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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Vitai Slade on September 27, 2013, 04:20:16 AM

Title: Investment advice as a side-gig?
Post by: Vitai Slade on September 27, 2013, 04:20:16 AM
We are all just about knowledgeable enough here in regards to finance, investments, and such to a point that I would say we could give better advice to people than even mainstream advisors. Do you think that a regular mustachian could?

On that note, I've been giving free advice to many friends (and will continue to give free advice to them) in order to see them succeed and get their finances in order. Stuff that I have been doing since I knew what money was (and thought was common sense) still makes me drop my jaw in awe that people don't know/understand. So I pose the question:

What would be the steps to actually "selling" your knowledge, time, and advice in regards to finance to people and what would you charge? Obviously we are not licensed, but I'm curious what we could legally do without one. (a license)
Title: Re: Investment advice as a side-gig?
Post by: matchewed on September 27, 2013, 05:05:56 AM
Almost nothing in my opinion. The risk and liability is nothing to play around with when you're dealing with people's futures.
Title: Re: Investment advice as a side-gig?
Post by: Left on September 27, 2013, 05:21:29 AM
Without being registered as a finacial advisor or such, not sure exact title. Im not entirely sure you can charge people for finacial advice
Title: Re: Investment advice as a side-gig?
Post by: Adventine on September 27, 2013, 05:33:20 AM
If you want to give generic financial advice on saving and investing, you could do what many others have done and write a book/speak at seminars/etc. You certainly don't need a license to do that, although the certification would give you added credibility.

However, if you want to meet with individuals to give them personalized financial advice and charge them for your time, well... the potential liability is just too risky.

Have you thought about becoming more of a "life coach" rather than a "financial adviser"? Helping people overhaul their whole lifestyles instead of just their finances?
Title: Re: Investment advice as a side-gig?
Post by: chasesfish on September 27, 2013, 05:41:31 AM
I've actually looked into this, it takes a while to get all the certifications to do this as a job.

You could potentially work part time under someone who carries all the licenses, ect.
Title: Re: Investment advice as a side-gig?
Post by: pbkmaine on September 27, 2013, 05:52:53 AM
Investment advice brings with it fiduciary liability. Fiduciary liability is personal, which means that if you are sued and lose, all your assets are up for grabs. I work in this field and would not dream of doing my job outside of a corporate structure. My firm supplies me with liability insurance and takes care of my licenses, continuing education and registrations. Paperwork requirements are onerous - you have to keep records for 7 years. And I would not wish an SEC audit on anyone. If you want to do it, I heartily suggest an internship with a reputable firm. As mentioned above, NAPFA is a good place to start.
Title: Re: Investment advice as a side-gig?
Post by: arebelspy on September 27, 2013, 08:01:02 AM
Previous discussions on the topic for more reading for those interested:
Title: Re: Investment advice as a side-gig?
Post by: nawhite on October 24, 2013, 12:31:24 PM
I don't think anyone actually answered the original question and I have the same one. I want to know when you become responsible for someone's mistakes.

Could you call yourself a "financial mentor" or "financial coach" and give advice like, "your investment accounts all carry fees which you should work to minimize. Let me show you some math on why fees are bad. Lets look up the fees on your current investments. Lets look up some fees on other investments. You can now take the info I have imparted to you and decide what to do with your money." Then the next day: "Oh you decided to move your money into vanguard? Why do you want to do that? Oh it has lower fees and we talked about minimizing fees. Interesting... I'm glad you're acting on the lessons we are having. Do you need help executing the transaction? I can walk you through it on their website."

When do you cross the line into doing something which you are fiduciary responsible?  Are there special terms that you can't use to call yourself. Like is "Financial Planner" a legal term? How much advice can you give with the least amount of responsibility and the least amount of training/certification/education/cost?
Title: Re: Investment advice as a side-gig?
Post by: nawhite on October 24, 2013, 12:36:06 PM
I should add that I'm also interested in how much does it cost and what is required to achieve the minimum required to get insured for fiduciary coverage? And how much does the coverage itself cost for an individual practitioner with less than $5 million in assets under management (or some other tiny amount representing the assets of the family and friends I might take payment from)?

