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Author: motelmom Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 7258  
Subject: investment clubs Date: 12/3/2008 9:59 AM
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I was asked to join an investment club, and a few of the things I heard did not make sense, after reading a few books and check on-line I still have some questions.
The person who asked me to join, said he would keep a share per 10 people who joined for managing the club, he was going to do all the research, and investing.
He did not mention anything about registering the club or protecting the members in any way.
From what I have researched this doesn't sound on the up and up to me, is this how investment clubs are run?

thanks
TC
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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7216 of 7258
Subject: Re: investment clubs Date: 12/3/2008 10:35 AM
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I was asked to join an investment club, and a few of the things I heard did not make sense, after reading a few books and check on-line I still have some questions.
The person who asked me to join, said he would keep a share per 10 people who joined for managing the club, he was going to do all the research, and investing.
He did not mention anything about registering the club or protecting the members in any way.
From what I have researched this doesn't sound on the up and up to me, is this how investment clubs are run?


Not at all!!! This sounds like a good way to rip off the other "club" members. What he is proposing is very possibly in violation of his state's securities laws. If you're feeling civic-minded, you might want to contact your state's securities regulation office and speak with them.

Ira

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Author: motelmom Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7217 of 7258
Subject: Re: investment clubs Date: 12/4/2008 8:04 PM
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Ira,
Thanks I may just do that. And I will be sure to tell the other people in the club what I found out also.

TC

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Author: ImABrokeFool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7230 of 7258
Subject: Re: investment clubs Date: 3/17/2009 3:34 AM
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While what he is proposing may not be illegal, its not a good idea either. Its not illegal on the federal level - it depends upon your state laws. Clubs are generally formed between friends and family - but not always. The MAIN purpose of investment clubs is to educate the club members in how to select stocks and invest in the market. Most clubs are formed as partnerships; each partner is equal - each shares in the profits and losses of the partnership. The club has monthly meetings, discusses stocks they researched (using various guidelines) and votes for the ones in which they wish to invest. In almost 99.99% of all investment clubs, NO partner is compensated. You can view a sample club partnership agreement here:

http://www.iclub.com/clubs/partnership_agreement.asp

Make sure you read all of the information on this site: www.betterinvesting.org and this site http://www.iclub.com/clubs/iclub_hub.asp

Personally, I would be very suspect as to the motives of the person that approached you. I belong to an investment club and I am the 'portfolio manager' or 'chief investment officer' or whatever you want to call it - and yes, they compensate me. However, I didnt ask them, they asked me and, at times, I regret accepting. To me, it's a hobby as I have my 'real' job. Our partnership agreement specifically states that my compensation is based solely on our profits. No profits, no compensation... and they dont compensate me much anyway.

I did my homework to determine if it would be legal for me to act in this capacity: I talked to my lawyer, I called my state's Attorney General's office (Securities Division), etc. Yes, it is legal for me to act in that capacity as long as 1) the club has less than 100 members and 2) the club's balance is less than $25 million. We began in December 2008 with 12 partners, each partner made a capital contribution of $1000 and we are off and rocking.

Here's what the SEC says about an individual handling all of the investing activities:

Do securities laws apply to a person who provides advice to an investment club?

If the adviser is compensated for providing the advice regarding the club's investments, the adviser may need to register according to the Investment Advisers Act of 1940. Also, if one person selects investments for the club, that person may have to register as an investment adviser.

In general, a person who has $25 million or more in assets under management is required to register with the SEC under the Investment Advisers Act of 1940.

A person managing less than $25 million may be required to register under the securities laws of the state or states in which the adviser transacts business.

Both the Investment Advisers Act of 1940 and many state laws do not require registration for advisers with a small number of clients.

http://www.sec.gov/investor/pubs/invclub.htm

Again, be very leery of anyone approaching you to 'handle' your money for you... too many times it turns out to be a scam.

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7231 of 7258
Subject: Re: investment clubs Date: 3/17/2009 8:12 AM
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Personally, I would be very suspect as to the motives of the person that approached you. I belong to an investment club and I am the 'portfolio manager' or 'chief investment officer' or whatever you want to call it - and yes, they compensate me. However, I didnt ask them, they asked me and, at times, I regret accepting. To me, it's a hobby as I have my 'real' job. Our partnership agreement specifically states that my compensation is based solely on our profits. No profits, no compensation... and they dont compensate me much anyway.

I did my homework to determine if it would be legal for me to act in this capacity: I talked to my lawyer, I called my state's Attorney General's office (Securities Division), etc. Yes, it is legal for me to act in that capacity as long as 1) the club has less than 100 members and 2) the club's balance is less than $25 million. We began in December 2008 with 12 partners, each partner made a capital contribution of $1000 and we are off and rocking.


Kudos to you for going the distance and learning exactly what your state's rules are regarding compensated advisors. Each state sets its own rules -- some are more restrictive than yours.

What's missing from your post (perhaps because you were writing from your own perspective), is whether the rest of the club did its own due diligence before asking you to advise them.

Failure to do due diligence is an open invitation to being scammed.

Ira

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