omnibus account to which is makes managing the money much easier and seems like one fund. Then, you instruct IB the fee schedule and they handle it for you. All tax reporting is the responsibility of the individuals. So, you have no LP's, no K-1's, no accountant fees, no lawyer headaches, etc.

Cost next to nothing to start up.

Next step, if you are successful and growing, is to go the LP route. That will take registration with certain states and the SEC once over $25MM.
 
Can you get them loan the money, then loan it back to you LLC. Or they can loan directly to your LLC on a promisorry note.
Trade, and give them profits as you wish as pay back of loans !!
This way you dont have to register with the govt.
 
an llc shoudl not cost more then 1000 dollars, but im from canada. here if you go through a lawyer it costs 1000 if you do it on your own 200-300

i know to set up a company there costs around the same and would imagine it is fairly easy, instead of using a lawyer you can jsut go on line and find some one that specialises in this for maybe 300-500

from there its just a matter of changing directors every time some one wants to be added
or changing percentages every time some one wants to add or take out money.

If you are not too worried about taxes then i would just take their money sign a simple agreement with them and deposit the money in the business account, that way you odnt have to fiddle around with changing directors every time.

yes you can use a lawyer but in general a simple write up of a contract is sufficient, simply state that it is a highrisk and at their risk account, you have no liability and how much they are depositing. keep it simple.

The lawyer rout is generally not worth it . What they will do is add a bunch of stuff to the contract that will just create loopholes that your clients will be able to use against you,

use logic and start with the basics, they give you money , you invest at no risk to yourself, just that is good. every line you add will (you should add a few atleast) will simply cause problems.

In court (if it gets to that) your contract will be pulled out and viewed, if it states things that they are investing and you are not liable and you will get 15% of profits then that is all they have to go on. Any emails you send can be used against you as they have a time stamp and proof of you sending it , have a disclaimer at the bottom of each email that is basically your contract rewritten. try to only send statements over email and any other concerns shoudl be over phone. you can always change you ip address and email if you like but not as secure

keep it simple this is what you get for 200$ as opposed to your inflated 20,000, lawyers often first see how big the deal is before they mention fees, its better to say you have 2clients so far but are hoping to get more and so far you are at 10,000 investment nd you hope you get in to the millions.

or take your contract and pay your lawyer to mention any prolems it may have ... but change lawyers... 20k for a 300 dollar coampany with a contract is just not worth it and may ctually end up causing more problems
 
Quote from Steven676:

I have been trading/investing in stocks for 6 years and I have a fantastic track record. Now friends and family want me to manage their money for them. I'd be managing about $1.5 million to start.

I want to do this the legal, legitimate way. Does anyone know what I should do? A lawyer I talked to said I could set up a LLC and use it as a holding company, make my clients limited partners, and draw up contracts with them about my fee schedule and all the details. He said it'd cost probably 20k to start, then $1,500 each time I add a client. Others have suggested I let them keep their money in their accounts, but they sign me up for trading authority.

Additional info: My plan is to collect a fee of 15% of the cumulative outperformance of the money vs. the S&P500. So if the portfolio goes up 20% while the market goes up 15%, I collect .75% of the original portfolio amount. If the market goes down or the portfolio underperforms, I get nothing.

Thank you so much for any replies!
More...

Go with the IB Friends and family account first, once you hit the limit of 15 accounts, then move on to forming an LLC or LP.

You should review your pay schedule and make it 2/20 or something more conventional.
 
So If you return 20% on a 15% s&p benchmark on 1.5M assets under management net return is $300,000 and you get compensated $11,250. Why would you even bother doing this. Illegals make more mowing lawns.

Quote from Steven676:



Additional info: My plan is to collect a fee of 15% of the cumulative outperformance of the money vs. the S&P500. So if the portfolio goes up 20% while the market goes up 15%, I collect .75% of the original portfolio amount. If the market goes down or the portfolio underperforms, I get nothing.

Thank you so much for any replies!
More...
 
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