This Is Why I'm Taking the Series 65 Exam...

Hey guys, welcome back to the show. Today, a lot of fun things actually going on in our lives and what's going on. I'll give you a quick update, but today the topic is why, after all this time, years of running my fund, and I've talked to you guys a lot about how you can launch a fund without a license, I am actually gonna go and get my Series 65 license. And I wanna explain to you why I'm doing that, the reasons behind it, why do we have licenses in this episode. As well, I wanted to, we haven't talked about this yet, we just hit 100,000 downloads on the podcast. So, like, that was awesome, right? On the podcast, we started this just over a year ago, and it's grown really well. We've got over 130 episodes now. So anyways, kudos to you guys. Thanks for coming along. It's been pretty fun. 100,000 downloads is significant, and what that does is allows me to now go and get better and better people to bring on the show to interview. We've had a couple interviews recently. Hope you guys have enjoyed those. As well, if you guys are interested, we have a Facebook group as well. Our Facebook group has a couple thousand members in it, People launching and scaling funds, answering questions, helping each other out. It's a free group and I go live in there once a week to answer your questions. So if you guys are interested, if you type in Investment Fund Secrets into Facebook, we have our private group for like our mastermind members, but we also have a free group, okay? And the free group, you guys can come in, I go live in there and you guys can get some questions answered, all that kind of stuff. Sound fair? Okay, so back to today's topic. Why am I getting my Series 65? Now, first off, what is a Series 65? What are these licenses? Way back when, actually throughout the history of time, people in finance have screwed everybody else, right? There's been a lot of schemes, a lot of frauds, a lot of people stealing money because they're the money manager. Anyways, it's sometimes very tempting to steal money. That's why I always go back, if you're going to run a fund, you've got to be honest to the core. And if you aren't, you're probably going to end up in jail or something. So make sure you've got your house in order, you're honest, and believe you would be a good money manager. With that, The SEC and other regulators around the world have put in place different laws, different regulations, and different licenses to hopefully get out people who are going to commit fraud, and people that are licensed typically have more regulation on them and have to even follow sometimes more rules. One of the licenses, especially for fund managers, is called the Series 65, okay? Now, why is it called the Series 65? It's just a number that they have in there. There is a Series 7 exam, there's a Series 63, a Series 33 exam. These are all different licenses for different things. So a Series 65 exam is for investment advisors, people that want to give investment advice. So if you go meet with anybody at a bank that wants to help you do planning or whatever, future whatever, they usually have a Series 65 because they're going to help you plan your financial future. They want to give you investment advice. Another very common one is called the Series 7. A lot of traders, a lot of brokerages require you and to do any of that type of work, you have to have a Series 7 license, okay? Now there's a bunch of other ones. There's, I think, a 63 if you're gonna trade futures. There's all sorts of licenses you gotta get. Some are harder tests than the other. This test, I think it's a 3-hour exam, 140 questions, and actually pretty difficult. There's a program online, it's a couple hundred bucks. I bought it and I was like, hey, I'm gonna study for the Series 65. And typically people that I've heard, it takes them anywhere from a month to maybe 4 or 5 months to study and take the exam. Even people like my dad or other people that I've talked about on this show that are very knowledgeable in funds, they have to still study a couple months to take this because laws are changing, there's lots of things that you don't know. So I went on there first day, I was like, you know what, I think I'm pretty smart, I'm gonna take a practice exam and just see what happens. I took the practice exam, I got, it was about 63% of the questions right. You only have to get, I think it's like 70, in the 70s to pass. So I was feeling pretty good, however, there was a lot I didn't know. They were asking questions about term life insurance policies, they were asking questions about running in different areas that don't really affect funds very much, but I have to still understand that for this test. So for me, it was a moment of, all right, I gotta, I gotta level up. I've got to study more, and I think I'm gonna go above and beyond on studying for this exam. A lot of some people just study, they want to just barely pass. I'm going to try to really study and understand everything that goes on in this exam so that I can make better content for you guys. The other reason, okay, this is the bigger reason why I'm getting my license, is because if I have my license, I can then charge management fees To my fund. A lot of funds will run— you've heard of a 2 and 20, right? 