Do I need to be a broker?

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InvestorTester's picture
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Joined: 2009-04-25

Hey Guys,You'll have to excuse me for this seemingly "noobish" question. As much as I like law (and arguing), all types of regulation just blow me out of the water. Not my area of expertise!Anyway, I've made some successful plays in the stock market. Some of my friends are wondering if they could "give" me money, that I can put in the stock market, and grow for them. In return, I take a fee, etc.This, by definition, is a stock broker. However, this isn't anything professional. It's just a soul proprietorship making money for friends, and taking a small cut of it. Before I do anything like this, do I need to become a licensed stock broker? Going through the test seems a little excessive. Everything would be under my name, I'd pay taxes on the gains, etc.Hope this isn't too long, just wondering if I would be doing anything wrong before I do it.Thanks in advance!

3rdyrp2's picture
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Joined: 2008-11-13

Wow.  Do they have "secret shopper" FINRA regulators posting on here now?

InvestorTester's picture
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Joined: 2009-04-25

Uh, I'm confused. If I was trying to frame someone, wouldn't that be entrapment?Anyway, I'm guessing by that comment what I was suggesting isn't a good idea?

Hus Bin Pharteen's picture
Joined: 2009-04-25

Oh Lord...where do you start with this?

Wasabi Avenger's picture
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Joined: 2007-04-17

Series 65. And abandon all hope, ye that invest here.

3rdyrp2's picture
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Joined: 2008-11-13

How would the money get in your name?  Your friend writes a check to you and you deposit it into "your"account?  The IRS sees this and the sirens will be heard throughout Washington D.C. if this isn't reported as income for you.  Any bank deposits over $10,000 must be reported by the bank/brokerage firm to the IRS.
 
The SEC and FINRA isn't worried about entrapment, btw.  For all I know they encourage it.

Still@jones's picture
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Joined: 2009-03-22

I'm thinking...if you can get your friends to hand over cash to put in your name, you are quite a salesperson. You'll do well if you go legit!

Captain's picture
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Joined: 2006-04-07

If you are providing investment advice for a fee, you should register as an investment advisor and don't have to be a broker.

If you are taking possession of their funds, or custody, that's a big no-no.

You'll have to set yourself up as a registered investment advisor - assuming you'll have less than $25 million, you'll have to register at the state level, and not at the SEC level.

My opinion.... you are asking for liability beyond what you are prepared to truly accept, but, since there are no capitalization requirements to be a registered investment advisor, anyone can go through the motions.

C

InvestorTester's picture
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Joined: 2009-04-25

3rdyrp2 wrote:How would the money get in your name?  Your friend writes a check to you and you deposit it into "your"account?  The IRS sees this and the sirens will be heard throughout Washington D.C. if this isn't reported as income for you.  Any bank deposits over $10,000 must be reported by the bank/brokerage firm to the IRS.
 
The SEC and FINRA isn't worried about entrapment, btw.  For all I know they encourage it.It would be disclosed as personal income. I'd invest the money well, then return it later while keeping some for myself as well. All would be disclosed on taxes, but not contracts of any type would be signed. Neither would I be calling myself a "broker" or "adviser."

Borker Boy's picture
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Joined: 2006-12-09

Just how are you going about making these "plays?" Individual stocks (short, long), mutual funds, options?
 
There's a ton of experience on this forum, and I can assure you we're all waiting with bated breath to hear about how you've made money over the past couple years in the market.

Captain's picture
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Joined: 2006-04-07

InvestorTester wrote: It would be disclosed as personal income. I'd invest the money well, then return it later while keeping some for myself as well. All would be disclosed on taxes, but not contracts of any type would be signed. Neither would I be calling myself a "broker" or "adviser."

