Trading Family and Close Friends Funds, Club or Proper Business Structure?

First, a bit of history. I've been an active trader for several years now and have made consistent modest returns in excess of market benchmarks. I have a few close friends and family (5 at most) who are interested in investing some of their funds with me.

I will not do this for free and will take a small percentage of any profit, however, I know that in order to do this things start to get slightly tricky, specifically in regard to ASFL and ASIC requirements. I have considered starting an investment club, but I suspect that I would not be able to charge fees with an investment club setup.

I'm hoping that perhaps one of the accountants or lawyers on this board might have a bit of an insight into a possible legal structure (or if possible at all) where I can trade these peoples funds legally, and charge fees, without spending 100k for a ASFL and other compliance costs.

I was thinking something along the lines of starting a company and having everyone own a number of shares equivalent to the amount of funds they have invested with me (I wouldn't take on any more people after the company was setup). Obviously there'll be more to it than that, but just wondering if a structure like that may be possible?

I will of course go see an accountant about all this but just want to get a bit of an idea about it first.

Thanks

 

I don't think you could trade for others without an AFSL

 

That is what I fear. If an ASFL actually protected retail clients, it would make sense.

 

I think it would make sense in this situation too.

 

Sense? maybe, but, it would definitely be nice. Financially it is not practical for such a small group though.

I know people who trade family members funds, but they do the dodgy and just open a account for them and trade that, then do a funds exchange under the table for fees.

I won't do this, I prefer to be legit and I'm happy to pay tax. It's all good though, if I can't to do it, I won't, that simple really. Will discuss it with an accountant before giving up though.

Also plenty of people have been scammed and lost money by organisations that hold an ASFL. Sure the organisation needs to be legit, but education would be far more effective at protecting ones capital IMO. I think a ASFL can give a somewhat false sense of security to certain retail clients.

Thank you for your reply's

 

Insurance is one issue - if an AFSL holder then insurance will be in place. If a informal family arrangement then none.

Many people over estimate their abilities and do not have proper training. This applies to AFSL holders as well, but at least they have will been required to study core courses.

I had a client who gave $1mil to a stranger he met to trade. The guy had a large boat and looked successful. He wasn't intentionally ripped off but lost about $500,000 when the trading didn't work.

 

Oh yes, it can be bad both ways ASFL or without.

I am personally very risk adverse, I would have stopped trading way before a large percentage draw down like the one your poor friend suffered. The only way I would suffer such a draw down is if the broker went bust, unfortunately that is always a very real threat.

Gotta say though, judging someones success by their looks is a pretty silly thing. Education in due diligence would help here, plenty of debt ridden people look successful.

One question for you Terry, what exactly does their insurance cover?

 

I don't know what insurance would cover exactly but negligence, errors and mistakes would be covered I presumed.

 

Interesting. I'll look into into it.

Thanks Terry

 

I am currently looking into partnerships athe moment, that may be a path to go down, search for investment clubs and ther ea couple of groups that actually help set them up for you....

How to Start an Investment Club | LegalVision

Hope that helps

Greg