Before I read through the Investment Advisers Act of 1940, CFA guidelines on Duty to Employer, and our firm’s compliance manual, I was wondering if anyone could save me the time and hassle by answering this question:
Two people have expressed interest in me managing some money for them, one being my former boss and another being my grandfather. Each would let me manage like $50k-ish. Am I legally allowed to do this and if so, what would be your suggestion on the best way to go about it? Simply consulting them on their brokerage accounts, creating my own RIA, hedge fund, etc.
They both prefer that I have discretionary decision making power for their accounts. Both want me to invest how I would invest for myself and not put them into something boring like bonds because of their ages. Compensation would be 20% of performance. No annual management fee. Both are accredited investors, so that would open them up to private placements as well.
I want to be a PM career wise, and eventually would be open to starting my own firm. Maybe starting with these crumbs is a nice lead in to establish a formalized track record? Currently work at an RIA and have a non-compete, but the boss is pretty chill. I’d obviously seek pre-approval.
I don’t think it’s that hard to open an RIA. Call RIA in a Box and ask them.
If you’re not managing assets, and only providing fee-for-service pricing, then I think it will be easier than you realize.
First of all, investing for them the same way you would invest for yourself probably wouldn’t be appropriate due to different risk tolerances (primarily driven by different investment horizons).
Secondly, with all due respect, why would they pay you 20% of performance (I assume you didn’t mean outperformance vs some kind of BM) if they could pay some well established wealth manager only ~1%?
Lastly, if you don’t have a track record then you should start out with your own money. By playing with other people’s money you’re putting these relationships at risk. My .02.
If you work for an asset management firm, it’s illegal to manage other’s money AND get paid on it. You can manage, for example, your parent’s money. You just have to disclose it.
Every firm is a little different, but that’s a hard NO on being an FA on the side.
I am dumbfounded by what you characterize as a ‘hassle’ of reading the Investment Advisers Act of 1940, etc.
If you think that’s a hassle, you clearly don’t have the faintest understanding of the fiduciary responsibility that managing other people’s money requires and imposes. It’s best for all concerned–especially YOU–that you stay out of that line of work. If you really think you’re up to it, though, first try managing your own money for several years and see how you do compared to several top-tier managers who are required to publish their results.
As a CFA charterholder for more than fifteen years, I also think it’s extremely regrettable that you are a candidate for the charter. I, for one, hope you choose a different line of work.
If you work for a registered investment adviser, it’s considered a selling away violation to offer financial services for compensation to anyone who is not a client of your firm. If caught by FINRA or the SEC you will likely be fined and barred from the industry for a certain amount of time.