Help me figure out how to sell investment advice legally

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nobsinvestor
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Help me figure out how to sell investment advice legally

Post by nobsinvestor »

Hi All,

So I'm hoping to start a blog/website focused around boglehead-style investing but targeted towards my generation (I'm 24) who for the most part know absolutely nothing about investing, nevermind boglehead-style investing. I was hoping to be able to do private phone/skype consultations with any interested readers to help explain boglehead concepts and offer portfolio suggestions (based on the 3 fund portfolio and reasonable asset allocations) for a small fee. I won't be managing any assets or placing any trades- just giving advice for that small fee.

I found this old post by Alex Frakt from a 2010 thread where he says:

"If you are selling investment advice, you must become a Registered Investment Advisor. Since you are not interested in selling securities, the appropriate path is taking the Series 65 exam and then registering with your state (and eventually the SEC if the amount of interstate business you do passes certain thresholds)"

Does this mean that as long as I take the Series 65 and register in my state and with the SEC, I can offer fee-only advice to any number of clients anywhere in the US?

Thanks guys!!
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ThePrune
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Re: Help me figure out how to sell investment advice legally

Post by ThePrune »

I'm not surprised that folks have been hesitant to offer advice, since your question is fundamentally a legal one. Nevertheless I'll give you some guidelines on how to get at a valid answer to your questions.

First (and most importantly), you must take the time to learn about the securities and investment advisory laws that are specific to your state. Although it's true that most states more-or-less have adopted the Uniform Securities Act of 2002 as sponsored by the North American Securities Administrations Association, many states makes slight modifications to their version of the Securities Act. So take the time to locate your state's website for securities regulation and read everything thoroughly.

If you aren't familiar with the terminology and concepts associated with the Uniform Securities Act, Series 65 study materials will be immensely valuable. I used Pass the 65 and liked it, but I don't think that it is any way unique.

I would be shocked if your state didn't require you to be registered as a (single-person) Investment Advisory firm in order to offer individualized financial advice for a fee. I think that you'll discover that this is a much bigger hassle than you have envisioned. In many states there is an exemption from registration as an Investment Advisory firm when offering generic (non-individualized) advice in the form of a general circulation newsletter. Perhaps this might be a simpler route to follow!?. This comment also highlights the importance of carefully understanding the exemptions and exclusions associated with your state's version of the Uniform Securities Act.

Finally there is another, simpler route to helping people implement the low-cost index fund investment strategies that are espoused at this forum: Skip the Fee for Helping Them. Once again check your state's laws, but I think that you'll discover that your state's definition of an Investment Advisory firm requires "compensation" in order to be covered by the regulations. That's certainly the case in Michigan where I live. So here in Michigan I happily offer investing classes and retirement classes to the general public, collect no fee or compensation of any type for doing so, and don't fall under my state's definition of an Investment Advisor. And without compensation, you'll definitely fall outside the scope of the federal Investment Advisory Act.

Art
Investment skill is often just luck in sheep's clothing.
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Watty
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Re: Help me figure out how to sell investment advice legally

Post by Watty »

There is another separate issue because even if you follow all the rules and are doing it legally you could still be sued for the advice that you give if they get a bad result. Even if the lawsuit is unlikely to win you could still be stuck with some large legal bills.

It is likely harder to do than it sounds but you might try selling advertisements on your blog and writing books. The problem with getting a large following on a blog like that though is that one someone understands a few basics then they have little reason to keep reading the blog.
mikemath
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Re: Help me figure out how to sell investment advice legally

Post by mikemath »

So you want to charge people to essentially tell them to invest in Vanguard index funds? That's not cool.
Tanelorn
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Re: Help me figure out how to sell investment advice legally

Post by Tanelorn »

mikemath wrote:So you want to charge people to essentially tell them to invest in Vanguard index funds? That's not cool.
Lots of advisors out there charge clients and tell them to invest in arguably much worse products. Is that more "cool" in your book or do you think he should work for free?
pobox2001
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Re: Help me figure out how to sell investment advice legally

Post by pobox2001 »

Suppose it was more as an educational service. Let them know how markets work, the value of holding bonds in a portfolio (and some tools for them to use to determine the right amount of bonds for their risk tolerance), the benefits of indexing, tax efficient placement of investments in a portfolio.....etc. You wouldn't say, "I recommend you invest x% in this fund and y% in that one." But you would teach them how to determine it for themselves. In effect they are paying you for a "Principals of Investing" class.
mikemath
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Re: Help me figure out how to sell investment advice legally

Post by mikemath »

Tanelorn wrote:
mikemath wrote:So you want to charge people to essentially tell them to invest in Vanguard index funds? That's not cool.
Lots of advisors out there charge clients and tell them to invest in arguably much worse products. Is that more "cool" in your book or do you think he should work for free?
My point was, why not direct people to this forum instead? Isn't it the next best thing after the Internet?
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Watty
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Re: Help me figure out how to sell investment advice legally

Post by Watty »

mikemath wrote:So you want to charge people to essentially tell them to invest in Vanguard index funds? That's not cool.
A one time fee to get people on the right track could be a very valuable service so there is nothing wrong with that.

