Limited liability for a financial advisory business


J

james.smith99

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.

--------------------------------------
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.
 
Ad

Advertisements

J

John A. Weeks III

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-

--
======================================================================
John A. Weeks III           612-720-2854            (e-mail address removed)
Newave Communications                         http://www.johnweeks.com
======================================================================

--------------------------------------
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.
 
K

kastnna

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!

--------------------------------------
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.
 
H

HW \Skip\ Weldon

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?
There is some question as to whether a corporation would shield the
owner's personal assets if the corporation consisted of an owner and
no other employees. Any comments?

-HW "Skip" Weldon
Columbia, SC

--------------------------------------
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.
 
R

Ron Peterson

There is some question as to whether a corporation would shield the
owner's personal assets if the corporation consisted of an owner and
no other employees.  Any comments?
A lawyer at a seminar I attended suggested that before going into
business is to form an LLC and get about $1 million in liability
insurance.

If you don't have the liability insurance, a court might find that you
were just trying to escape from the consequences of risky behavior.

If you are making a product that has any medical impact, you will need
much more liability insurance.

One of my b-i-l in going into the consulting business also formed an
LLC.

--
Ron

--------------------------------------
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.
 
K

kastnna

There is some question as to whether a corporation would shield the
owner's personal assets if the corporation consisted of an owner and
no other employees.  Any comments?
There are numerous cases in which courts have "unwound" sham LLCs on
the basis that they had no intended purpose other than to shield
assets from creditors, even when the LLCs had multiple members.

However, I believe an SMLLC still provides asset protection IF the
corporation had legitimate purpose and was truly operated as a
corporation. This usually involves keeping separate business records,
avoiding comingling of personal and business assets, et cetera. For
tax purposes a SMLLC can elect to be either a corporation or
dieregarded entity (sole proprietorship). Perhaps someone else can
chime in as to whether this tax election also serves as a legal
election (I'm betting it doesn't).

In reality, this point can largely be rendered moot. Regardless of the
above, an LLC member's torts will still allow for piercing of the
corporate veil. Also, it has been my experience that most businesses
that enter into formal agreements with an LLC will not do so unless
they have both the personal and business gurantee of the LLC member.
And lastly, high limit umbrella/liability policies can serve as a
"catch-all" for the business. They are usually very inexpensive and
considering the possible ramifications, it would seem foolish to be
without one.

--------------------------------------
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.
 
Ad

Advertisements

T

Tad Borek

HW said:
There is some question as to whether a corporation would shield the
owner's personal assets if the corporation consisted of an owner and
no other employees. Any comments?
In general, I'd assume the main protection provided by an LLC in the
advisory business would be shielding member A from liabilities resulting
from member B's actions. Perhaps from entity-level debts as well but in
small businesses those often have personal guarantys anyway. A solo
financial professional might see little or no protection via a
single-member LLC...good question for a local lawyer.

-Tad

--------------------------------------
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.
 
J

james.smith99

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.
 
J

james.smith99

The Hulbert newsletter (probably available at your local
library),
ranks investment newletters based on their performance.  I
believe
stock newsletters are ranked seperately from mutual fund
newsletters.
Thanks. I do believe that I have a great product. That's why I am
starting the business.

--------------------------------------
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.
 
Ad

Advertisements

K

kastnna

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.
They are the easiest, which is often a major factor in determining
that they are the best.

For you, business structure is important, but not for liability
protection reasons. It doesn't matter what corporate structure you
have if you are the individual that committed the wrong. Corporations
don't protect you from your own mis-deeds, they protect your personal
assets from the mis-deeds of your employees. If you are the sole
employee, the best liability protection you have is the stuff between
your ears.

Your concern with corporate structure SHOULD be based on taxation,
governance expenses, benefit packages, expected future employees, etc.
In general, if you're on your own trying and to get your financial
newsletter startup company off the ground, I wouldn't think you would
need an elaborate corporation. A simple LLC would probably suffice.
If, however, you really want to start off with a bang (big corporate
loan, marketing department, employed staff writers, printing press,
etc) an actual corporation may better suit your needs. It all depends
on your plans, really.

--------------------------------------
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.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads


Top