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    Posted: Oct/22/2014 at 5:17pm
Hello everyone,

I'm the portfolio manager of a small independent RIA that operates a value investing equity strategy in replicated separately managed accounts.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote MichaelBurton Quote  Post ReplyReply Direct Link To This Post Posted: Oct/22/2014 at 5:23pm
Originally posted by Cyrus Cyrus wrote:

Hello everyone,

I'm the portfolio manager of a small independent RIA that operates a value investing equity strategy in replicated separately managed accounts.

Welcome.  You'll gain a lot here.  

How'd you get into the business?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Cyrus Quote  Post ReplyReply Direct Link To This Post Posted: Oct/22/2014 at 6:51pm
Originally, I was in science.  I majored in biomedical engineering in college and went into medical research.  My first job was in developing nanoparticle drug delivery vehicles for cancer therapies.  Later, I got approached by a venture capital partner that was an old friend of one of my brothers.  He was getting together scientists for a new company they had funded that did DNA sequencing.  I went to work for that company and the VCs took me on company visits to help them do due diligence on other potential investments (They often used scientists from their portfolio companies for this purpose) which was my first introduction into analyzing businesses.  I realized that the company was not going to make it, so I went into a PhD program to continue my scientific career.

In grad school, I  really missed the business world, loved investing, hated teaching undergrads, and couldn't see a future in academia for myself.  So I left there with a master's and got started on the investment management path.  I came to the conclusion that value investing was the best way to manage money, so I went to work for almost a year at a new mutual fund that was started by the son of a famous value investor.  The arrangement was that they would teach me how to manage money in a professional value investing fund, and I'd work for free.  I learned how they analyzed companies and then figured out a way to improve on their process using quantitative screening and data analysis techniques.  So I then started my own investment composite using family money at the beginning of 2014.  My strategy uses algorithms to find companies that appear to be good investments based on ratio analysis of the balance sheet, cash flow statement, as well as insider buying behavior.  Then, from this short list I analyze the businesses using classic value investing methods.


I'm not sure how to market my firm.  I'm also not sure if I should target financial planners to work as a subadvisor or go after affluent clients directly.  It seems like this forum is a great place to get ideas for that.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote Moraen Quote  Post ReplyReply Direct Link To This Post Posted: Oct/22/2014 at 7:29pm
Cyrus, welcome.

Interesting approach.  I like your method for paring down your selections.

I would say the best way to market your firm is directly to planners who want nothing to do with investing. 
I come in peace. I didn’t bring artillery. But I’m pleading with you, with tears in my eyes: If you fuck with me, I’ll kill you all. - General James Mattis

Fiduciary as Fuck - iMo
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Post Options Post Options   Thanks (1) Thanks(1)   Quote Macduff Quote  Post ReplyReply Direct Link To This Post Posted: Oct/22/2014 at 7:33pm
You should talk to this guy Apac; I've heard he learned value investing from Buffett himself and he'll be looking for a new job soon as well.  Better scoop him up!

On a serious note, welcome to the board and I look forward to your contributions.
“I was born for the storm, and a calm does not suit me.”

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/
8/31/12,Sportsfreak:
"If Barak wins this election, or appears to be clearly winning, we are all fucked. Market will tank big time."
Dow 13,090 S&P 1406
5/23/13 UC:Dow 20k before 20% crrectn Dow 15,322
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Jagger Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 4:38am
Welcome to the board!

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Post Options Post Options   Thanks (0) Thanks(0)   Quote wiredup Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 8:15am
Originally posted by Cyrus Cyrus wrote:

Originally, I was in science.  I majored in biomedical engineering in college and went into medical research.  My first job was in developing nanoparticle drug delivery vehicles for cancer therapies.  Later, I got approached by a venture capital partner that was an old friend of one of my brothers.  He was getting together scientists for a new company they had funded that did DNA sequencing.  I went to work for that company and the VCs took me on company visits to help them do due diligence on other potential investments (They often used scientists from their portfolio companies for this purpose) which was my first introduction into analyzing businesses.  I realized that the company was not going to make it, so I went into a PhD program to continue my scientific career.

