Investment Club Structure
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Investment Club Structure Hi Club Cafe - New Member here with some questions on investment club structure. I want to help groups of investors form investment clubs. These clubs have agreed to pay me for administrative services and accounting services (organizing club meetings, minutes, accounting). I will not provide any investment advice at all, I am just doing the administrative tasks. Would I need to register with the SEC? Can i be payed based on the clubs profits? Thanks Re: Club Formantion: I would start with State and Federal IRS regulations first, then SEC. Jim Dolan > Date: Thu, 28 Oct 2010 17:43:08 +0000 > From: curioushuang@bivio.com > Subject: club_cafe: Investment Club Structure > To: club_cafe@bivio.com > > Hi Club Cafe - > New Member here with some questions on investment club > structure. > > I want to help groups of investors form investment clubs. > These clubs have agreed to pay me for administrative > services and accounting services (organizing club meetings, > minutes, accounting). I will not provide any investment > advice at all, I am just doing the administrative tasks. > Would I need to register with the SEC? Can i be payed based > on the clubs profits? > Thanks Hi Andy,
If you are providing only administrative and accounting services, you don't
need to be registered with the SEC. However, that begs the question, if those
are the services you are providing why would you be compensated based on
profits. By your admission, you have nothing to do with providing profits.
Rip West
Saint Paul, MN Thanks for the great responses - The reason why I will be paid in % of profits is because I don't want to make money unless they make money. I'm organizing these investment clubs for some of my colleagues and I'd feel bad if they paid me a fee for the setup but didn't see any returns. What is the concern in being paid in % of profits? The only concern I see is if you lack the proper credentials from the SEC. The penalty is prison.
Are you a broker or a financial planner? Setting up multiple clubs for financial gain isn't an appropriate use of clubs, in my experienced opinion. If you are a broker and wish to help people set up clubs for their own education, that's fine. But to do it for the purpose of gaining clients and/or to profit from picking their investments from them...Geesh! Not good. You could set it up where you attend their meetings on a semi regular basis to provide a 20 minute education topic. It accomplishes the same goal without the conflict of interest.
To attempt to profit from setting up clubs is planting both feet on a very slippery slope. Better make sure you understand the consequences.
Lynn Ostrem, President
Crow River Investment Club
My question is how are you going to determine what their profit is? Typically, an investment club buys and holds. My club just sold their first stock after three years of operation. If the club doesn't sell any stock then they don't have any realized profits. Also, I think that you will be taking advantage of them by doing the accounting since AccountSync will do it for them for really cheap. If one of them can't do the little that AccountSync requires then they are not capable of being in a club. My opinion is to charge them for doing the organization and minutes by a set fee that is deducted from their account so that it is recorded as an expense.
John
From: AndyH <curioushuang@bivio.com> To: club_cafe@bivio.com Sent: Thu, October 28, 2010 11:38:08 AM Subject: club_cafe: Re: Investment Club Structure Thanks for the great responses - The reason why I will be paid in % of profits is because I don't want to make money unless they make money. I'm organizing these investment clubs for some of my colleagues and I'd feel bad if they paid me a fee for the setup but didn't see any returns. What is the concern in being paid in % of profits? Rip wrote:
If you are providing only administrative and accounting services, you don't need to be registered with the SEC. However, that begs the question, if those are the services you are providing why would you be compensated based on profits. By your admission, you have nothing to do with providing profits.
My last message may have come in too late. I didn't see the "administrative" message until after I sent my initial comments. Let me take Rip's question one step further. If you are ONLY doing administrative tasks (hmmm..) why wouldn't you want to make a profit, even if the club didn't? No one wants to work for free. You're holding something back.
For the sake of argument here, let's look at your #1 competitor - bivio. We all pay a fee for the service regardless of our investment prowess. So the percentage method of payment is VERY suspect to those of us who've been around awhile.
If you are simply feeling out a possible business opportunity, I think there are better ways that offer less scrutiny. Also, as a business owner, let me warn you about doing business with your friends. As your friends delve into the world of investment clubs, they will surely come upon bivio, StockCentral, NAIC/Better-Investing, etc. They will learn that paying you goes against the grain of all our organizations and they will fire you. Its easier to replace clients and friends.
