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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3774
Experience:  Solicitors 2 years plus PQE
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HiI needed some legal advice on something.I live in

Resolved Question:

Hi
I needed some legal advice on something.
I live in London, United Kingdom.
Me/my friend was thinking of setting up a website very similar to https://www.wealthfront.com/ which is similar to a online automated investment advisory/funds manager.
Essentially the way it would work is
1. A user completes a series of risk assessment questions
2. The website then proceeds to assess the user based on their risk profile and investment goal
3. It then suggests a series of funds which are suitable for this user. e.g. Vanguard S&P500 index ETF, or FTSE100 Index tracking fund. Some funds would be standalone and others would be a mix of funds best tailored by our algorithm.
4. The user would select a fund, click "Get Started", setup an account and deposit money.
5. We would then proceed to manage those funds deposited and allocate them to the correct investments we specified earlier.
6. User can login at anytime and see how their funds are performing.
7. User can withdraw funds given they give us some notice.
My general questions are:
1. We live in the United Kingdom - London, what legal/regulations issues will we need to overcome? if we decide to locate the company in the UK
2. Can we setup the company offshore and avoid these regulation issues? so we can operate easier?
3. What advertising issues will we have? and if we are offshore will it be easier? How can we advertise easily to the general public?
4. Ideally, we want to be able to setup with least amount of hassle/cost and be able to advertise easily without so many restrictions. What is the best way to achieve this?
Many Thanks
Submitted: 2 years ago.
Category: Law
Expert:  Nicola-mod replied 2 years ago.
Hello,
I've been working hard to find a Professional to assist you with your question, but sometimes finding the right Professional can take a little longer than expected.
I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.
Thank you!
Nicola
Customer: replied 2 years ago.

Hi Nicola,

Thanks for your email & assistance.

How long do you think it will take to receive an answer?

Yes, I am happy to wait for an answer.

Thanks

Expert:  Nicola-mod replied 2 years ago.
Hello,
We will continue to look for a Professional to assist you.
I'm afraid JustAnswer cannot guarantee a time; however most questions are answered in a timely manner.
Thank you for your patience,
Nicola
Customer: replied 2 years ago.

Thanks Nicola!

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you for your question and welcome.
My name is ***** ***** I will assist you.
Will you be holding the client funds in your own account?
Who writes the algorithm?
Do you have any idea as to which Offshore jurisdiction you would be comfortable with?
Kind regards
AJ
Customer: replied 2 years ago.

Hi Aj,

Thanks for your response. Here are the answers:

I can either hold client funds in

a) In one of my own designated accounts (based in a bank in the UK)

b) In an account offshore

c) my broker is based in Europe so active invested funds are held with them.

The algorithm is written by me/colleague. I work in the derivatives industry and I am a software engineer by trade with 15 years experience. (Hence why I am clueless of the legal issues.)

Any offshore jurisdiction that has a stable political regime. Anywhere in Europe or even Asia.

Apologies if my answers seem generic and open. It is just I want to be flexible to find the easiest way to set this up. Also it should give you more options to work with.

Thanks

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you.
What type of investors are you targeting? Sophisticated high net worth investors or the consumer market?
I will write a response but it may take me a little while so please do not be concerned if you do not hear from me right away.
Kind regards
AJ
Customer: replied 2 years ago.

Hi AJ,

Thanks again.

I would say both. We would want to target high net worth investors as well as consumer market. .

In the general consumer market, the average person has no idea about an ETF or a index tracking fund. So we would want to help them make the right decision.

No worries. Please take your time. I am in no rush :-)

Many Thanks!

Expert:  Alex J. replied 2 years ago.
Thank you very much
Kind regards
AJ
Expert:  Alex J. replied 2 years ago.
Hi,
Thank you for your patience.
I will summarise this below and we can discuss any follow up points.
1. In England -
- This type of activity will be regulated under the Financial Services and Markets Act 2000 for two reasons:
(i) You are selling a financial product;
(ii) You will hold client funds on deposit.
In theory you would need to go to the Financial Conduct Authority and obtain authorisation.
There are certain ways around this:
- You can obtain a written exemption to invest on behalf of high net worth individuals who sophisticated investors;
- While you do not have authorisations, there are companies in England that specialise in the outsourcing of authorisation. You essentially pay them a fee to work under their authorisation until you receive your own.
Without having FCA authorisation you will not be able to sell any financial products to your average consumer.
2. Off Shore.
There are offshore jurisdictions where you can operate hedge funds of this nature with no regulation for example I believe the Bahamas is one.
The only issue is you would still be prohibited from advertising this investment openly to UK Consumers. Any selling of the product would have to be discreet.
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 2 years ago.

Hi Aj

Thanks for your response. I will approve your answer.

Just few points:

Would you know what is the minimum requirement to become FCA regulated for this type of activity? e.g. qualifications required.

And also what the cost of this would be?

Thanks

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you.
The cost of authorisations varies depending on the level of activity - tends to be more expensive for consumer related activities. I would budget between £1500 - £3000 and it takes 6 months.
http://www.fca.org.uk/firms/about-authorisation/getting-authorised/Becoming-directly-authorised - Here are the details about being authorised - it will be your company that does and you need to have a "responsible person" - that person may have to take some qualifications depending on the authorisation required.
You may be better served initially outsourcing the authorisation to a third party provider- this will be more expensive in the long but if the project works you can seek your own authorisation at a later date.
Kind regards
AJ
Alex J., Solicitor
Category: Law
Satisfied Customers: 3774
Experience: Solicitors 2 years plus PQE
Alex J. and other Law Specialists are ready to help you
Customer: replied 2 years ago.

Hi Aj

One last question after discussing with my colleague.

If we built the product itself, without being regulated say. And setup the company offshore. And we did NOT advertise to a UK consumer. But one day ...a UK consumer signed up organically to the website via stumbling on our website via word of mouth or a google organic search. So they stumbled on it discreetly and signed up to use the product (the product was not advertised). Is that fine and legal? (we could have a gentlemans agreement contract on the website).

Because in your last email you said

"Without having FCA authorisation you will not be able to sell any financial products to your average consumer."

"Offshore - The only issue is you would still be prohibited from advertising this investment openly to UK Consumers. Any selling of the product would have to be discreet."

So what the above implies is...if we are not regulated and someone in the UK lands on the site and signs up discreetly, then this should be fine. However if someone in the UK lands on the site and signs up via an advertisement we created... than this would be illegal.

Thanks