An investment platform for independent money managers
Posted by Frugal on April 23rd, 2006
So, you have decided to become a financial advisor for an average earning of $122,500? Wow, that’s actually higher than my salary, despite the fact that I think I know more or at least as much about investing than all of the advisors that I have met so far from various big banks and brokerage houses (read my experiences here).
How about going even one step further and become an investment advisor to officially manage other people’s money for fee? Well, look no further, I have got it all planned out, except I don’t have any potential clients. Here is a direct route plan to become a small independent money manager in the fastest timeframe:
- Get your NASD series 65 license & register as an investment advisor in your state. This will probably cost you one to two thousand dollars, and some annual renewal fees of several hundred dollars.
- Now you are qualified to open a master account at ScottradeAdvisor. With this platform from Scottrade, you can essentially open up a money management firm of your own, with very little back-office support. The master account allows you to have unlimited client accounts. You can set up various rules for distribution of bought shares into your client accounts, and in a single master trade order, you can buy or sell from all of your client accounts. Every client accounts are subjected to the same Scottrade commission and fee structure. You can set up your management fee automatic deduction with Scottrade, with your client permission. Your clients will own their accounts directly, while giving you the trading authorization and fee deduction authorization. Since they are the direct Scottrade account holders, this will solve the biggest client trust problem when they give you money for management. Their accounts will receive the full SIPC insurance coverage up to $500,000. Plus that you and your clients will enjoy one of the lowest trading commission of $7 offered by Scottrade. I have personally contacted Ameritrade, ETrade, and TDWaterhouse, and none of them has similiar platform like Scottrade’s. I know that Charles Schwab has similar service to Scottrade’s, but the trade commission is higher, and they only seem to offer the platform to very big money management firms.
- Well, that’s it. You just need to have some marketing plan, and find your clients now. After that, it’s all about your money management performance, and you will have a very scalable business that can potentially bring you millions of income every year.
Want to be my first clients? My base fee is only 1%, and I don’t have a minimum opening amount (which is usually north of $100K). I’m also doing very well, returning about 37% since April 1st of 2005, and returning about 16% since Jan 1st of 2006. And I didn’t get this performance from a single stock portfolio, but rather diversified among some 60 stocks, most of which has a total return from 35% to 110%. I will be posting the “brochure” on my website for my own investment firm pretty soon….
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April 24th, 2006 at 6:55 pm
I throughly enjoyed that post, as well as the one on hunting for an advisor. I had some very similar experiences. I’ve come to the conclusion that other than a tax/estate planning specialist, a run-of-the-mill financial advisor has very little to offer me.
BTW, I think that TD Ameritrade and Fidelity also have advisor/institutional services. Let me know if you have any takers. I’ll be very interested in learning the composition of your portfolio.
Cheers, ML
April 24th, 2006 at 9:04 pm
ML, thank you very much for your encouragement. Blogging can be quite a lonely activity. While I’m trying to put out all of my best, sometimes it’s cold shower all over the places.
I have seriously considered managing money for others as you can see from this post. People may think 1% is a lot. I used to think this way too. But actually 1% is not a lot (for active management, but too much for passive management). Personally, I will need to manage $10 million dollar to replace my current wage. And whether I manage $10K or $10 million, I have to watch the stock market every trading day. The only motivation that has brought me so far is that I want to provide middle class a way to participate in this grand bull market of commodity (and therefore I don’t have any minimum). I am feeling sorry for the coming squeeze on the middle class whose modest savings will simply get inflated away. My wife keeps telling me not to tout my return numbers to others. I’m a modest guy, but the only reason that I keep showing my numbers is that this is the only way people will listen to me. I’m so afraid of my friends & relatives getting poorer each day without knowing it….Inflation is upon us, and this is not about getting rich. This is about preserving buying power. Stay tuned for more of my posts.
April 25th, 2006 at 8:57 am
We are definitely on the same page regarding commodities. It’s going to be a rough ride but I think the ultimate highs will surprise even the bulls today. As far as I’m concerned, there’s nothing wrong with touting your numbers if that’s what it takes for the mass to listen.
I like your blog a lot. I’ll add you to my blogroll.
ML
April 25th, 2006 at 11:31 am
Thanks ML, I added yours to mine too. I will check out your website in more details when I have more time. It’s quite difficult with two small kids, a full-time job, and a 85%-ready blog site.
May 8th, 2006 at 6:15 pm
TD Ameritrade indeed does have an Institutional service. In fact this is a business segment they are starting to actively persure. See http://www.amtd.com/offerings/RIA.cfm.
I too have been considering getting into the money management game. I have a good friend who does this, he’s been in the business for many years, has a nice niche of clients and well over $50MM under management. This funds his team of 5 leaving him with a good salary that can continue even after he retires.
May 8th, 2006 at 7:58 pm
My bad. Thanks to the info from ML & Personal Finance Blogger, Fidelity and TD Ameritrade both provide services for money managers.
