Indy Liabilities

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Feb 10, 2010 11:59 pm

I was working for an small independent firm from '04 till end of '08, and am thinking about starting up my own place. Can someone please give me a brief rundown about liabilities of my LLC - DBA vs. the BD in case of arb and other key risks that are involved?



On another note... since i haven't worked in '09 - i don't have any trailing 12... i can prove significant gross for prior years and also have a nice business plan. Any ideas to what type of BD i should look for, or specific firms?

Feb 11, 2010 9:06 am

What has he/she been doing for the last year?

Feb 11, 2010 12:10 pm

my old BD was giving me 50-60% payouts. i want to run my own place - not BD - but DBA - hire my own ppl, have my own co' name etc...



My question is what type of liabilities does my DBA have. Say if i higher a trainee and he recommends to some old lady to buy 100k of some penny stock, she looses it all, etc... he is licensed with the BD not me, but do i + my DBA have any liabilities?



Feb 11, 2010 12:12 pm

First half of year, i was studying for the Level III CFA exam, which thank g-d i passed. and the second half of year, i was doing a real estate project that i just completed.

Feb 11, 2010 12:12 pm

If you are OSJ'ing him, it's on you. 

Feb 11, 2010 12:18 pm
ahrelep:

First half of year, i was studying for the Level III CFA exam, which thank g-d i passed. and the second half of year, i was doing a real estate project that i just completed.

 
FYI, God is not a swear word.
Feb 11, 2010 1:07 pm
ahrelep:

my old BD was giving me 50-60% payouts. i want to run my own place - not BD - but DBA - hire my own ppl, have my own co' name etc...



My question is what type of liabilities does my DBA have. Say if i higher a trainee and he recommends to some old lady to buy 100k of some penny stock, she looses it all, etc... he is licensed with the BD not me, but do i + my DBA have any liabilities?





First of all, I'm not exactly sure how that would work.  Do you feed him the weed? 

Second, yes you have liability!  Why wouldn't you? 

It sounds like you don't want to "run your own place" either.  DBA does not mean you will be running your own place.  I know a guy who works for Met and has his own DBA.

Feb 11, 2010 1:19 pm
SometimesNowhere:
ahrelep:

First half of year, i was studying for the Level III CFA exam, which thank g-d i passed. and the second half of year, i was doing a real estate project that i just completed.

 
FYI, God is not a swear word.

Feb 11, 2010 1:50 pm

i thought this board was helpful... forget the stupid details! Is there anyone with some knowledge, kind enough to give me a brief rundown on how a BD - DBA relationship works in regards to liability. Please.

Feb 11, 2010 2:02 pm
ahrelep:

i thought this board was helpful... forget the stupid details! Is there anyone with some knowledge, kind enough to give me a brief rundown on how a BD - DBA relationship works in regards to liability. Please.

 
Again, will you be OSJ'ing him?
Feb 11, 2010 2:33 pm

i would open a office in NYC... BD would be in say NE... my office will higher 20 new brokers - in same office - my office. my guys get paid and do trades via BD but use my DBA - my co' name , my letter head etc. i take override - so if BD pays 90% cm, i give employees 65%. after my costs, i plan on making some % of the difference. my question is, these 20 employees... if they f up, what consequences does my operation have vs. the BD. IE - if one guy screws up - arb - gets fined 200k - the guy bounces......?

Feb 11, 2010 2:38 pm
ahrelep:

i would open a office in NYC... BD would be in say NE... my office will higher 20 new brokers - in same office - my office. my guys get paid and do trades via BD but use my DBA - my co' name , my letter head etc. i take override - so if BD pays 90% cm, i give employees 65%. after my costs, i plan on making some % of the difference. my question is, these 20 employees... if they f up, what consequences does my operation have vs. the BD. IE - if one guy screws up - arb - gets fined 200k - the guy bounces......?

 
Are you going to learn English as a second language first?
Feb 11, 2010 2:39 pm

Let me ask another way...WHO will be their OSJ, YOU or someone else?  If you don't know what an OSJ does, chances are it's not going to be you.  THAT will help decide who gets dinged for mistakes.

Feb 11, 2010 2:47 pm

Im not sure what an OSJ does.. i was thinking about calling a company like harbor, commonwealth etc. and open a dba like myname financial llc.

Feb 11, 2010 2:56 pm
ahrelep:

Im not sure what an OSJ does.. i was thinking about calling a company like harbor, commonwealth etc. and open a dba like myname financial llc.

 
Don't.
Feb 11, 2010 2:59 pm
Short answer yes you are liable.
You will purchase E&O insurance to cover some of this liability.
 
You need to speak with whatever firms you are considering to see what they require to set up what you are looking for.
 
You will more then likely need to get you S24 to OSJ your brokers.
Contact LPL and tell them what you want to do and get a better understanding of what it takes.
 
Not sure if you current business model will be that attractive in this environment and if you are giving enough value to prospective employees who would give up a significant % to work for you.
 
