I would jump ship if it’s something you truly want to do. I don’t think you can do it on the side for reasons mentioned above.
This sounds exciting and I’ve considered doing something similar but I hesitate due to the high risk of the market turning. I’ve also heard you should never mix business with family/friends, as mlwl stated.
Best of luck in your decision, either way it sounds like you’re doing well in your career.
Before he contacts a lawyer he should contact the CFAI to make sure it’s not an ethical violation.
As crass as this sounds, I feel like I should clarify something. When people say that, they usually mean “it’s not good for your relationships” but what I meant was “it’s not good for your business”.
I’ve never started an RIA but I imagine it’s as much if not more paperwork than starting a hedge fund. You have no idea how much paperwork there is. It is endless. I have a very skilled CFO who has been doing this for 15 years and it is absolutely a full-time job for him, and that’s with 15 year relationships already in place with the best service providers on Wall Street. Marketing is also a full-time job for most funds. PM is full-time. Research is full-time. It would be too much work for two guys full-time, let alone 10-20 hours a week. Mang, we work like 15 hours a day and we can barely get it done with the A-team. No chance if you have a crazy full-time job already.
This stuff is also really absurdly expensive. The legal costs are $100K+ alone right out of the gate. Data costs are over $100K a year. A decent office is six figures a year. Most service providers won’t touch you if you are below a certain asset level, and it’s hard to raise money if you’re two guys with a scottrade account even if you have friends and family already lined up. I put up $500K personally just to get the business off the ground with a 4 person team.
Quit and do it full-time if that’s what you want or don’t do it, but those are the only realistic choices.
Thank you everyone for the input, seems like people have some very strong feelings on the subject! An RIA can believe it or not can be set up for 10k. Met with legal after work and got the greenlight. If my desk head has time, will be speakig with him tomorrow about the idea. He is a super understanding guys and always advocates to protect yourself as our ranks have been purged as S&T slowly dies, so hopefully it goes well tomorrow!
Good luck! Keep us posted.
You should always consider being an RIA for the new market place lenders like LendingClub. This I’m sure will be a growth area and I only know of a couple that currently exist.
how does that work^
i also think an RIA makes a lot of sense because of all the rich baby boomers retiring or planning ot retire.
freaking huge market
I actually smirked at my computer screen when I read this. While his numbers are a bit high for my tastes, the point still stands, especially that thing about Scottrade. It costs me less than $1,000 to set up my RIA because I did everything myself.
DO NOT GO THE SCOTTRADE ROUTE IF YOU WANT TO BE TAKEN SERIOUSLY. I learned that the hard way so you didn’t have to.
Schwab and other discount brokerage firms demand at least 10M AUM or else they charge you a $2500/quarter penalty. That means you need to have $20M committed before you open shop. Where’d I get that 20M figure from if the minimum is 10M? I’m assuming half the people are gonna bitch out on you when the time comes because
the market turned and spooked them
they had a change of heart because you’re no longer at a fancy office with an army of secretaries and state-of-the art technology.
They want to do it but their wives wont let them
Exactly.
You can set up a hedge fund for $10-20K. Cool, you are registered in Delaware and some barely passable offering docs. Seems legit.
In reality, you need to have a real setup to attract money. Maybe an RIA is different but I assume if you are taking money from individual investors then the regulators are all over this like a bad habit with massive paperwork requirements.
It’s just very difficult to launch without scale these days. I decided I wouldn’t do it for less than $50 million of assets already lined up and in writing. You could do it with less, but then you would have to cut corners and settle for subpar service providers. It would really suck to have someone walk away because you didn’t have the right admin / auditor / prime broker, but I’ve seen that happen. You also get a lot of flak when marketing – “Call me when you are a $50 million fund”. Awesome, who should I call before then? People just don’t want to invest in tiny funds, there is too much liquidity and continuity risk.
Even if you clear those hurdles, what is your edge as a really small fund? Maybe you have one, but if you spend your whole day filling out paperwork and dealing with regulatory crap, probably you don’t.
Just to illustrate all this, one of my best friends runs a $10 million fund. He is a rockstar with performance in the top 1% of all hedge funds over a 4 year time period with low net exposure. The numbers are eye popping. Can’t raise money, can’t get scale, business is a slow grind. Perfect background check, very presentable, etc. but just too small to get anywhere with real capital providers.
This is an example: https://www.lendingrobot.com/#/ They basically either let you make decisions via their platform or use their suggestions. And they get paid based on the assets you invest via their service.
From news article:
One such company is LendingRobot, an automated investment service for online lending on the two leading P2P platforms, Lending Club and Prosper. The Seattle, U.S.-based startup has just raised approximately $3 million in a Series A round led by European VC Runa Capital, money it’ll use to further develop its product and to ‘accelerate’ growth.
The problem that LendingRobot has set out to solve is an interesting one, and shines a little light on the way P2P lending has already matured. Using what it calls “high-speed automation software and machine-learning algorithms”, the service helps investors automate the lending process, based on pre-selected criteria, so that LendingRobot is able to select and invest in loans less than one second after they become available.