If you can't beat the system, what is the cheapest/safest/easiest way to join the system?
Title: Re: Investment advice as a side-gig?
Post by: babysteps on October 24, 2013, 01:22:30 PM
I don't think anyone actually answered the original question and I have the same one. I want to know when you become responsible for someone's mistakes.

I am a CFA and a formerly much-registered financial analyst.  I am not a lawyer or an accountant and currently have no clients other than my spouse & our businesses.  So consider this a somewhat-educated opinion.

Answer: It depends. 
I don't mean this to be a snarky answer - really, it *does* depend. 

Long story short: if you are serious about giving specific investment advice to clients (rather than seminars/life planning/etc.), try calling someone who is doing what you want to do in your state (maybe in a different area so they feel more mentor-y and less competitive) and ask them about it.  And depending on what direction you pursue, your state regulatory bodies and a lawyer.  If this is an area that interests you, there certainly is the potential for side-gig$

Long story less short:
Each state regulates this separately (fun, eh?).  How well you document things could make a difference.  So could the nature of your advice-general financial planning is a different kettle of fish than specific buy/sell recommendations.  How you get paid makes a huge difference.  If you are an employee vs. an outside advisor it makes a difference.  Who the client is can make a difference (there are different legal standards for the basis of advice to individuals vs. to companies, and yet another standard for advice to pensions).  How much money the client has can make a difference in some cases...Whether or not you are liable, the amount the client loses can make a big difference as to how motivated they are to sue you.

Financial planning is typically less regulated than investment advising.  With investment advising, the major requirements for SEC registration are tied to being paid by commission - getting paid for your advice directly (rather than getting paid through fees tied to the transactions of your advisees) makes a regulatory difference.  (There are also separate state requirements for investment advisors.)  Not sure if it is still the case, but used to be if you were a CPA or a lawyer, you could advise your existing accounting/legal clients without taking the registration exams.

Within state laws you could always put together a client contract that addresses or limits some of your risk - but if the contract is too one-sided, don't expect clients to sign it.  And you'd want a lawyer to review, typically the client can't just sign away your liability without some trade-off.
Title: Re: Investment advice as a side-gig?
Post by: nawhite on April 01, 2014, 10:44:43 AM
So I went and looked up what I needed to be an investment adviser in Colorado and figured I'd share what I learned here.

First off, I envision giving advice a la a Financial Planner to friends and family. I'd manage less than $5 million and do fee based advice only, i.e. pay $400 to come up with a financial plan and another $100 for an annual checkup or something like that. I would not take a percentage of money under management. In order to simplify filing I would also limit my total out of state clients to less than 5 people per other state. I'll talk about tax planning/preparation services at the bottom.

In Colorado, I need to be a "Investment Adviser Representative" in order to give advice. And technically because I'd be operating by myself, I need to be a "Investment Adviser Firm" as well.

I can't find a good source for the fees for this but it looks like registering the Firm would cost from $0 to $150 and an annual fee of $80. Then adding myself as a representative of that firm would add an additional $10-$45 per year to that. It looks like Colorado has been changing the fees a lot recently with limited time discounts that may or may not get renewed etc so I'd need to call the state office.

In order to practice, I then need to pass the Series 65 Uniform Investment Adviser Law Exam. I would probably pay $150 for some study materials and then the test is $155.

At that point I could start offering services. Depending on how risk averse I was I would also need to look into "Errors and Omissions" insurance. This would cover me if I filled out a form wrong for someone or gave bad advice and they lost money (or if they just felt wronged and sued me and lost, it would cover legal fees). A policy with $500k of liability would cost about $1250/year.

Being a "Certified Financial Planner" is a different exam but it doesn't mean anything other than you passed a test. Anyone who has done the above stuff can call themselves a "Financial Planner" they just cant say the are a "Certified" financial planner because that is a trademark. Granted some people put a lot of faith in that test so YMMV.

If you just want to fill out taxes for people and get paid for it, that used to be easy for anyone. Then the IRS required a certification (that was really easy and cheap to get) but they got sued over that so there is currently a judicial stay preventing them from enforcing that certification requirement. So in the short term, you could also add tax preparation to your services without trouble.