In grad school, I  really missed the business world, loved investing, hated teaching undergrads, and couldn't see a future in academia for myself.  So I left there with a master's and got started on the investment management path.  I came to the conclusion that value investing was the best way to manage money, so I went to work for almost a year at a new mutual fund that was started by the son of a famous value investor.  The arrangement was that they would teach me how to manage money in a professional value investing fund, and I'd work for free.  I learned how they analyzed companies and then figured out a way to improve on their process using quantitative screening and data analysis techniques.  So I then started my own investment composite using family money at the beginning of 2014.  My strategy uses algorithms to find companies that appear to be good investments based on ratio analysis of the balance sheet, cash flow statement, as well as insider buying behavior.  Then, from this short list I analyze the businesses using classic value investing methods.


I'm not sure how to market my firm.  I'm also not sure if I should target financial planners to work as a subadvisor or go after affluent clients directly.  It seems like this forum is a great place to get ideas for that.




How could someone so smart want to get into this business? I seriously want to tell you to go fuck yourself, go back into science and help cure cancer, or some other horrible disease like ED or anything to do with kids where you can actually make a difference. Not saying we don't make a difference in people's lives, just that you have a background that could actually make a difference between life and death, not just running out of IRA money.

Unless you are Apac's alter ego, and then you'll be back to whatever you did before this by tax season.
Money can't buy happiness, but it's a damn good down payment!
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Post Options Post Options   Thanks (0) Thanks(0)   Quote wiredup Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 8:17am
Originally posted by Cyrus Cyrus wrote:

Hello everyone,

I'm the portfolio manager of a small independent RIA that operates a value investing equity strategy in replicated separately managed accounts.


This might be my new pickup line just to see the look on her face afterwards.
Money can't buy happiness, but it's a damn good down payment!
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Cyrus Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 2:31pm
Working in science sucks as a career.  There's little pay, horrendous working hours that make having a family or hobbies outside of work difficult, and no job security.  For chemists, real wages have been in secular decline for 20 years.  Federal funding is being reduced.  I know one biologist who lost his job and is literally homeless in California right now.  Even top scientists like Nikola Tesla ended their lives in bankruptcy.  Douglas Prasher, the inventor of synthetic fluorescent proteins, lost all of his research funding and had to drive a delivery truck for 20 years.  The only reason to be in scientific research is if it's the only thing you could imagine wanting to do with your life.  If there's anything else at all that you could devote your life towards, that's probably a better bet.  Personally, I have no desire to be a martyr and I find investment research to be very interesting.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote rooboy1010 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 2:47pm
How are you structured to act as an SMA manager?  Did you work with an attorney or consultant that help you set up your firm in a way other SMA managers are set up? 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Chief Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 3:10pm
Originally posted by Cyrus Cyrus wrote:

.  I came to the conclusion that value investing was the best way to manage money, so I went to work for almost a year at a new mutual fund that was started by the son of a famous value investor.  

Gotta ask...who?
"You like winning don't you?" "Saves you from having to say the word please."

Good point Chief. Iceco1d 10/30/12
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Cyrus Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 3:16pm
For the ADV and client contracts, I just looked at what other firms had written and made a composite of those.  It took me about 2 weeks to write it out.  I then asked a guy in law school studying securities industry compliance law to give it a quick double check.  For the contract I would have with advisors who are investing their client's money in my strategy, I'm still working on that one.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote RipRock Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 3:32pm
Originally posted by Cyrus Cyrus wrote:

For the ADV and client contracts, I just looked at what other firms had written and made a composite of those.  It took me about 2 weeks to write it out.  I then asked a guy in law school studying securities industry compliance law to give it a quick double check.  For the contract I would have with advisors who are investing their client's money in my strategy, I'm still working on that one.

Not going to happen. That is considered "selling away" if you don't have a selling agreement with the BDs. You are better going the advisor route and raising funds like that until you have enough to turn into a mutual fund or SMA. 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Cyrus Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 5:48pm
1) I have a custodian for my account, let's call it Broker A.  On their system, I am both an advisor (for retail clients) and a money manager (SMA for advisors).