I've heard some silly things over the years, but this has to be the dumbest way to invest money on behalf of another individual. Total mess.

buyandhold's picture
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Joined: 2008-09-23

Why don't you just tell them to open online accounts and deposit their cash, they give you their passwords and let you trade for those accounts and then they pay you under the table.That probably breaks only five or six laws, whearas your way you break about a dozen.

flboy4's picture
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Joined: 2007-07-18

I think I used to work with this guy.

Wasabi Avenger's picture
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Joined: 2007-04-17

InvestorTester wrote:
3rdyrp2 wrote:How would the money get in your name?  Your friend writes a check to you and you deposit it into "your"account?  The IRS sees this and the sirens will be heard throughout Washington D.C. if this isn't reported as income for you.  Any bank deposits over $10,000 must be reported by the bank/brokerage firm to the IRS.
 
The SEC and FINRA isn't worried about entrapment, btw.  For all I know they encourage it.It would be disclosed as personal income. I'd invest the money well, then return it later while keeping some for myself as well. All would be disclosed on taxes, but not contracts of any type would be signed. Neither would I be calling myself a "broker" or "adviser."How old are you? You sound like you know a lot about taxes, are you not a CPA, too?

Still@jones's picture
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Joined: 2009-03-22

You could cut this down to 2-3 laws, and avoid some liability if you form an "investment club" where everyone deposits money under their own name and you are the only member with trading authority. Charging a fee would still be illegal...

Moraen's picture
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Joined: 2009-01-22

I find it difficult to believe someone with such little skill in grammar and sentence structure can "make a few plays" and make money.
I believe you can be summed up in one word.  Clown.
 

3rdyrp2's picture
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Joined: 2008-11-13

buyandhold wrote:Why don't you just tell them to open online accounts and deposit their cash, they give you their passwords and let you trade for those accounts and then they pay you under the table.That probably breaks only five or six laws, whearas your way you break about a dozen
 
I was going to say the exact same thing.  How can we give advice to this person in a way that will cause them to break as few laws as possible (Since it will be impossible to do this without breaking at least one)?

FABroker1999's picture
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Joined: 2009-03-08

Make him sign a non-something letter. Put it in your permanent file.

buyandhold's picture
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Joined: 2008-09-23

Who wants to be his compliance officer?

InvestorTester's picture
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Joined: 2009-04-25

Wonderful forum you guys have going on here.Terrific advice. I'm sorry I'm not some Finance geek. Sorry I've made money in the market too.I guess it's just reserved for those with willful arrogance?

FABroker1999's picture
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Joined: 2009-03-08

If one is investing for one's own benefit in one's personal account, everyone is welcome.
Once you start providing advice for a fee, the regulators step in. It is a highly regulated industry. Just the facts.
 
 

NFA1972's picture
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Joined: 2008-08-11

...and you still haven't told us what "plays" you made to make some money over the years.
 

HAAIC's picture
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Joined: 2009-03-30

InvestorTester wrote:Hey Guys,You'll have to excuse me for this seemingly "noobish" question. As much as I like law (and arguing), all types of regulation just blow me out of the water. Not my area of expertise!Anyway, I've made some successful plays in the stock market. Some of my friends are wondering if they could "give" me money, that I can put in the stock market, and grow for them. In return, I take a fee, etc.This, by definition, is a stock broker. However, this isn't anything professional. It's just a soul proprietorship making money for friends, and taking a small cut of it. Before I do anything like this, do I need to become a licensed stock broker? Going through the test seems a little excessive. Everything would be under my name, I'd pay taxes on the gains, etc.Hope this isn't too long, just wondering if I would be doing anything wrong before I do it.Thanks in advance!
You should stop lying to your friends about how well you're doing, so they'll know how stupid it is to have you manage their money.

3rdyrp2's picture
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Joined: 2008-11-13

InvestorTester wrote:Wonderful forum you guys have going on here.Terrific advice. I'm sorry I'm not some Finance geek. Sorry I've made money in the market too.I guess it's just reserved for those with willful arrogance?
 
