Why go pro?

D

dcwriter2

Ok. Let's say I have 200k in an IB account and I grind out a decent return selling ES credit spreads or whatever. I am also a writer who deducts home office, research, etc. I may also run some money of family and friends (non-accredited investors) in the IB family and friends account management program.

All that said is there any reason to get a RIA/Series 3 or claim trader status with the IRS? Or incorporate a LLC/LP and call myself a hedge fund manager or CTA?

Seems to I would have to pay more on licensing, professional and exchange fees. I can only see doing it if I wanted to beat the bushes for substantially more assets.

All true? Exceptions? Caveats?
 
dcwriter2 said:
Ok. Let's say I have 200k in an IB account and I grind out a decent return selling ES credit spreads or whatever. I am also a writer who deducts home office, research, etc. I may also run some money of family and friends (non-accredited investors) in the IB family and friends account management program.

All that said is there any reason to get a RIA/Series 3 or claim trader status with the IRS? Or incorporate a LLC/LP and call myself a hedge fund manager or CTA?

Seems to I would have to pay more on licensing, professional and exchange fees. I can only see doing it if I wanted to beat the bushes for substantially more assets.

All true? Exceptions? Caveats?
More...

You basically have two choices.

1. Trade for yourself.

2. "Go pro" and trade for others (earning management fees) and put up with the costs and regulatory/compliance hassles... assuming the fees earned are worth the bother.*

*I know of this. At one point years ago, I had hundreds of clients. Compliance and record keeping consumed a significant amount of my time.
 
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You can form an entity and trade independently without professional fees. It varies from broker to broker but I simply had to sign an affidavit attesting to exclusively trading my own funds for personal gain. If you intend to trade OPM, that's another thing.
 
What you describe is a real *cusp* situation -- but is especially dependent on which of the 50 U.S. states you'd be filing.

You have already invested a bunch in organizational 'infrastructure' that, should your AUM or client-count double, you'd be well-positioned to scale up. The hanger will be the registration. (And getting the LLC done. And getting a competent tax attorney on-board.)

So, trading/seggregations/account-architecture/paperwork/paperwork/paperwork aside, sit down with a reputable tax attorney and pose hard questions with hard numbers. THEN juxtapose that with your state's registration requirements. If they say "5-6 in-state clients = no registration" but you already have that many? I'd get the registration done, because those clients could go away tomorrow, and your ability to take on/recruit more would be quintupled with an RIA, versus having to quote state law. :confused:

But again: you're very much a threshold case. I'd prepare the way to bump up, rather than lock myself into under-the-hurdle numbers -- no matter the income, it just cuts down on headaches.
 
Scataphagos said:
*I know of this. At one point years ago, I had hundreds of clients. Compliance and record keeping consumed a significant amount of my time.
More...

Could you expand more on your expierence with clients , worst - best cases ?
(pros/cons briefly)

Sounds interesting.
 
I'm an RIA registered in multiple states and manage OPM. It's not as bad as you think. Get a compliance guy and he will do everything for you including your annual renewals, etc. Don't throw out a potential business opportunity for fear of the regulator.

I was registered as a CTA in the past - I found that to be more compliance work for sure. NFA is a more 'active' regulator even on smaller firms.
 
The consideration to become a CTA is not only cost but also creating a straightforward approach to show your returns in a balanced manner. You will have a disclosure document that customers could sign and acknowledge that they saw your monthly returns and understood the risk of the method. This above all will also allow you to raise capital outside of family and friends and use 3rd party capital raisers.
 
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