2) The advisor that I hypothetically make a deal with sets up an advisor account at Broker A.

3)  They then invite clients to open accounts under their advisor managing account.

4) They then invest their client's money directly into stocks, bonds, etfs, or by allocating to an SMA.

5) Hopefully, they allocate a lot of the money to my strategy, and I make an agreement with both the advisor that I won't try to take their client over to my advisory side and with the client saying what % of AUM I'm charging.

So, I've already finished part 1 and have the agreement with the Broker.  Now, I just need to write good contracts for the subadvisory relationship.  The advisors aren't going to allocate their money to my strategy unless they're comfortable that I'm not trying to compete with them.

I don't think this arrangement qualifies as selling away since it's all done under one BD
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Post Options Post Options   Thanks (0) Thanks(0)   Quote RipRock Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 6:13pm
Originally posted by Cyrus Cyrus wrote:

1) I have a custodian for my account, let's call it Broker A.  On their system, I am both an advisor (for retail clients) and a money manager (SMA for advisors).

2) The advisor that I hypothetically make a deal with sets up an advisor account at Broker A.

3)  They then invite clients to open accounts under their advisor managing account.

4) They then invest their client's money directly into stocks, bonds, etfs, or by allocating to an SMA.

5) Hopefully, they allocate a lot of the money to my strategy, and I make an agreement with both the advisor that I won't try to take their client over to my advisory side and with the client saying what % of AUM I'm charging.

So, I've already finished part 1 and have the agreement with the Broker.  Now, I just need to write good contracts for the subadvisory relationship.  The advisors aren't going to allocate their money to my strategy unless they're comfortable that I'm not trying to compete with them.

I don't think this arrangement qualifies as selling away since it's all done under one BD

Shouldn't you have that already completed this framework before you opened up shop?

If you opened up your shop at Custodian/BD A, and I am an advisor at indy/wire BD B I don't think I can send you funds without a relationship between BDs (unless you have a selling agreement with my BD I cannot ACH/Wire/Send a check to your Custodian/BD A, from my Custodian/BD B). 

I work as an SMA in many cases, and send the registered advisor a trail from my billing. These advisors are set as an RIA, but they manage no money. I cannot accept funds from other BDs (and pay the advisor a trail) because I don't have a selling agreement with the BDs. If my buddy at ML wanted me to run $100k of his clients $2mm he cannot set up an account at my BD under his firm name. The client would have to directly ACAT the funds over to me free and clear (I could not pay him in this way).








Edited by RipRock - Oct/23/2014 at 6:17pm
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Cyrus Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 6:47pm
In my set-up, I'm not paying any trails.  Both the RIA and the client need to have accounts at my broker.  If they're not there already, then they need to make accounts before I can accept their money.  The client pays 2 fees, the advisory fee to the RIA and the SMA fee to me.  Both are a % of AUM.  To mitigate the RIA's fear that the client just fires the RIA and invests with me directly in order to avoid paying the advisory fee, I would need to have a contract with them which reassures the RIA that I won't let the client do this.

One of the major downsides of my setup is that it pretty much limits me to using independent RIAs since I don't have any agreements with the big wirehouses (Ameriprise, EDJ, etc).
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Wet_Blanket Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 7:09pm
Originally posted by Cyrus Cyrus wrote:

1) I have a custodian for my account, let's call it Broker A.  On their system, I am both an advisor (for retail clients) and a money manager (SMA for advisors).

2) The advisor that I hypothetically make a deal with sets up an advisor account at Broker A.

3)  They then invite clients to open accounts under their advisor managing account.

4) They then invest their client's money directly into stocks, bonds, etfs, or by allocating to an SMA.

5) Hopefully, they allocate a lot of the money to my strategy, and I make an agreement with both the advisor that I won't try to take their client over to my advisory side and with the client saying what % of AUM I'm charging.