Lmao!  You have the nerve to come on here and tell us you have friends that are willing to hand over their investment accounts to be put in your name so you can make some "plays" to get them money that they wouldn't make by investing elsewhere, and you have been very successful at this, allegedly, and then tell us "I'm sorry I'm not some Finance geek"?  What are you, throwing darts at a dartboard? 

InvestorTester's picture
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Joined: 2009-04-25

FABroker1999 wrote:If one is investing for one's own benefit in one's personal account, everyone is welcome.
Once you start providing advice for a fee, the regulators step in. It is a highly regulated industry. Just the facts.
 
 THIS is what I was looking for. Thanks for your polite response. I posted this in the rookie section for a reason Thanks!

FABroker1999's picture
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Joined: 2009-03-08

My pleasure...but remember, there is never any extra charge for the willful arrogance!
 
 
                                                      

InvestorTester's picture
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Joined: 2009-04-25

I'll keep that in mind, but I think I have enough myself as it is!Do you guys really share your trades with eachother? Seems like you would want to be hush hush about it, or is this just a pretty close knit community that does it as a "buddy buddy" type thing?

InvestorTester's picture
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Joined: 2009-04-25

Oh, great. Enjoy your Sunday.

Still@jones's picture
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Joined: 2009-03-22

With this last comment, you certainly proved you belong in the Rookies section (and it's great that you recognize this fact). If you do decide to go into this industry, you will discover that your "trades" or "stock picks" are meaningless in the grand scope of things. What matters is matching an investment strategy to an individuals goals and risk tolerance. It's much more of a customer service industry rather than being a professional investor. Stock picking only comes into play when you manage hundreds of millions of dollars (mutual fund managers, endowment funds, etc.). For everyone else on this forum, it's just about matching an investment to a customer. We're just sales people and customer service reps...although, having a solid understanding of investments will go very far when trying to get clients to hand over more money!!!

InvestorTester's picture
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Joined: 2009-04-25

Hey Still@jones, thanks for the comment.I really don't want to be a "broker," not really my thing. I just like making my own personal trades and "fooling around" if you will for some extra cash. Really looking at getting serious this summer though.Just was wondering if there was any way to share my own personal success (or, luck I should say) with a few close friends. That looks out of the question though, which is fine.

3rdyrp2's picture
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Joined: 2008-11-13

InvestorTester wrote: FABroker1999 wrote:If one is investing for one's own benefit in one's personal account, everyone is welcome.
Once you start providing advice for a fee, the regulators step in. It is a highly regulated industry. Just the facts.
 
 THIS is what I was looking for. Thanks for your polite response. I posted this in the rookie section for a reason Thanks!
 
There is no possible way that you didn't know this would be the answer to your question.  Question:  What do you plan to do if one of your "plays" doesn't work out and your friend/client is out $30,000 on a bad bet?  Will they pat you on the back and say "Don't worry, you'll get 'em next time?"  Or will they say "InvestorTester, WTF?!?!?!  How do you plan to pay me back my kids college tuition now?"

InvestorTester's picture
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Joined: 2009-04-25

iceco1d wrote:I'm willing to bet this guy is talking about some college buddies that each want to give him $1,000. 
 
This guy doesn't have any serious money, and neither do his 'buddies.'Glad you have total inside access to my funds. Does it make you feel superior or something when trying to talk down my investor cash?Whatever. Thanks for the advice everyone.

Sam Houston's picture
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Joined: 2008-12-01

i thought the $1m figure was generous.

smokescreen agent's picture
Joined: 2008-08-19

InvestorTester wrote: iceco1d wrote:I'm willing to bet this guy is talking about some college buddies that each want to give him $1,000. 
 
This guy doesn't have any serious money, and neither do his 'buddies.'Glad you have total inside access to my funds. Does it make you feel superior or something when trying to talk down my investor cash?Whatever. Thanks for the advice everyone.
 
