Managed accounts

[anvil993]

Three key points to consider: 1) Custody, 2) Incentive Fees and 3) Discretion.

You must avoid custody of the assets to avoid state securities violations. The ability to withdraw funds directly constitutes custody. Limited power of attorney to trade and not withdraw may not provide safe harbor. To avoid custody you would need to send an invoice of fees that detail the fee amount, how it is calculated, the beginning and ending balance used during the 'measuring period', and the performance against an agreed upon index. The invoice must be sent to the client and the broker/bank/trustee simultaneously. The agreed upon terms of your management contract should cover these elements.

If the account is a Retirement Account you can be deemed a 'plan fiduciary" subject to the ERISA act of 1970 if found to have custody.

You can take a management fee from any client, anything more than 4% is considered a potential problem.

Incentive fees are limited to Accredited Investors.

Whether you need clients prior ratification prior to making trades constitutes having discretion. Discretion can constitute custody if the above is not followed.

 

[dabao91]

I think if you trade future products, you don't have to register as an investment advisor in your state.


Is this true for all 50 States?

 

[ktm]

I don't know about all 50, but it's typically true. You only live in one state, right?

You follow the rules for your state of residence then typically file blue sky for states where you are soliciting or have clients.

The key thing to remember is that investment advisor statutes are largely geared towards securities. Futures and futures options are NOT securities. The feds lump them in with commodities, so you are regulated by the CFTC and not the SEC if you are solely dealing in commodity based products.

 

[dabao91]

One simple way is to trade future and register yourself as CTA.


Once you become a registered CTA, does that mean you can take any client from any States without register with each State?

For example if you are in Illinois, after you registered with NFA/CFTC to become a CTA, can you:

1. take clients for CA, NY, etc without register with CA, NY States?
2. advertise in CA, NY, etc without register with CA, NY States?