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Let's say that a friend or two wants to give me x amount of dollars and asks me to invest in things. I charge them a fee or percentage even though I have no license to be a financial advisor or stockbroker etc.. Is this legal?

Edit: Of course, I forgot to add the country. This pertains to the US, US friends, dealing with any securities a US citizen can trade. Also, this I think would have to be under my account (e.g., with Scottrade) for risk of impersonating my friends.

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    You will need to add the country/state where you propose doing this for anyone to have a chance of answering.
    – TripeHound
    Jul 21 '17 at 6:39
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    It depends on what you are trading, with their money, and under what contract you accept their money. Read the US' Securities Act of 1933, you might be surprised at all of the exceptions.... but in other countries like the UK, I've heard horror stories for much less indiscretions. And although the following statement undermines the "rule of law", the reality is that the consequences guide the compliance, so figure it out.
    – CQM
    Jul 21 '17 at 7:53
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    Many countries disallow such financial arrangements without proper qualifications so the answer is highly dependent on your resident country.
    – DumbCoder
    Jul 21 '17 at 8:25
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    Beyond legality, I would be very, very wary of doing this. If you make a poor investment [either through lack of research or simple luck going against you afterwards], would you still be able to maintain a friendship with these people? This has the potential to put a severe strain on your relationship as any losses they experience may become 'your fault' in their eyes. Jul 21 '17 at 12:37
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    Where I live even doing it for free is illegal if you are not registered properly with securities regulators.
    – ApplePie
    Jul 21 '17 at 19:33
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In the US, illegal.

Giving free investment advice (opinions) is really hard to get arrested for. Might lose you a friend, but nothing that would get cross-wise with the Securities and Exchange Commission. That said, I would never put those opinions in writing.

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    You can easily get arrested for giving free investment advice, if that advice is based on insider knowledge.
    – Mike Scott
    Jul 27 '17 at 18:37
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    well sure, you can get arrested for acting on insider knowledge yourself, regardless of sharing it. The original question was charging someone a fee for investment advice; nothing about the question involved insider trading.
    – rocketman
    Jul 28 '17 at 17:36
  • That's true, but comments here should be truthful statements in their own right, and not merely when considered in the context of the question.
    – Mike Scott
    Jul 29 '17 at 8:15
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I believe it is legal. Here in the US, there is the Investment Advisor Act of 1940. It says that if you are an investment advisor you need to be registered. You are only considered an investment advisor if you charge for your advice. So if you are doing this free, this act does not apply.

In your case, you are charging and therefore you would be considered an investment advisor. However, if you have only a few clients and no place of business you may not have to register. There is a de minimis exception. The details of this exception is very important and you need to understand them to see if they apply to you. However, you still need to follow the rules of the Investment Advisor Act of 1940.

Under the act, if you elect to hold their funds in your name then there are some rules you need to follow. Most investment advisor's do not take custody of client's funds.

Also being an investment advisor has other rules to follow related to records. Do you plan to follow these rules? There are books on the rules. Have you read them? If you are serious about doing this, talking to a lawyer is a good idea.

I have managed money for individuals without being registered. I was not breaking the law. This fact was confirmed by my lawyer and a NJ securities regulator. I did not take possession of client funds. That is, the funds I was managing was held by a broker in the client's name.

There are rules about how you charge your clients. You need to follow them.

If you are going to do this, I would strongly recommend that you talk to a lawyer who has helped people like you in the past.

If you are not registered then you cannot hold yourself out to the general public as an investment advisor and you can have only a few clients. Therefore, being registered has a big advantage.

In support of my argument that you do not have to always be registered, you can look at the following URL: https://beachstreetlegal.com/state-de-minimis-registration-considerations-for-advisors/

If you look here: https://www.govinfo.gov/content/pkg/COMPS-1878/pdf/COMPS-1878.pdf

On page 38, it says: (d) NATIONAL DE MINIMIS STANDARD.—No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser shall require an investment adviser to register with the securities commissioner of the State (or any agency or officer performing like functions) or to comply with such law (other than any provision thereof prohibiting fraudulent conduct) if the investment adviser— (1) does not have a place of business located within the State; and (2) during the preceding 12-month period, has had fewer than 6 clients who are residents of that State.

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  • Please add in-line citations and quotes to change your from baseless assertions to a substantive answer.
    – RonJohn
    Dec 27 '20 at 3:49
  • @RonJohn I have updated my post with two links. Any additional comments?
    – Bob
    Dec 27 '20 at 4:06

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