Off and on there have been a number of posts about people without dependable relatives trying to figure out how to have there funds managed if they become unable to manage their own affairs when they get older or if they have health problems when they are younger. I don't recall there being a real good answer on how to do that since most lawyers and accountants would charge a high price to do that.

There might be a niche market for Boglehead type financial managers that manage peoples affairs when they can't but it would take some careful calculation to make sure that you were making a good enough living doing that.
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kwyjibo
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Re: Help me figure out how to sell investment advice legally

Post by kwyjibo »

nobsinvestor wrote: Does this mean that as long as I take the Series 65 and register in my state and with the SEC, I can offer fee-only advice to any number of clients anywhere in the US?
Not exactly. When you register in your state you can offer advice to any number of clients in your state. Every client you have in another state will be regulated by the laws of that other state (not yours). Some states don't make you register with that state until you have a certain number if clients (I think 5) in that state as long as you are registered in your home state, but other states require you to register as soon as you have 1 client. Once you have clients in enough states (I think 20) then you can register with the SEC and you won't have to register in every state.

If you look into the series 65 exam study guides mentioned above those should cover the rules better than my memory. The majority of the series 65 exam is laws, rules, and regulations.
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ThePrune
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Re: Help me figure out how to sell investment advice legally

Post by ThePrune »

kwyjibo wrote: Once you have clients in enough states (I think 20) then you can register with the SEC and you won't have to register in every state.
Recent rules changes (in 2010 I think) have changed the dividing point for Investment Advisory supervision between states and the SEC to $100 Million of assets under management (AUM). Basically the Feds no longer want to directly deal with you unless you are a larger supplier of investment advice.
Investment skill is often just luck in sheep's clothing.
epitomist
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Re: Help me figure out how to sell investment advice legally

Post by epitomist »

When I was a computer consultant, I made the mistake of targeting small businesses as customers. I quickly learned that if a small business writes you a check for $200, they think you owe them your first born son. Later I learned that if you're dealing with a medium sized business that if they write you a check for $10,000, they think you owe them your first born son.

It was about 15 years ago that I realized that when dealing with a large organization (i.e. publicly traded) and they write you a check for $249,999 they don't even care if the project works out.

The main point here for you is why in the world would you start a business targeting someone who has absolutely no interest in your product and has no money to pay for it and will likely be a tremendous hassle to you?

My secondary point is regarding your qualifications. What qualifications do you have to speak on behalf of boglehead investing methodology? My advice to overcome this is to write a few books first. Give them away and establish yourself as an expert in the field. The first thing I think of with someone in your position is that they are probably an expert on their own financial situation which doesn't come close to making them an overall expert on finances.
inbox788
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Re: Help me figure out how to sell investment advice legally

Post by inbox788 »

epitomist wrote:The main point here for you is why in the world would you start a business targeting someone who has absolutely no interest in your product and has no money to pay for it and will likely be a tremendous hassle to you?

My secondary point is regarding your qualifications. What qualifications do you have to speak on behalf of boglehead investing methodology? My advice to overcome this is to write a few books first. Give them away and establish yourself as an expert in the field. The first thing I think of with someone in your position is that they are probably an expert on their own financial situation which doesn't come close to making them an overall expert on finances.
Exactly! I compare personal finance to weight loss. It's well known that diet and exercise are the key to successful weight loss, but instead, we have the fad of the week, be it a device, program, DVD, gym, etc. ultimately both are hard for typical people, especially those who need help. Your message or service, no matter how good, is going to get lost in the noise of the industry. And in both, there are plenty of quacks that have figured out how to make money, who are going to be far better at advertising, sales and marketing of their goods than you'll ever be. And even if you're able to recruit someone needing your help, your odds of success are slim.
TN_INVEST
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Re: Help me figure out how to sell investment advice legally

Post by TN_INVEST »

nobsinvestor wrote: Does this mean that as long as I take the Series 65 and register in my state and with the SEC, I can offer fee-only advice to any number of clients anywhere in the US?
Thanks guys!!
I'm pretty sure you will need to take the 65 & register with any state that you have clients as a Registered Investment Advisor before you can charge folks for advice. Most states don't require you to pay registration fee until you get a few clients in that state (not always the case with all 50 states).
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