Lynn Ostrem, President
Crow River Investment Club
Thanks for the advice Lynn - I certainly am not trying to circumvent or compete with bivio. I was approached by my friends to organize a club/structure for them. They would be putting their money as a group to a money manager. I would simply form the partnership for them and help them with the accounting and monthly meetings/admin stuff. I would be happy with the set fee - but I thought it would be more fair (because of my relationship with the club) to only profit when they do. I don't have the capital to join the investment club but wouldn't mind being linked to their performance. Again I wouldn't be giving any advice, all investment advice would be given by a financial planner; I would offer just my services. I understand the business concerns, but legally, if the club is willing, would i run into any legal barriers in this arrangement? Lynn Ostrem wrote: > Rip wrote: > > If you are providing only administrative and accounting services, you don't need to be registered with the SEC. However, that begs the question, if those are the services you are providing why would you be compensated based on profits. By your admission, you have nothing to do with providing profits. > > > My last message may have come in too late. I didn't see the "administrative" message until after I sent my initial comments. Let me take Rip's question one step further. If you are ONLY doing administrative tasks (hmmm..) why wouldn't you want to make a profit, even if the club didn't? No one wants to work for free. You're holding something back. > > > For the sake of argument here, let's look at your #1 competitor - bivio. We all pay a fee for the service regardless of our investment prowess. So the percentage method of payment is VERY suspect to those of us who've been around awhile. > > > If you are simply feeling out a possible business opportunity, I think there are better ways that offer less scrutiny. Also, as a business owner, let me warn you about doing business with your friends. As your friends delve into the world of investment clubs, they will surely come upon bivio, StockCentral, NAIC/Better-Investing, etc. They will learn that paying you goes against the grain of all our organizations and they will fire you. Its easier to replace clients and friends. > > > Lynn Ostrem, President > garbagecop@gmail.com > Crow River Investment Club > www.bivio.com/crowriver Hi Andy, Despite how easy it is to use bivio and prepare taxes, I do believe there are clubs out there that might hire someone to keep their bivio records for them. As others have advised, this would be a service that perhaps people might pay you a flat fee for. It would be a club expense. But, I also agree with the others that have said that as soon as you expect to be paid based on a percentage of the club profits, you are moving into an entirely different type of business. For all the reasons stated, I would agree that that approach is something that might create big problems for you if you don't pursue it correctly. -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Andy,
What kind of partnership would you consider recommending for your friends? If it's anything more than a general partnership, you will be setting them up to operate differently than 99.9% of all clubs in America. And, they will be incurring the additional cost of doing so. Whey would you want to do that to them? General partnerships generally cost $50 or less (for an assumed name certificate) plus the cost to publish the notice.
How much will you charge them for accounting? If it's more than $11/month, they can use bivio for less, not to mention have a webpage, message board, free webinars, etc. Plus. if some life event takes you away from the club, these non-financial, non-hands-on friends of yours will not be able to do the books. And are you capable of setting up the books to account for internal rates of returns, etc.? For less than $11/month? bivio is single-entry, accounting that any novice can use correctly. Plus it will do the taxes for free (included in the annual fee).
Further, the whole point of an investment club is for people to pool their time and talent to learn how to invest in the stock market (or for some clubs, real estate market). "Putting their money to a money manager" to invest wipes out the entire reason for having a club, in the first place. No one (but you maybe) will benefit from combining their funds - at least not more than each of them would investing as an individual.
What I'm trying to say is there is no benefit to these friends, as a group, that they cannot attain as individuals. Therefore, if you really are a friend, you should spare them the expense, and recommend they set up a social group, instead. Poker night, maybe. It would be about as much work, and certainly more fun. Probably would cost the same.
If it sounds like I'm trying to discourage you, I am. I don't believe you are a shyster trying to get one over on them, but I do believe you are leading them down the wrong path. The "teaching a man to fish" analogy plays well here.
What we learn early on about handling finances (be it balancing a checkbook or handling investments) tends to stay with us for a lifetime, and bad habits are very very hard to break. Enabling them to throw their retirements at someone else and not be personally involved is not helping them. Sorry, but this whole thing simply does not pass the sniff test.
You have obviously started doing your homework. You know more than they do now. If you really are a friend, teach them to fish. That's what clubbing is all about.
Lynn Ostrem, President
Crow River Investment Club
Yep! He is such a good teacher he does not even get any questions. Didn't you get the list he had of research sites a while ago and how did you add the list to your's? Jean
From: Lynn Ostrem <garbagecop@gmail.com> To: The Club Cafe <club_cafe@bivio.com> Sent: Thu, October 28, 2010 4:24:08 PM Subject: Re: club_cafe: Re: Investment Club Structure Andy,
What kind of partnership would you consider recommending for your friends? If it's anything more than a general partnership, you will be setting them up to operate differently than 99.9% of all clubs in America. And, they will be incurring the additional cost of doing so. Whey would you want to do that to them? General partnerships generally cost $50 or less (for an assumed name certificate) plus the cost to publish the notice.
