Every 100 posts or so I try to look back and think about where we have been.? At the last century mark, things were very different.? I was employed, though I wondered about the staying power of my firm.
Since then, I have spent time with the staff of the Congressional Oversight Panel regarding AIG.? They used a decent amount of my work in their report.? I have also spent some time talking with regulators, congressional staff, over a variety of things that I write about.? Proximity to DC helps.
Proximity to DC also allowed me to attend events at the Cato Institute, American Enterprise Institute, and Heritage Foundation.? I must admit that I was generally disappointed by what I saw there.? I am basically a libertarian, but one that appreciates that there are some areas that is impossible to be “hands off,” places where average people can’t accurately estimate the deal that they are entering into.? Also, many of the problems of our society are more complex than dealing with tax, spending, and regulatory policy.? In many cases social issues would have to be solved for the economic issues to be solved.? But politicians tiptoe around such matters, because they are not willing to risk their careers without any significant chance of reward.
Since the last century mark, I wrote the “Education of a Corporate Bond Manager” series, and added to my “The Rules” series.? I also appeared on StockTwits TV, interviewed by the estimable Tadas Viskanta.? A half hour never moved so fast.
One more change for? me.? Though I still work from home, I now have an office in my home.? Two of my children moved out, and after shuffling around the remaining five children as they would like it, I ended up with the small room that allows me to concentrate better while my wife homeschools.? I like it a lot, but I miss being able to comment on history, science, and math.? That said, I am guiding the oldest remaining through Calculus.
In terms of new things for the blog, I was sad when my old WordPress format broke and I could not fix it.? I like the new format, and that it loads fast.? I will be doing a lot of book reviews in the near term, and I will be adding a new page to summarize my book reviews by category.? Let me know if you like it, of if it is wasted effort.
I am also looking to do a few small blog fixes to increase contrast, type size, and add a print article option.? I am open to other ideas for improvement, so please comment, and I will consider it.
Changes for David
I have settled on setting up my own asset management shop.? I will manage separate accounts, including services to help minimize taxation.? I will only be managing equities, though I will offer the equities two ways: long only and fully hedged, where I sell futures contracts against the equities, to eliminate market exposure.? My next steps are:
- Incorporate as an LLC in Maryland.
- Set up my RIA.
- Set up an arrangement with a clearing broker, who will provide brokerage, custodial and client communications services.
- As things get close to being set up, I will talk with those who have expressed interest in the past.
A question to readers already providing separate account management services.? Is there anything material that I have left out here?? If so, would you e-mail me?
My initial minimum is likely going to be $100,000.? Fees will be 1%/year for accounts below $1 million, and slide down from there.? I have some preliminary marketing documents available for discussion purposes only.? E-mail me if you might have interest.? Please understand that all figures in the documents have not been audited.? That said, those that evidence serious interest can look at all of my account statements over the last 10 years, and receive an Excel file that reconciles all of the results to the penny.
Now I may get my track record audited when I get big enough, or if enough people tell me that I have to do it.? I am reluctant to do it before I know that I have a sustainable business.? The auditors charge a lot for what they do, and personally, I’m not sure I would trust the non-forensic audits that they do.? So you tell me, do I need the audit?
Later, once I get going, I would look to set up a mutual fund for smaller accounts, perhaps by buying up the management contract for a failed mutual fund, and using the tax losses to shield initial income for my shareholders.? There are also cheapish ways to set up a series trust for those that want to start a new mutual fund.? I would try those if I can’t recycle an old mutual fund.
So if you have interest in learning about what I am up to, you can e-mail me here.? Beyond that, I live near Baltimore and DC.? If you have a significant interest we can meet.? I will also be in NYC the third week of October, and am available to meet people then, and in Denver the second week of November? for similar meetings.
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Finally, as I always do, I want to thank my readers and commenters, even those that disagree with me.? You make my blog a richer place, and I am grateful that you take time to consider what I think.? I write my blog primarily as a means of giving back for all of the good that I have received in society; I hope and pray that it benefits you a lot, and that God would bless you in all matters.
Sincerely,
David
PS — By the way, do I need to take the series 65 exam?
Series 65: It depends. If you are are going to be acting as an adviser in a FINRA-member firm, then yes, otherwise no. The Series 65 is the uniform examination for IARs (Investment Adviser Representatives), meaning that you are a representative of a FINRA-member firm. If you don’t have a U4, then you don’t need to take the 65. As an RIA you don’t have to be a representative of a BD, and you probably don’t want to. Giving up the representative status removes a GIGANTIC compliance burden from your shoulders, but it also means any FINRA designations you had previously will start the countdown towards expiry (2yrs). I am in the midst of helping someone transition from a wire-house to an RIA and after spending the last 6 years at an IBD with relatively relaxed compliance atmosphere, I can tell you that being a representative of a FINRA-member firm makes life miserable and eats most of your earnings.
It would only make sense if you were trading a lot of FI and wanted to act as dealer, or if you were planning to act as broker without having fiduciary duty to the client (which I can’t imagine or condone).
As for the RIA, the paperwork is not that bad and you should be able to do it yourself if you get the package from RIA in a Box (good service, bad name). Just remember, get for Form ADV ready and you start with zero assets and you just keep-on amending it as you need to. Hopefully the rules will change and the AUM requirements will rise and you wont need to register with the SEC.
Did you pick your broker yet? I’ve worked with a lot of them and can offer this:
Pershing LLC – they are coming up fast, they are hungry and they are aggressive. They are out to win it and are really investing in technology and service to make their platform the best. (no futures AFAIK, though)
Interactive Brokers – Simple, flexible and cheap. They support futures, including SSFs (even in RIAs!). I’m a fan, although there is some slippage in the futures and their order-cancellation fee always irks me. Negative cash yield sucks, but margin rates are better than anyone else’s. All in all a good platform if you rarely need to talk to a person. Portfolio margin is also nice to have, and their all-electronic platform for RIAs is pleasant to use.
TradeStation – It’s not just for chartists. It’s actually a nice platform to use, their software is top-notch in quality and really pleasant to use. their back-testing tools are amazing and they are decently priced if your volume is high enough. A solid company with great technology.
TD Ameritrade – It’s all there, but i’m not that impressed. their “think or swim” software is all sleek looks. it doesn’t hold a candle to IB or TS, not as many products either. It’s kind nice that you get credit suisse research, though.
whoops, when talking about Ib and SSFs i mean that you can even use futures in IRAs (as in retirement accts). this acronym alphabet soup got me mixed up!
and another correction, yikes. someone just clarified it for me, you MIGHT need to take the 65, even if you are not registered with a BD. Apparently I was thinking of the 66 (65+63). I say MIGHT because some states will waive the requirement for holders of the CFA designation (so you’d qualify). So it depends on your home state and maybe the states you have 5+ clients in.
It’s no big deal, though. I took the 66 and it really only took like 2 weeks of preparation. (a little every day after work), so I would imagine the 65 would take about as long. Just remember you have to do it after your U4 but before your U10. so you need to form your RIA, then U4 yourself, then take the test (if you need to)