IB Friends & Family: Legal agreement between Advisor & Clients

T

trend7rader

Hi, I have a question about IB friends and family account which I'm looking to setup: What kind of legal agreement is necessary between advisor and client (friends & family)? Does IB provide watertight documentation for this or does advisor need to prepare this separately? Can anyone let me know this should cover? Presumably risk disclosure, investment strategy, breakdown of advisor fees... is there anything else? I'm looking to manage around 5 or 6 friends and family accounts on financial and commodity futures, possibly some stocks / ETFs in there too.
many thanks
 
I have one of those... Don't expect anything from I.B. You need to work out everything with the clients prior. The only thing that you can package is the fee you charge, that you can put in the IB system and it will do it automatically
 
thanks, are there any specific legal requirements of what must be mentioned in the agreement between advisor and client ie mandatory requirements? I'm not registered as an investment advisor, just trading and investing for friends and family, but will be collecting fees and want to protect myself incase of anything unforseen.
 
Disclaimer: I'm not a securities attorney.

All you really need is power of attorney. Since they are friends and family they probably won't sue you if you lose their money. It wouldn't be a bad idea to have them sign a risk disclosure so they know the full extent of the risk involved. If you're trading futures they should know their losses can exceed their initial investment and could be unlimited. I think the biggest risk you're taking is losing money for people who are your friends and/or your family. Money can destroy perfectly good relationships even though both parties will agree beforehand that wouldn't be the case.

If you expand above this type of operation you'll need professional documents but for F&F POA should do. Good luck.
 
BTW: Legally, you can't accept performance fees from non-accredited investors but since you are not going to be registered with the NFA you can fly under than radar. If at any point you grow big enough to have to get registered then you absolutely cannot collect a performance fee from non-accredited investors.

Quote from trend7rader:

thanks, are there any specific legal requirements of what must be mentioned in the agreement between advisor and client ie mandatory requirements? I'm not registered as an investment advisor, just trading and investing for friends and family, but will be collecting fees and want to protect myself incase of anything unforseen.
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"BTW: Legally, you can't accept performance fees from non-accredited investors but since you are not going to be registered with the NFA you can fly under than radar.

This is not accurate. CTA's can and do charge performance fees to non-accredited investors.

Perhaps you are thinking of the rule for RIAs or something else.
 
You can charge performance fee's for non-accredited clients. Per SEC and state laws, as long as you manage under $25M and 15 or less clients (state laws vary), you do not have to be even registered.

I run a small LP with IB, for a few clients. The LP route will give you the protection you want and lay out the fees. There is upside and downside with that.

The F&F account is easier...IB does the fees for you, the clients have to deal with their own taxes and they have access to their own account, but cannot trade in them.

The LP route, you need to have your own accountant and issue K1's, so it is more expensive. The upside to the LP is that you have the legal protection and fee structure in place....AND, the biggest one for me is to avoid SET via your GP.

My layout is this: LP, then another LP as your GP, then the GP of your GP is a C-Corp.

Saying all that, I think I would rather have just a F&F account...but the legal issue (if it has to come to that) is much better in an entity structure.
 
Quote from Stok:

My layout is this: LP, then another LP as your GP, then the GP of your GP is a C-Corp.
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Interesting setup.. Are all levels necessary to avoid SET or is there a simpler solution?
 
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