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.aspMake sure you read all of the information on this site: www.betterinvesting.org and this site http://www.iclub.com/clubs/iclub_hub.aspPersonally, 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.htmAgain, 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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