Dave, What’s the Better Route: Advisory Letter or a Fund?

 

Hi Dave

Dave, why wouldn’t I or anyone else just set up an advisory service (newsletter) rather than the regulatory hassle of a fund?

Regards,

Jin L. – Flushing, New York

Thanks for the question Jin.

You picked a very interesting topic and one that allows me to vent a little.

You are correct, simply running an advisory service/newsletter has few barriers to entry and no regulatory oversight. However, you still need to operate in an ethical manner simply from a professional conduct standpoint.

The drawback is churn. For some reason advisory services, unless you cater exclusively to institutional clients, attract a group of people that are often very unrealistic about what to expect. Below are some common complaints you will hear if you run a company like mine.

  • “You don’t trade enough” Really? You would rather be entertained than be patient and selective?
  • “$150/month is a lot of money.” Perhaps. But there is a cost for quality information. View it as an investment in your success.
  • “Company X killed it last month….I am moving over to them.” Not much one can do here. Everyone will have hot and cold streaks. Jumping around however rarely ends well and leads to inconsistent returns.
  • “I know you killed it last month with the trades you issued, but I took a lot of my own trades and blew up my account.” As they say, you can lead a horse to water….Sadly, this is a terrible way to lose clients. They paid me for guidance and insight and disregarded it. Both parties here lose out.

There is one other thing that is vitally important. I am one of only a few companies that post my track record. (FX Track Record & Stock/Futures Track Record) It goes back to 2008.

And guess what? Very few people give a shit.

Aspiring traders are drawn to the new and shiny things. Naturally, these are the same ‘things’ that no professional trader would touch in a million years. Human beings remain emotional, not objective creatures. Hype and sizzle tower over raw data. I get that, but I am not going to sell my soul for a few extra clients that would likely be gone next month anyway.

Managing A Fund

The paragraph above is the perfect segue for the other part of your question.

When managing money in a fund:

  • Returns are ALL that matters. Well, personal relationships with your clients help too.
  • Clients are more serious and sophisticated and thus more ‘sticky’….low churn.

You ever notice that very few advisory services also manage money? Gee, why would that be?

Yes, the regulatory part is a real pain in the ass. Often times they have very little practical understanding of the industry and operate from a set of rigid guidelines that make your head spin.

Nonetheless, I manage a fund and am able to navigate the regulatory aspects fairly well. When I talked to several of my colleagues years ago, ones who were true professionals in the trading arena, their answer was unanimous: Want the scale your business? Manage a fund….don’t put ALL the focus on the advisory side of the business.

For me having both parts of the business is really nice, they actually complement one another. But my team and I are far more focused on scaling the fund in the years ahead.

Hope that helps,

Dave

Have a question for me? Just ask.

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