Wednesday, July 6th, 2016

Legal ramifications of starting an investment advisory?

I am a dual masters student (MBA and MSc. In Financial Risk strategy) at a leading business school. Several friends and I invest in equities and options Independently, and Have Received Many Requests to invest on Behalf of friends. We Would like to start a small investment management service, Where We Would Set up a company trading account, deposit money ours and our clients to the account, and trade on Behalf of ourselves and our clients. What are the steps That We Need to take to do this Legally? Do We Need to register with the SEC as advisors? Do We Need Series 7 certification? Any Would Be Greatly Appreciated Knowledge.


2 Responses to “Legal ramifications of starting an investment advisory?”
  1. jeff410 says:

    Look up the Investment Advisors act of 1940. And inquire with your state securities regulator or your Secretary of State.

  2. Hugo's Roomy says:

    I just went through the process of setting up a subsidiary as a registered investment adviser (RIA), so I can help a bit.

    You will eventually need to register as an investment adviser if you hold yourself out as such. There are two different types of registration: state registration or SEC registration. You register your firm as one or the other. There have been a lot of recent changes in RIA regulations, but right now you need $100 million in assets under management to register with the SEC. Less than that, you register with the states.

    The SEC’s website has information on how to get started with the process.

    Registering as an RIA is pretty easy (it only takes a few weeks from when you send in your application), but there are a lot of compliance policies and procedures you have to put in place which makes it more difficult to BE an RIA.

    We were an SEC registered RIA, so I can’t speak for the complexity of state registration, although I believe both applications are handled through FINRA.

    If you are only advising institutional investors, you don’t need to register investment adviser representatives (IARs) — individuals giving advice who work at the firm. If you are dealing with retail investors, you will need to register individuals, and I believe that may require testing (there are detail on the SEC’s website).

    There may be other details I’m forgetting, but that should be enough to get you started. You might want to engage a law firm that specializes in securities law (investment advisory in particular) to guide you through the particulars of your situation.

    You may be able to avoid having to register until you get up to a certain number of clients or a certain amount of investor funds. A good attorney could help you with those points.

    Good luck!

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