Will you charge one FA more because he has more AUM then the guy in a same sized office  with less AUM.
Are you paying for all office cost, assistants, recpetionist, benefits, employer taxes, paper, copiers, phones, computers, insurance, power, cable, internet, monthly phone lines, billing software, performance reporting, planning software, crms, pens, shredd-it box, water cooler, printers, ink, toner, postage machine, enevelopes, postage, cam fees, etc, etc, etc
 
Not trying to talk you out of anything, there is enough people here that will fill that role just suggesting you consider all varaibles prior to determining your business model
Feb 11, 2010 3:01 pm

Are you serious, or are you just fukcing with us?  No offense, but if you have big plans to raise $20mm in AUM in year 1, hire 20 guys, and DON'T know what an OSJ does yet, you might want to order one of those "where to start" brochures from one of the indy firms mentioned above.

 
An OSJ stands for "Office of Supervisory Jurisdiction".  The OSJ is responsible for, among other things, reviewing and approving trades, supervise registered reps, maintain supervisory procedures, maintain books & records, approval of marketing, etc.
If you are not going to get registered to be an OSJ, you will need to be OSJ'd under another OSJ.  Someone has to be the OSJ.  But you will also pay a fee to the OSJ to be OSJ'd.  Typically, if you affiliate with an indy B/D, you will work under another indy offices' OSJ if you can't/don't want to do it yourself.  If you are going to have 20 RReps under you, you might want to think about being your own OSJ.
 
AND, if you are the OSJ, then yes, you are responsible for their actions.
Feb 11, 2010 3:03 pm
ahrelep:

First half of year, i was studying for the Level III CFA exam, which thank g-d i passed. and the second half of year, i was doing a real estate project that i just completed.


You just passed the level III and you don't know even the most basic things about legal entities?  I guess that explains alot about how our mutual funds are performing! 
 
OK, now that I got that out of my system, if you establish a DBA you will be a sole proprietor.  That means there is no corporate shield, DBA simply means Joe Blow doing business as Cheesy Investments.  If you employ someone and they screw up, liability falls back on you.  If you form a legal entity (LLC, C Corp, S Corp, LTD), the legal entity is the one doing the hiring, and is the one on the hook.  If you have no assets to go after in the LLC, most attorneys wont bother suing you.  The legal entity shield has been pierced by courts in the past, particularly in sole owner companies, but it adds a layer of protection.
 
That being said, I AM NOT A LAWYER, SO DON'T CONSTRUE THIS AS LEGAL ADVICE. 
Feb 11, 2010 3:09 pm
joelv72:
ahrelep:

First half of year, i was studying for the Level III CFA exam, which thank g-d i passed. and the second half of year, i was doing a real estate project that i just completed.


You just passed the level III and you don't know even the most basic things about legal entities?  I guess that explains alot about how our mutual funds are performing! 
 
OK, now that I got that out of my system, if you establish a DBA you will be a sole proprietor.  That means there is no corporate shield, DBA simply means Joe Blow doing business as Cheesy Investments.  If you employ someone and they screw up, liability falls back on you.  If you form a legal entity (LLC, C Corp, S Corp, LTD), the legal entity is the one doing the hiring, and is the one on the hook.  If you have no assets to go after in the LLC, most attorneys wont bother suing you.  The legal entity shield has been pierced by courts in the past, particularly in sole owner companies, but it adds a layer of protection.
 
That being said, I AM NOT A LAWYER, SO DON'T CONSTRUE THIS AS LEGAL ADVICE. 
 
Joel, this is for a simple business.  However, it extends beyond that in our industry.  He really needs to look at the OSJ issue. 
Feb 11, 2010 3:15 pm
B24:
joelv72:
ahrelep:

First half of year, i was studying for the Level III CFA exam, which thank g-d i passed. and the second half of year, i was doing a real estate project that i just completed.


You just passed the level III and you don't know even the most basic things about legal entities?  I guess that explains alot about how our mutual funds are performing! 
 
OK, now that I got that out of my system, if you establish a DBA you will be a sole proprietor.  That means there is no corporate shield, DBA simply means Joe Blow doing business as Cheesy Investments.  If you employ someone and they screw up, liability falls back on you.  If you form a legal entity (LLC, C Corp, S Corp, LTD), the legal entity is the one doing the hiring, and is the one on the hook.  If you have no assets to go after in the LLC, most attorneys wont bother suing you.  The legal entity shield has been pierced by courts in the past, particularly in sole owner companies, but it adds a layer of protection.
 
That being said, I AM NOT A LAWYER, SO DON'T CONSTRUE THIS AS LEGAL ADVICE. 
 
Joel, this is for a simple business.  However, it extends beyond that in our industry.  He really needs to look at the OSJ issue. 

I understand the simple business concept, but it is not hard in most states to form an LLC to do business.  You can do it online yourself or an attorney would charge about $1,000.  And you are spot on on the OSJ deal.  For one, dont you have to sit for the S24 to be your own OSJ?  Also, for a start up, the compliance headache would really put a kibosh on production in the beginning....