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Posted by on September 12, 2008, 5:36 pm
I am starting a financial advisory business. At this point, I plan to
have a newsletter to which people can subscribe, and in which I will
give financial advice. Down the line, it is possible that I will
manage money, though at this point I won't be doing that.
I would like the business to have limited liability. I would also like
to save on taxes, if possible. What is the best thing for me to do and
why? What type of business should I form? What are the upsides and
downsides of this and other options?
Since this is an internet business, I won't be doing business in any
particular state. I expect to have clients all over the US, as well as
internationally.
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Posted by John A. Weeks III on September 12, 2008, 6:24 pm
In article
james.smith99@yahoo.com wrote:
> I am starting a financial advisory business. At this point, I plan to
> have a newsletter to which people can subscribe, and in which I will
> give financial advice. Down the line, it is possible that I will
> manage money, though at this point I won't be doing that.
>
> I would like the business to have limited liability. I would also like
> to save on taxes, if possible. What is the best thing for me to do and
> why? What type of business should I form? What are the upsides and
> downsides of this and other options?
>
> Since this is an internet business, I won't be doing business in any
> particular state. I expect to have clients all over the US, as well as
> internationally.
If you are selling financial advice, don't you at least have to be
an enrolled agent in your state, or states where you do business?
At any rate, you can start a LLC or Corporation to protect the
business, but if you are giving the actual advice, then you are
still liable at a personal level. You are always liable for the
work that you do. You may be able to get errors & omissions
insurance, or, if you incorporate, get officers insurance. If
you are actually licensed and/or certified to give this type of
advice, then there may be insurance available to you at a professional
level. Sounds like to you need more experience in this area to
get started, or hire a pro that knows what they are doing.
-john-
--
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John A. Weeks III 612-720-2854 john@johnweeks.com
Newave Communications http://www.johnweeks.com
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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Posted by Tad Borek on September 12, 2008, 8:11 pm
james.smith99@yahoo.com wrote:
> I am starting a financial advisory business. At this point, I plan to
> have a newsletter to which people can subscribe, and in which I will
> give financial advice. Down the line, it is possible that I will
> manage money, though at this point I won't be doing that.
>
> I would like the business to have limited liability. I would also like
> to save on taxes, if possible. What is the best thing for me to do and
> why? What type of business should I form? What are the upsides and
> downsides of this and other options?
Given that this is going to be a business, you really should speak with
a local attorney about all this because you are asking a lot of
potentially complicated questions. Briefly: when you give specific
advice about securities and charge for it, you're regulated as an
investment adviser, either by the state or SEC (usually the state for
what you're describing). But most newsletter publishers rely on a sort
of "journalist" exemption, which requires that the advice given be
general in nature. You are still subject to some securities laws, such
as anti-fraud provisions, but would not be required to register as an
adviser or for that matter have any qualifications whatsoever.
More complicated is the area of internet-based advice and there is a
specific exemption written into federal laws that addresses that.
Separate and apart from all this is business formation and the tax and
liability issues involved with that. "Saving on taxes" with a business
is an entire topic to itself. I'd suggest starting with the Nolo Press
books (www.nolo.com) for a primer all all these small-business issues.
-Tad
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to keep the conversations on-topic for financial planning. Other posting
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Posted by kastnna on September 12, 2008, 11:21 pm
On Sep 12, 4:36 pm, james.smit...@yahoo.com wrote:
> I am starting a financial advisory business. At this point, I plan to
> have a newsletter to which people can subscribe, and in which I will
> give financial advice. Down the line, it is possible that I will
> manage money, though at this point I won't be doing that.
As indicated by the Investment Advisers Act of 1940 anyone acting as a
"investment adviser" must be registered as such and be subject to the
compliance requirements of the SEC, FINRA, and any applicable state
agencies.
So what constitutes an "investment adviser", you ask? According to
setion 202(a)(11) "'Investment adviser' means any person who, for
compensation, engages in the business of advising others, either
directly or through publications or writings, as to the value of
securities or as to the advisability of investing in, purchasing, or
selling securities, or who, for compensation and as part of a regular
business, issues or promulgates analyses or reports concerning
securities..."
Luckily, there are a number of exemptions and exclusions including
"the publisher of any bona fide newspaper, news magazine or business
or financial publication of general and regular circulation". That
sounds like you. Yipee!!!
So it appears you should have little opposition to generating and
selling an investement newletter. There are a couple of things of
which to be aware: 1) your advice must be broad in scope and not
specific to individual clients with unique situations. At that point
you become an investment advisor and; 2) you must disclose any
investments discussed that you are financially intertwined with or
that you have been compensated for "touting". Failure to do so
constitutes securities fraud.
---
If/when you decide to undertake specific advice and/or money
management for specific clients, you will, at that point, become an
investment adviser. As a result you will need to be registered with
the SEC and will be required to obtain numerous licenses (e.g. series
6, 7, 24, 63, etc). Furthermore, your newsletter will become
"marketing material" and thus subject to complaince standards and you
will be expected to perform a minimum level of due diligence. Most
annoyingly, your E&O (malpractice) provider will have a laundry list
of record-keeping requirements and you will be regularly audited by
the SEC (not "might be", but "will be"). Oh, and I almost forgot the
individual state licensing, company appointments, and continuing
education.
Simply put, individual clients will quadruple your business expenses
and increase your record keeping/paperwork by at least that amount.
Make absolutely sure you are ready before taking this step.
> I would like the business to have limited liability. I would also like
> to save on taxes, if possible. What is the best thing for me to do and
> why? What type of business should I form? What are the upsides and
> downsides of this and other options?
Individuals are responsible for their own torts and there simply is no
corporate shield that can circumvent that. You should not have much
liability to worry about until you start giving specific advice. At
that point, E&O coverage will be a must.
Saving on taxes is an extremely broad question. I recommend you have
an introductory sit-down with a trusted accountant. Penny wise, pound
foolish, otherwise.
> Since this is an internet business, I won't be doing business in any
> particular state. I expect to have clients all over the US, as well as
> internationally.
Newsletter wise, that should be no prob. When you truly delve into the
financial advisory business, each state has their own licensing and
continuing education requirements. Personally, my firm found that it
simply isn't worth having a license in every state. The cost of record
keeping and licensing fees was often greater than the revenue made.
Today, I only practice in 6 states.
Good Luck!
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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Posted by on September 16, 2008, 5:15 pm
Thank you. This reply was very helpful.
> Luckily, there are a number of exemptions and exclusions
> including
> "the publisher of any bona fide newspaper, news magazine or
> business
> or financial publication of general and regular circulation".
> That
> sounds like you. Yipee!!!
Yes, I will be publishing a financial newsletter that is of interest
to a very large number of people. I will not be giving any
personalized advice. Besides what you've written (which was very
helpful), could you point me to any resources on
+ which type of corporate entity would be best for me (llc,
corporation, something else?), and
+ in which state I should form it.
There are so many newsletters out there. I'm sure someone has already
figured all this out. However, at this point, things seem a little
complicated to me. Isn't there a way of making them simple? I
register, fill out a couple of forms every year, pay my taxes, that's
it. :)
As I've been reading more, I see that some people say that single-
member LLC's can be dangerous. This makes it even more confusing since
I thought LLC's were the best / easiest type of corporate entity for a
small business.
> Good Luck!
Thanks.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
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