Do I need to be a broker?

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Apr 25, 2009 5:45 pm

Hey Guys,

You'll have to excuse me for this seemingly "noobish" question. As much as I like law (and arguing), all types of regulation just blow me out of the water. Not my area of expertise!

Anyway, I've made some successful plays in the stock market. Some of my friends are wondering if they could "give" me money, that I can put in the stock market, and grow for them. In return, I take a fee, etc.

This, by definition, is a stock broker. However, this isn't anything professional. It's just a soul proprietorship making money for friends, and taking a small cut of it. Before I do anything like this, do I need to become a licensed stock broker? Going through the test seems a little excessive. Everything would be under my name, I'd pay taxes on the gains, etc.

Hope this isn't too long, just wondering if I would be doing anything wrong before I do it.

Thanks in advance!

Apr 25, 2009 6:19 pm

Wow.  Do they have "secret shopper" FINRA regulators posting on here now?

Apr 25, 2009 6:37 pm

Uh, I'm confused. If I was trying to frame someone, wouldn't that be entrapment?

Anyway, I'm guessing by that comment what I was suggesting isn't a good idea?

Apr 25, 2009 6:53 pm

Oh Lord...where do you start with this?

Apr 25, 2009 6:54 pm

Series 65.

And abandon all hope, ye that invest here.


Apr 25, 2009 7:28 pm

How would the money get in your name?  Your friend writes a check to you and you deposit it into "your"account?  The IRS sees this and the sirens will be heard throughout Washington D.C. if this isn't reported as income for you.  Any bank deposits over $10,000 must be reported by the bank/brokerage firm to the IRS.

 
The SEC and FINRA isn't worried about entrapment, btw.  For all I know they encourage it.
Apr 25, 2009 7:46 pm

I'm thinking...if you can get your friends to hand over cash to put in your name, you are quite a salesperson. You'll do well if you go legit!

Apr 25, 2009 8:07 pm

If you are providing investment advice for a fee, you should register as an investment advisor and don't have to be a broker.



If you are taking possession of their funds, or custody, that's a big no-no.



You'll have to set yourself up as a registered investment advisor - assuming you'll have less than $25 million, you'll have to register at the state level, and not at the SEC level.



My opinion.... you are asking for liability beyond what you are prepared to truly accept, but, since there are no capitalization requirements to be a registered investment advisor, anyone can go through the motions.



C

Apr 25, 2009 8:53 pm
3rdyrp2:

How would the money get in your name?  Your friend writes a check to you and you deposit it into "your"account?  The IRS sees this and the sirens will be heard throughout Washington D.C. if this isn't reported as income for you.  Any bank deposits over $10,000 must be reported by the bank/brokerage firm to the IRS.

 
The SEC and FINRA isn't worried about entrapment, btw.  For all I know they encourage it.



It would be disclosed as personal income. I'd invest the money well, then return it later while keeping some for myself as well. All would be disclosed on taxes, but not contracts of any type would be signed. Neither would I be calling myself a "broker" or "adviser."

Apr 25, 2009 9:18 pm

Just how are you going about making these "plays?" Individual stocks (short, long), mutual funds, options?

 
There's a ton of experience on this forum, and I can assure you we're all waiting with bated breath to hear about how you've made money over the past couple years in the market.
Apr 25, 2009 9:31 pm
InvestorTester:

It would be disclosed as personal income. I'd invest the money well, then return it later while keeping some for myself as well. All would be disclosed on taxes, but not contracts of any type would be signed. Neither would I be calling myself a "broker" or "adviser."





I've heard some silly things over the years, but this has to be the dumbest way to invest money on behalf of another individual. Total mess.

Apr 25, 2009 9:33 pm

Why don't you just tell them to open online accounts and deposit their cash, they give you their passwords and let you trade for those accounts and then they pay you under the table.
That probably breaks only five or six laws, whearas your way you break about a dozen.



Apr 25, 2009 9:38 pm

I think I used to work with this guy.

Apr 25, 2009 10:45 pm
InvestorTester:
3rdyrp2:

How would the money get in your name?  Your friend writes a check to you and you deposit it into "your"account?  The IRS sees this and the sirens will be heard throughout Washington D.C. if this isn't reported as income for you.  Any bank deposits over $10,000 must be reported by the bank/brokerage firm to the IRS.

 
The SEC and FINRA isn't worried about entrapment, btw.  For all I know they encourage it.



It would be disclosed as personal income. I'd invest the money well, then return it later while keeping some for myself as well. All would be disclosed on taxes, but not contracts of any type would be signed. Neither would I be calling myself a "broker" or "adviser."



How old are you?

You sound like you know a lot about taxes, are you not a CPA, too?

Apr 25, 2009 10:47 pm

You could cut this down to 2-3 laws, and avoid some liability if you form an "investment club" where everyone deposits money under their own name and you are the only member with trading authority.

Charging a fee would still be illegal...

Apr 25, 2009 11:22 pm

I find it difficult to believe someone with such little skill in grammar and sentence structure can "make a few plays" and make money.


I believe you can be summed up in one word.  Clown.


Apr 25, 2009 11:43 pm
buyandhold:

Why don't you just tell them to open online accounts and deposit their cash, they give you their passwords and let you trade for those accounts and then they pay you under the table.
That probably breaks only five or six laws, whearas your way you break about a dozen

 
I was going to say the exact same thing.  How can we give advice to this person in a way that will cause them to break as few laws as possible (Since it will be impossible to do this without breaking at least one)?
Apr 26, 2009 12:47 am

Make him sign a non-something letter. Put it in your permanent file.

Apr 26, 2009 1:01 am

Who wants to be his compliance officer?


Apr 26, 2009 1:16 am

Wonderful forum you guys have going on here.

Terrific advice. I'm sorry I'm not some Finance geek. Sorry I've made money in the market too.

I guess it's just reserved for those with willful arrogance?