I did email to TD & Ameritrade before they merge, and both got back to me negatively. I guess you really need to the right customer service representative.
I have not seriously considered money management as a money-making business. So far, I only hope that I can increase ROI for those people who don’t have a lot of savings (like less than $100K). If they want my free advice or stock tips, they just need to post in the blog. I will answer to my best. The only reservation that I will have is to respect my existing paid services.
May 22nd, 2006 at 8:58 pm
Its easy to make money in a rising market by taking on more risk…the question is how you manage that risk in a downturn. How are you doing year to date after the last couple weeks?
May 22nd, 2006 at 9:52 pm
That’s a good question. Terrible for the last two weeks, and you can see that from my recent posts. I’m about up about 3% YTD, and up about 20% since last April. It’s still pretty good, but it was a lot better. As I have said in my post, I’m more of an investor than a trader mainly due to lack of my time. I don’t know how to be a part-time trader. For me, I must constantly keep a tab on the pulse of the market to feel what is really going on, and unfortunately I don’t have time to do that.
I actually almost prefer that someone else can manage the money for me, except that my performance has been consistently better by 5% for almost every month compared to my chosen money manager (who invest in the same sectors as I am). If it’s just 1% or 2%, I would just let him do the job. But it’s 5% to 10% difference, depending on the month. I simply can’t ignore that big difference.
June 24th, 2006 at 6:17 am
Hello,
I can’t say, I’m not interested. Though, the one concern that comes to mind is how scalable your strategy is. Since trading 10 million (the amount you would need to live off of) is much different than trading 10k or even 100k. Getting into and out of positions would take much more time due to the limited liquidity of the general market (which has been one of the issues I’ve run into in the options market; well especially for some of the major indexes), not to mention the run up in the stock’s price in the acquiring stage and vice versa when you sell.
June 24th, 2006 at 7:16 am
Hi Merez,
Scalability is always an issue. Bigger amounts will definitely start to impact your performance bit by bit. I don’t plan to quit my day job anytime soon. I’m more interested in helping out smaller investors with smaller amounts. If there are people who ask me right now to manage over $500K dollar for him or her, I will tell them to find someone else. They’re rich enough that they can afford not to get a good return on their money, and still be very well-off. Of course, I’m assuming that my returns are good here.
October 18th, 2006 at 10:16 am
Are the certifications/qualifications in your Step 1 the only ones needed in order for the money management activity to be legal and conform with NASD regulations?
October 18th, 2006 at 1:18 pm
Every state is different. But I believe NASD 65 is the most widely accepted. I research on this long time ago, and can’t remember the details. ScottradeAdvisor.com do have more information to help you get started.
December 16th, 2006 at 10:32 am
I am interested to have you as my money manager. So how? Please email me about your service included and also fee schedule and if in case we cannot work together, how I can exist. I think that is a reasonable one. Life happens.
PS; Anyway, I am glad you hold off with the house purchase. I have my dream house in San Antoino Texas that was in the market for a whole year. I have made friends with the neighborhood and constantly email them what happen to that house I am interested. Some of them gave me their email to keep an eye for me. So I have my ears and eyes other than the seller / buyer realtor. This really works.
until then, get some sleep
December 18th, 2006 at 10:54 pm
WING LEUNG,
Sorry. I couldn’t find any available time to manage others’ money as well as getting the necessary platform/qualification to do it. Too many things to do and too little time.
February 16th, 2007 at 5:03 pm
sounds like too much work for too little return!
i’m looking at commercial investments right now and will pool together about 250k-500k from about 50 people.
I’ll charge about 1-2% going in and 20% of the profits. The advantage is the small investor with 7-10k to invest
gets in on commerical investments without grossly overpaying for them (like you do in REITS), you get a tax-advantaged 10%+ cash on cash return, and no headache.
I benefit by investing in larger bldings than I could on my own (which have higher returns) and I make a bit of money for my research and effort.
I’m currently doing that on 2 oil & gas projects. Of course you need a lawyer involved and it gets very time consuming, plus raising the money within a given time frame is crucial, and you need to provide regular updates…. did I say it was less work for more money?
February 17th, 2007 at 4:31 pm
Adventures In Money Making,
Your plan sounds very good to me. I think that being a money manager will only pay off in the long term when you get to manage more than $20 million dollars, presumably earning at least $200K. Scaling to that point is quite hard, but the opportunities for scaling beyond that point are boundless.
October 4th, 2007 at 9:29 am
I am a 19 year old college student who wants to manage investments. How can I do that?
January 27th, 2008 at 3:22 pm
here’s an interesting tidbit for you. The investment industry is subject to significant regulations. any type of advertising or prospecting for advisory clients when you are not properly licensed/registered violates federal laws. want to re-think your post?
January 28th, 2008 at 1:46 pm
whats the big deal about getting licensed?
any buffoon can get licensed. in fact most advisors are buffoons.