Investing/trading other peoples money

[AJ_]

Hello,

I am wondering if there are people here who personally invest/trade other peoples money as a business or because they are good at it. (and I don't mean you work for a managed fund etc)

Are people able to do this? Are qualifications required? etc...

thanks

 

[UPKA]

legally i dont think this is allowed, u need to be a licensed dealer in securities, and have a CFP.

 

[grumpee boi]

You do need to be licensed but not a CFP. That is a certified financial planner. Maybe you have confused it with CFA which is a chartered financial analyst that many in the funds management industry appear to have.

When I say licensed that also encompasses being authorised by a licensee. Most licensees would authorise the adviser to give advice on investments in things such as managed funds but there are also many that will not allow their reps to give advice on direct equities and many more that preclude derivatives. PI insurance gets more expensive the more conditions you want on a license. I don't have a license but Nick Radge over on Reefcap does. Maybe he could shed more light on it if you posted there.

Adam

 

[nomore4s]

Nick Radge occasionally is on this site as well. You could maybe pm him and ask him to post his reply here if you don't go to reefcap.

 

[Nick Radge]

If you wish to trade/invest on behalf of another individual then you will require an Managed Discretionary Account (MDA) license. So initially you'll need a license to give "personal" advice, then an extension to that to actually manage money.

The specifics of the MDA license will then depend on what kinds of clients you're targeting. If its Mum's & Dad's then you are in for some serious work. if its just high net wealth individuals then it's slightly less complicated, but there are a lot of hurdles to jump.

My opinion is that one needs a minimum of $50mm under management to breakeven or make it worth the effort.

There are small variances around it depending on exactly what you're trying to do but you really need to look at what your target market is before I can offer something firm.

Nick

 

[clowboy]

50 million?

Damn!!!

What if say you just want to invest money for say your family? Father Brother etc?

Surely thats not that complicated, but knowing our laws it probally is.

 

[PureCoco]

I set up a trust account for my daughter who is too young to trade. Legal age to begin is 18 years. E-Trade requested my details to trade on her behalf as the trustee and said if I sell before she is 18 years I pay the tax. Though she does have after school jobs and her own tfn. I thought (with care and stop losses though I know it is more complicated than that) we could make more than her money sitting in an account. Proving true at the moment.

 

[Nick Radge]

As I said, it depends on who your target market is.

If you're doing for family then perhaps a family trust or even a Pty Ltd company will suffice. You all become directors and issue shares. You may be appointed by the directors to invest the money according to certain guidelines. In this instance though its a private entity - not a public one.

Many stock broking accounts have a facility whereby a spouse or family member can act on yoru behalf. This tends get abused beyond its creation though. It's when you start looking for public money that things get complicated and licensing is required. I think there is also partnership agreements that can account for up to 20-odd people.

Remember that everyone is your best friend until you lose some money.

 

[AJ_]

Thanks nick for your replies.

The reasons i was asking was some family/friends are interested in investing, but either dont have time, or knowledge about the sharemarket. There is no way the amount would be anywhere near $50mill !! lol

I may look into a trust or company if these able to be used inplace of the MDA license... Can anyone be a member of a trust (ie a friend)?

 

[Mousie]

There are no trust 'members', AJ, only beneficiaries. Who the beneficiaries are will be defined under your Trust Deed, which is the entire "contract" of your trust so to speak, that will be drawn up by your lawyer AFAIK. Likewise there're no members for a company too, only directors and shareholders (you can be both). You can be a member of an LLC, but that's for the US.

Nick, I have a question here. Can a unit trust ultimately go public in Aust or the US looking for investors? What'll be the minimum requirements of the size, etc. of the unit trust before it can do so?

Another question: Can a hybrid ultimately go public too (but limiting the public investment part to the units only, and keeping the discretionary part private)?

 

[Nick Radge]

Mousie,
I'm really not up to date on that stuff now. I was several years ago when we were going to start a fund before laws starting changing. They are coming back from the abyss, but I've really lost the desire to pursue that side of things again in that fashion.

The costs for a public fund are quite high. Back then, and it may well have changed, it was about $200k per year. This amounted to having external compliance committee, responsible entity costs, and the list just went on. certain firms "rent" these out as a vanilla product, but it's still a very expensive exercise. The other issue, which is the one we got stuck on, was the need to have external Directors. Running a hedge fund with essentially unlimited risk makes people think twice aboout becoming an external director.

A listed investment company may be an option, but again, I really can't see the point of doing that kind of thing for less than $50mm under management. I guess Fat Prophets and Clime have done it and felt it had value. If you think you can raise good money over the longer term, then its a probable business strategy - just look at Platinum. That said a few hedge funds simply don't bother in Australia any more. They go straight to the US where the money is larger and the SEC/CFTC environment, whilst strict, is a lot easier to operate in.

 

[motorway]

No Expert

But have a look at the way investor clubs operate
These bring people together and their funds
in a non professional manner

You can set up a partnership, company or trust..

A trust can be a unit trust instead of a discretionary trust.

Which is maybe what you are after.
units held = funds invested

motorway

 

[Mousie]

If all that costs and compliance still holds true for getting public funds I'd rather go the US route in a heartbeat. Looks like only when I see some Aussie structure being repeatedly promoted ad nauseam in the papers will I deign to have a look. A lot of interest in SMSFs these days for good reason but still decades away from being able to take it out if I want to, so that's no good for me.

Maybe I'm thinking too far ahead; discretionary should suit me fine

But then, after distributing to the beneficiaries for tax purposes, how do you get the dough back from them right away?

 

[Struzball]

I invest on behalf of my 16 year old brother, when I'm about to invest in something I let him know and he gives me all/part of his spare cash so i can get him some as well. Saves him the brokerage at least.

I've earnt him 20% in 4 months so he's pretty happy with the deal so far

 

[Mousie]

Interesting, that's what I did for some of my mates as well, but with mates there's a commission for profits made

 

[Mousie]

But then, after distributing to the beneficiaries for tax purposes, how do you get the dough back from them right away?

Well, anyone owning a hybrid/discretionary trust here who can answer this question? Thanks in advance.