So, I've already finished part 1 and have the agreement with the Broker.  Now, I just need to write good contracts for the subadvisory relationship.  The advisors aren't going to allocate their money to my strategy unless they're comfortable that I'm not trying to compete with them.

I don't think this arrangement qualifies as selling away since it's all done under one BD
You are suggesting a dual contract relationship, but that really isn't necessary.  I would structure this as a sub-advisory relationship.  The sub-advisory agreement will divide up the responsibilities among the sub-advisor (you) and the adviser (them).  I would limit all of your responsibilities in the contract to just investment management and let the other party handle the rest (suitability, ADV deliveries, proxy voting, privacy policy deliveries, fee billing), etc.

This way you can just run the money and not have all the other paperwork headaches.  You won't have a direct contract with the client as well, which would make Advisers more likely to use you.

SELLING AWAY - and this isn't considered selling away.  RIAs are allowed to hire on other SMA managers.  If he were going after registered reps, then he would need to put in place a sub-advisory agreement with the corporate RIA and get on their wrap platform.
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I agree with WET [/QUOTE]
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Wet_Blanket Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 7:10pm
Originally posted by Cyrus Cyrus wrote:

In my set-up, I'm not paying any trails.  Both the RIA and the client need to have accounts at my broker.  If they're not there already, then they need to make accounts before I can accept their money.  The client pays 2 fees, the advisory fee to the RIA and the SMA fee to me.  Both are a % of AUM.  To mitigate the RIA's fear that the client just fires the RIA and invests with me directly in order to avoid paying the advisory fee, I would need to have a contract with them which reassures the RIA that I won't let the client do this.

One of the major downsides of my setup is that it pretty much limits me to using independent RIAs since I don't have any agreements with the big wirehouses (Ameriprise, EDJ, etc).
Unless you know someone, you have little chance of this until you have at least a 3 year track record and $100MM in AUM.  Then it is still a small chance.
When money is speech, speech isn't free.

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I agree with WET [/QUOTE]
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Post Options Post Options   Thanks (0) Thanks(0)   Quote RipRock Quote  Post ReplyReply Direct Link To This Post Posted: Oct/23/2014 at 8:16pm
Originally posted by Wet_Blanket Wet_Blanket wrote:

Originally posted by Cyrus Cyrus wrote:

1) I have a custodian for my account, let's call it Broker A.  On their system, I am both an advisor (for retail clients) and a money manager (SMA for advisors).

2) The advisor that I hypothetically make a deal with sets up an advisor account at Broker A.

3)  They then invite clients to open accounts under their advisor managing account.

4) They then invest their client's money directly into stocks, bonds, etfs, or by allocating to an SMA.

5) Hopefully, they allocate a lot of the money to my strategy, and I make an agreement with both the advisor that I won't try to take their client over to my advisory side and with the client saying what % of AUM I'm charging.

So, I've already finished part 1 and have the agreement with the Broker.  Now, I just need to write good contracts for the subadvisory relationship.  The advisors aren't going to allocate their money to my strategy unless they're comfortable that I'm not trying to compete with them.

I don't think this arrangement qualifies as selling away since it's all done under one BD
You are suggesting a dual contract relationship, but that really isn't necessary.  I would structure this as a sub-advisory relationship.  The sub-advisory agreement will divide up the responsibilities among the sub-advisor (you) and the adviser (them).  I would limit all of your responsibilities in the contract to just investment management and let the other party handle the rest (suitability, ADV deliveries, proxy voting, privacy policy deliveries, fee billing), etc.

This way you can just run the money and not have all the other paperwork headaches.  You won't have a direct contract with the client as well, which would make Advisers more likely to use you.

SELLING AWAY - and this isn't considered selling away.  RIAs are allowed to hire on other SMA managers.  If he were going after registered reps, then he would need to put in place a sub-advisory agreement with the corporate RIA and get on their wrap platform.

Wet, if he wasn't on the registered reps platform and didn't have a sub agreement with the wire RIA and collected funds from an another advisor wouldn't that be "Selling Away".
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