What steps are needed to managing OPM

April 23, 2009 7:03 PM

What are the steps towards managing other people's money?

I've been asked to manage other people's money (family and friends) and to act as a fiduciary. What are the responsible acts that need to occur for me to do so? In addition, I do not have a business degree. I do have an opportunity to return to school and obtain an MS in finance or anything else, or get my MBA. This may sound a large undertaking, but this is the first step in a long journey. Thanks.

posted by erd0c to work & money (8 answers total)

Treat your clients' money with more respect than you would your own. Disclose all transactions with complete transparency and in a timely fashion. If you are charging a fee, make it clear and concise. Disclose any potential, actual, or apparent conflict of interest. Understand, and anticipate their tolerance for risk. Make sure you are actually authorized before making a transaction on someone else's behalf. Never, ever co-mingle funds. If you make a mistake, you will need to make your client whole, without using another client's funds to do so. You should probably become familiar with ERISA guidelines.

You will want to be above any possible reproach at all times, even if it comes to your own detriment. In this society, managing other people's money is as close to a sacred covenant as you'll get.
posted by malocchio at 7:24 PM on April 23, 2009

(I was actually asking about the technical steps). Although your philosophical steps are dead-on. Series [this] examination, that certification, etc.
posted by erd0c at 8:14 PM on April 23, 2009

I'd look into the CFA program. I have a business degree but I think the Schweser notes in particular for this course really give you a great foundation. If you have the dedication to read them without taking the exam, they are at least a good starting point and you'll save money on the dues, etc.
posted by xiaolongbao at 8:20 PM on April 23, 2009

do you have a good track record with your own money? why are they asking you to manage their money? it seems a bit of an odd question -- i.e. if you don't know the answer to your own question already, why are other people trusting you with their money?
posted by randomstriker at 8:21 PM on April 23, 2009

It is best that you seek out legal advice.

The basics:

1. The money must be kept in a separate account. If you are managing for more than one person, a separate account for each. There can be no co-mingling.
2. Careful records must be kept.
3. The money can only be used as directed in the governing document, and only for the benefit of the intended beneficiary.
4. There has to be an accounting to someone - a beneficiary, a court. Again, the document governs.

The most complicated part is the prudent investor rule. There is no golden investor rule - invest the money as you would invest yours. You have to right to be speculative with your own funds. You cannot do the same with these funds. You must invest them in a manner that follows what a prudent fiduciary would do.

This book can help.
posted by yclipse at 8:32 PM on April 23, 2009

>Series [this] examination, that certification, etc.

Point is, no certification or formal training is needed. It could be helpful, but it is not needed. What is essential is integrity and good judgment, as well as an understanding of what the creator of the trust arrangement wants to accomplish.

Decisions on the year to year management of funds is then delegated to a paid consultant. Trustees typically do not do much buying and selling, wheeling and dealing. They tend to invest the money and then keep it in place.
posted by yclipse at 4:20 AM on April 24, 2009

Look into the laws of your state. Depending on the nature of the funds under management, you may need to jump through a few hoops, such as purchasing a fiduciary bond...
posted by shinybeast at 2:15 PM on April 24, 2009

Oh, and being a beneficiary of funds under your management can also be problematic. A lawyer can clarify a few dos and donts for you.
posted by shinybeast at 2:25 PM on April 24, 2009