How much will you charge them for accounting? If it's more than $11/month, they can use bivio for less, not to mention have a webpage, message board, free webinars, etc. Plus. if some life event takes you away from the club, these non-financial, non-hands-on friends of yours will not be able to do the books. And are you capable of setting up the books to account for internal rates of returns, etc.? For less than $11/month? bivio is single-entry, accounting that any novice can use correctly. Plus it will do the taxes for free (included in the annual fee).
Further, the whole point of an investment club is for people to pool their time and talent to learn how to invest in the stock market (or for some clubs, real estate market). "Putting their money to a money manager" to invest wipes out the entire reason for having a club, in the first place. No one (but you maybe) will benefit from combining their funds - at least not more than each of them would investing as an individual.
What I'm trying to say is there is no benefit to these friends, as a group, that they cannot attain as individuals. Therefore, if you really are a friend, you should spare them the expense, and recommend they set up a social group, instead. Poker night, maybe. It would be about as much work, and certainly more fun. Probably would cost the same.
If it sounds like I'm trying to discourage you, I am. I don't believe you are a shyster trying to get one over on them, but I do believe you are leading them down the wrong path. The "teaching a man to fish" analogy plays well here.
What we learn early on about handling finances (be it balancing a checkbook or handling investments) tends to stay with us for a lifetime, and bad habits are very very hard to break. Enabling them to throw their retirements at someone else and not be personally involved is not helping them. Sorry, but this whole thing simply does not pass the sniff test.
You have obviously started doing your homework. You know more than they do now. If you really are a friend, teach them to fish. That's what clubbing is all about.
Lynn Ostrem, President
Crow River Investment Club
Excellent information and educational to one and all. I agree.
Art Smith
From: club_cafe@bivio.com
[mailto:club_cafe@bivio.com] On Behalf Of Lynn Ostrem Andy,
What kind of partnership would you consider recommending for your friends? If it's anything more than a general partnership, you will be setting them up to operate differently than 99.9% of all clubs in America. And, they will be incurring the additional cost of doing so. Whey would you want to do that to them? General partnerships generally cost $50 or less (for an assumed name certificate) plus the cost to publish the notice.
How much will you charge them for accounting? If it's more than $11/month, they can use bivio for less, not to mention have a webpage, message board, free webinars, etc. Plus. if some life event takes you away from the club, these non-financial, non-hands-on friends of yours will not be able to do the books. And are you capable of setting up the books to account for internal rates of returns, etc.? For less than $11/month? bivio is single-entry, accounting that any novice can use correctly. Plus it will do the taxes for free (included in the annual fee).
Further, the whole point of an investment club is for people to pool their time and talent to learn how to invest in the stock market (or for some clubs, real estate market). "Putting their money to a money manager" to invest wipes out the entire reason for having a club, in the first place. No one (but you maybe) will benefit from combining their funds - at least not more than each of them would investing as an individual.
What I'm trying to say is there is no benefit to these friends, as a group, that they cannot attain as individuals. Therefore, if you really are a friend, you should spare them the expense, and recommend they set up a social group, instead. Poker night, maybe. It would be about as much work, and certainly more fun. Probably would cost the same.
If it sounds like I'm trying to discourage you, I am. I don't believe you are a shyster trying to get one over on them, but I do believe you are leading them down the wrong path. The "teaching a man to fish" analogy plays well here.
What we learn early on about handling finances (be it balancing a checkbook or handling investments) tends to stay with us for a lifetime, and bad habits are very very hard to break. Enabling them to throw their retirements at someone else and not be personally involved is not helping them. Sorry, but this whole thing simply does not pass the sniff test.
You have obviously started doing your homework. You know more than they do now. If you really are a friend, teach them to fish. That's what clubbing is all about.
Lynn Ostrem, President Crow River Investment Club On Thu, Oct 28, 2010 at 4:31 PM, jean howze <ajhowze@sbcglobal.net> wrote:
Sorry Jean. I didn't understand your post. I don't recall seeing any previous posts beyond the ones I responded to today. Were they under a different subject line? You say he posted a list of research sites awhile ago. I didn't see them.
What did you mean by, "how did I add the list to mine??" I haven't added to my club's website list for awhile. Please clarify. Thanks!
Lynn |
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