Author Topic: Managing friends' money  (Read 6474 times)

jobyts

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Managing friends' money
« on: November 18, 2020, 09:29:33 PM »
A few of my friends showed interest in me managing a portion of their IRA money. I'm not someone with a financial education background. What qualifications/certifications I need to pass to legally manage other people's money?
I am a US citizen, residing in California.

Thanks,


StubbleJumper

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Re: Managing friends' money
« Reply #1 on: November 19, 2020, 06:14:17 AM »
I will not comment on your actual question about the legal framework.  But, I would note that business and friendships often do not mix well.  I have always taken a hard pass on managing money for friends and family.


SJ

Gregmal

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Re: Managing friends' money
« Reply #2 on: November 19, 2020, 06:22:08 AM »
You can do off the books stuff, no issue just get creative. If you want something more official, IBKR has friends and family accounts where you can manage up to 15 accounts iirc, without any sort of license. Otherwise, you need either a 7/63 or a 65 and then a sponsor firm in order to conduct business.

I'd agree with the above though...business and friendship dont mix. I do some lightly, but I dont charge family members anything and close friends I just kind of tell them what to do and how to do it themselves. That way between them listening to me, and then executing whatever it is they seek to do, they have a little bit of time to think it over.

rb

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Re: Managing friends' money
« Reply #3 on: November 19, 2020, 06:24:23 AM »
I will not comment on your actual question about the legal framework.  But, I would note that business and friendships often do not mix well.  I have always taken a hard pass on managing money for friends and family.


SJ
I have had the opposite experience. Worked out very well. It's just like with regular clients. Pick the right ones, work hard, and treat them well. Everybody's happy. I do say no a lot though.

writser

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Re: Managing friends' money
« Reply #4 on: November 19, 2020, 06:46:29 AM »
I'd agree with the above though...business and friendship dont mix. I do some lightly, but I dont charge family members anything and close friends I just kind of tell them what to do and how to do it themselves. That way between them listening to me, and then executing whatever it is they seek to do, they have a little bit of time to think it over.

I agree. What's the upside of managing their money? Surely you can envisage the downside.
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SharperDingaan

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Re: Managing friends' money
« Reply #5 on: November 19, 2020, 07:11:49 AM »
Just to throw something different out.

You know squat about this, there's no real upside, and it is unlikely to end well. Of course there are exceptions, but the manager almost always has deep experience/expertise in it.

Far smarter to look at the fintech platforms, find something that makes sense to all of you, and put your money there. It's modern, will give all of you very good experience, and if the investment blows up - your friends will not be blaming you.

Different strokes.

SD

Xaston

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Re: Managing friends' money
« Reply #6 on: November 19, 2020, 07:21:36 AM »
Pretty silly for people to say there's no upside. 

Gregmal

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Re: Managing friends' money
« Reply #7 on: November 19, 2020, 07:35:07 AM »
Any upside you can make off your family and friends you can make off of building a real customer base. I get what you are saying, but its basically just a roundabout form of a handout. And yes, I know plenty of silver spooners who breezed through life, went to name brand schools, and then were "given" assets by family to earn a living off of without ever holding down a real job or gaining experience in the field. Wouldn't one rather build something real on their own? Without the risks of....best case scenario, freeloading off family, or at worst...blowing them up and being the moron at the dinner table every family gathering?

Theres nothing "wrong" with doing it, but its not a very asymmetric bet. If its not a form a freeloading, then do it for free...And if you're doing it for free, whats the upside?

StubbleJumper

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Re: Managing friends' money
« Reply #8 on: November 19, 2020, 07:57:42 AM »
Any upside you can make off your family and friends you can make off of building a real customer base. I get what you are saying, but its basically just a roundabout form of a handout. And yes, I know plenty of silver spooners who breezed through life, went to name brand schools, and then were "given" assets by family to earn a living off of without ever holding down a real job or gaining experience in the field. Wouldn't one rather build something real on their own? Without the risks of....best case scenario, freeloading off family, or at worst...blowing them up and being the moron at the dinner table every family gathering?

Theres nothing "wrong" with doing it, but its not a very asymmetric bet. If its not a form a freeloading, then do it for free...And if you're doing it for free, whats the upside?


Actually, I've never had the "silver spoon" portfolio management issue.  In my case as an individual investor, it usually arises because you've been shooting out the lights for 5 years or 7 years and you make a careless comment after drinking a few beers, or somebody infers from your behaviour that you have been shooting out the lights.  The astute people who learn or infer that you have been shooting out the lights want to jump aboard the train and have you do the same thing for them with their $100k retirement account. 

The problem with all of this is the standard saw about "past performance does not guarantee the future," as well as the fact that the people on this board often end up with a very unconventional portfolio in their quest to shoot out the lights (if I am not mistaken, you have written on occasion on your unconventional portfolio concentration).  This can result in periods of under-performance (sometimes lengthy periods), and sometimes you incur permanent losses of capital.   The friend/family with his $100k retirement fund is rarely well suited from a mental and emotional perspective to the bad periods.

What is more, there will be periods where you will be doing perfectly fine by some metrics, but you will be doing much worse than the market high-fliers.  Your friend with the $100k retirement fund will look at AMZN and conclude that you have picked a bunch of duds simply because AMZN has risen by 66% in the past year and your selected portfolio hasn't done quite so well.

Either of these cases can be drivers of friction in the friendship or family relationship.  As others have suggested, if you are doing all of this for free, what is the upside?


SJ

LC

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Re: Managing friends' money
« Reply #9 on: November 19, 2020, 08:07:35 AM »
Never manage money for people who have less of it than you.

To address the original post - the most "legit" way is via RIA but this may be too formalized for your means. You can manage I think up to 15 friends/family accounts "informally".
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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