Pabrai/Buffett partnership fee structure

[longlake95]

bad idea, if you accept fees, you are in business - therefore you must register. You should consult a securities lawyer for more information.

LL

[Gregmal]

I don't know how it is in Canada(frankly it sounds like a fucking nightmare) but one of the main reasons I haven't moved to an outright fund structure(Im in the US) is all the crap that is required in regards to regulatory, legal, audit, etc; that for a small shop, is an outright burden and waste of time.

 

Why deal with that when you can just run SMA's or even, worst case, just management funds for someone in an unofficial capacity? It sounds like the person who wants you to manage their funds admires your ability. It also sounds like there is an element of trust. So the easiest path IMO(with those things assumed to be accurate) is to just have him cut you a check to cover first year costs and fees. Then manage the account which would already be setup in his name. And then just settle up on a quarterly/semi annual basis.

 

Set up an LLC and call it a consulting business. Then you can even start tallying official business expenses as well. Many ways to get around the bullshit

[returnonmycapital]

I don't know this for sure but I don't think there is anything wrong with managing a family member's brokerage account as a "trading authority." But as LL writes, as soon as you take remuneration, you are deemed a professional, an adviser and therefore subject to regulation/registration requirements.

 

It doesn't matter what kind of way you manage (through a fund or SMAs), it is the taking money for it that counts. I'm not even sure you could manage a fund at zero fees without being registered as you might have arm's length investors in the fund (i.e. non family). I imagine that the regulators wouldn't allow you to manage money for arm's length investors without registration, even at zero remuneration.

[longlake95]

sure, you can manage your rich Uncle's account, your wife's account and your neighbors account for free. But, in Ontario, and Canada generally, once you are: " in the business of trading, advising and dealing in securities" you need to register. Full stop. Consult a securities lawyer.

 

LL

[ValuePadawan]

Ya I have an appointment with a lawyer relatively soon thanks for the info I'll be sure to ask about all this with them and make sure I stay well within the legal lines. I appreciate it so much!

[longlake95]

if you get a different answer, i'd be happy to hear what your lawyer says.

 

LL

[Cardboard]

The lawyers will always tell you to protect yourself to the nth degree and run you a huge bill in the process. This entire thing is claimed to prevent investment fraud and it does but, I guarantee you that the largest outcome is to protect so called portfolio managers and their 6 figure salaries.

 

I would setup a corporation or a general or a limited partnership between the two of you with a good contract. If there is no complaint you will never hear from regulatory people. Think about it. How many people do that for real estate or other business where there is a money contributor and a manager being compensated for his or her work?

 

It is all about the relationship between the two of you or what happens if things go wrong investment wise, various disrupting life events, etc. and please don't underestimate that possibility.

 

Cardboard

 

[mcliu]

The lawyers will always tell you to protect yourself to the nth degree and run you a huge bill in the process. This entire thing is claimed to prevent investment fraud and it does but, I guarantee you that the largest outcome is to protect so called portfolio managers and their 6 figure salaries.

 

I would setup a corporation or a general or a limited partnership between the two of you with a good contract. If there is no complaint you will never hear from regulatory people. Think about it. How many people do that for real estate or other business where there is a money contributor and a manager being compensated for his or her work?

 

It is all about the relationship between the two of you or what happens if things go wrong investment wise, various disrupting life events, etc. and please don't underestimate that possibility.

 

Cardboard

 

It's pretty insane how big the regulatory differences are between managing an investment pool and managing a real estate corporation/private-mortgage lender.

 

One issue with a corporation may be the higher taxation of passive income, especially from the foreign interest/dividends.

[gurpaul88]

sure, you can manage your rich Uncle's account, your wife's account and your neighbors account for free. But, in Ontario, and Canada generally, once you are: " in the business of trading, advising and dealing in securities" you need to register. Full stop. Consult a securities lawyer.

 

LL

 

This.

[investmd]

Ya I have an appointment with a lawyer relatively soon thanks for the info I'll be sure to ask about all this with them and make sure I stay well within the legal lines. I appreciate it so much!

ValuePadawan, once you've seen a securities lawyer, please do update this post - would like to know outcome of discussion. Thanks

[ValuePadawan]

Ya I have an appointment with a lawyer relatively soon thanks for the info I'll be sure to ask about all this with them and make sure I stay well within the legal lines. I appreciate it so much!

ValuePadawan, once you've seen a securities lawyer, please do update this post - would like to know outcome of discussion. Thanks

 

So I spoke with a lawyer and they recommended since it is just investing for the one family member, I draw up a simple contract outlining performance fees to be calculated once a year and charge them an advisory fee based on that. Seems like the simplest idea won out and I'm going to get that done in the coming weeks and start managing some of their money.

[Guest oakwood42]

Do you care to share your results over this period?

 

My information is all public. You can find anything you need with Google.

 

great website!

[Guest oakwood42]

Ya I have an appointment with a lawyer relatively soon thanks for the info I'll be sure to ask about all this with them and make sure I stay well within the legal lines. I appreciate it so much!

ValuePadawan, once you've seen a securities lawyer, please do update this post - would like to know outcome of discussion. Thanks

 

So I spoke with a lawyer and they recommended since it is just investing for the one family member, I draw up a simple contract outlining performance fees to be calculated once a year and charge them an advisory fee based on that. Seems like the simplest idea won out and I'm going to get that done in the coming weeks and start managing some of their money.

 

Thanks for the update ValuePadawan.