Awww man, you got this thing on lock sonny! For real, don't listen to these "brokers" (brokers manage money until there's none left!)
Here's what you should do... Get all your buddies to give you the money, all this week, as you know this week is just really important. Then use as much margin buying power as you can to buy options instead of shares, but make sure the expiration date is soon on them because you don't want to wait around, that's boring... Then once you see the thing pop just pour a scotch (the good stuff) and sell that sh*t! BAM! It's so damn easy man, you'll be fine just be agressive and forget learning the "fundamentals" obviously that stuff is BS, otherwise wouldn't the old geezers be in the green?!?! Your time is now bro, congrats on seeing the light, now go get traaaaaddding!!!!!

3rdyrp2's picture
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Joined: 2008-11-13

smokescreen agent wrote:InvestorTester wrote: iceco1d wrote:I'm willing to bet this guy is talking about some college buddies that each want to give him $1,000. 
 
This guy doesn't have any serious money, and neither do his 'buddies.'Glad you have total inside access to my funds. Does it make you feel superior or something when trying to talk down my investor cash?Whatever. Thanks for the advice everyone.
 
Awww man, you got this thing on lock sonny! For real, don't listen to these "brokers" (brokers manage money until there's none left!)
Here's what you should do... Get all your buddies to give you the money, all this week, as you know this week is just really important. Then use as much margin buying power as you can to buy options instead of shares, but make sure the expiration date is soon on them because you don't want to wait around, that's boring... Then once you see the thing pop just pour a scotch (the good stuff) and sell that sh*t! BAM! It's so damn easy man, you'll be fine just be agressive and forget learning the "fundamentals" obviously that stuff is BS, otherwise wouldn't the old geezers be in the green?!?! Your time is now bro, congrats on seeing the light, now go get traaaaaddding!!!!!
 
You're right!  All this guy's gotta do is develop the business saavy of Lenny Dykstra, and dude, the cash will come flooding in.  You're friends will LOVE you 5 years from now!
 
http://sports.espn.go.com/mlb/news/story?id=4084962

InvestorTester's picture
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Joined: 2009-04-25

Ha - funny article.From the article:only magazine while he sneaks peeks at the financial news and stock
charts on a bank of three super-sized computer screens behind him.Those only look to be 21-24" screens? Huh?Anyway, I know I'm missing the point, but this guy seems like he's giving off Madoff style lies about his "riches."

norcalstoppy's picture
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Joined: 2008-12-11

Best thing for you to do is to grab a series 65 or 66 self-study book and read it over. There are very strict rules and regulations that you will need to know about.

SometimesNowhere's picture
Joined: 2008-12-22

Understand that you came on a forum for people that charge for the service of professionally managing investments essentially asking if there is an easy way to make a little money replicating things that you've done in the past. It is the equivalent of me walking into the bar (booze, not law), debating some guy at the other end of the bar about whether or not waterboarding is torture or some other complex legal issue, having the people around you say you laid out a persuasive argument, then soliciting your friends to represent them in some formal legal proceding because "you are good at arguing". Then, you go and ask a bunch of lawyers what the easiest way to get paid for this "service". This is our livelihood, and most of us take it very seriously. Framing it in the way that you did cheapens it (outside of the many, many, many reasons it is dangerous for you and your friends).
 
All of us have had a client in our office with a portfolio 'managed' by their friend that is an absolute toxic mess. Good intentions, bad results. And...most of us will tell you that managing the money of friends/family is awful. Many (including myself) go to great lengths to avoid it.
 
Do your friends (and yourself) a favor, tell them to find someone licensed to help them. You would do the same (I hope) for someone trying to buy/sell a home, needing legal representation, getting complex tax issues resolved, getting an addition built on their house, etc.

someonewouldntexpect's picture
Joined: 2008-10-25

Enjoy prison. 

Wasabi Avenger's picture
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Joined: 2007-04-17

BTW- legally, you couldn't be bound to arbitration, so that would be interesting to watch.

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