2% management fee and 20% carried interest. If you go back to our other episodes, we talk about a waterfall structure, okay? And this is how people get paid, that your investors get paid and how you get paid from a fund. So for example, if we had a 22% return for the year for the fund, this is how it would get broken up. We would have the first— and in my fund, it'd be the first 8% we call the pref, preferential or preferred rate of return. To the investor. So I'd say, hey, Mrs. Investor, you get the first 8% of all returns from the fund. So first 8% goes to her. Next 2% in my fund is called a catch-up. So the 9th and 10th percentile come to me as the catch-up. And then in my fund, we split 80/20 above the catch-up. So from the 10th percentile to 22% in this example, we would split 80/20. To review, first 8% goes to the investor, next 2% comes to me, and then we split 80/20 from the 10th percentile to 22%. We split— 80/20. 80/20, I don't have the math all in front of me, but I believe that comes out to be about 17.2% goes to the investor as a return, and then I would take, I think it's about 4.8%, somewhere around there. My math, I'm doing a little mental math here. 4.8%, somewhere around there, I would take, and that's, we gotta take out fees, other expenses of business, but we'll keep that number simple. So I make about 4.5 to 4.8% on the fund. The investor takes home, I think it's like 17.2, 17.6%, somewhere around there, and that's their return. So my investors got a 17.6% return if our fund got a 22% return this year. Now, some of you might be saying, I don't want to make 4%, like that's so small. 4.6% might seem small, but you're making 4.6% on the entire fund. If you have a $100 million fund, you just made $4.4 million. If you have a billion-dollar fund, you just made $44 million. See how big you got, why fund managers make So much freaking money. That's how they do it. Now, a lot of funds as well will charge a management fee that is right up front, and typically I'd say standard is about 2%, okay? So 2%, so in that scenario, it would be 2% off the top, and then 8%, and then a 2% catch-up, then 80/20 split, and it would adjust the numbers a little bit, and in that case, we would make a little bit more money. We'd probably end up with about 5 point, I don't know, 5.7%, 5.8%, because they have to adjust. After taking out that for the entire carry. So we would make even more money. However, and this is what I've taught you guys before, if you don't charge a management fee, you don't need to have a license. You don't need to have your Series 65. So my first 2 funds that I've run for the last 3 and a half years, I have not had a license at all because I do not charge management fees. And there's a few other rules you gotta make sure you file the right way, and we talk about that as well, but that's like the biggest takeaway. It's like, wow, yeah, you can start a fund without a license, which is Pretty freaking cool. Now though, I feel like I've ran 2 funds for a while, it's gone well. I now want to charge management fees in our next fund that we are coming out with. And so anyways, that's why I'm taking my exam. I'm gonna hopefully have it done in the next couple weeks or maybe month and a half. I'll be passed and then we can set up a registered investment advisor or investment advisor. The difference between those 2, if it's under $100 million, it's an investment advisor. Over, and that's at the state level. So I'm in Utah, I'd file with Utah State or if I filed my fund in Delaware, I'd file with Delaware, whatever I wanna do. get over $100 million of AUM, assets under management, that you then have to file with the SEC. And then now you're a registered investment advisor, an RIA. So investment advisor versus registered investment advisor, the difference is how much money you have and who you have to file with. For our next fund that we're coming out with, I want to set up an investment advisor, and I would at that point be able to advise the fund, give my— the client would be the fund. Okay, I don't have any other clients. I'm not having my friends, giving them investment advice. I'm advising The fund, the limited partnership is my only client. I focus on them, I give that client, the fund, investment advice and the client pays me 2% every year for that advice. Even if we make a little less money or whatever, I still— and there's other clauses like clawbacks and stuff like that but I will typically make that 2% regardless of how the fund does. If you're gonna charge 2 fees, the management fee just like what I mentioned and also a performance fee. So, I'll make money as just advising the fund as a management fee, but also if the fund makes money, we get a 22% return this year, it does really great, we're going to split some of that interest above the pref like I described earlier, that's called a performance fee, and if I'm going to make that fee, and that will go to the general partner which I will also own, I need to be licensed if I'm going to charge 2 fees. Hopefully this is making sense. I'm putting together older episodes, but that is why I am going to get my Series 60 5 license so that I can charge fees for investment advice to my fund. So I can charge a management fee. For people launching a fund, and I tell a lot of people this, I say for a lot of people starting out, don't charge management fees on your first fund. If it— and unless you have the Harvard degree, unless you have the Wall Street experience, unless you have this amazing team, by all means, go ahead and charge your fees and have the license stuff. But a lot of funds I've seen that can get off the ground a lot quicker, raise money faster, it's a great pitch to investors to say, hey, I'm pitching you on this fund. I will not make any money. I make no fees until you make at least 8% first. Investors really like that pitch and that's why a lot of our students, people in our mastermind program, a lot of them launch funds without a management fee at the beginning. They don't have to get licensed and it's a really good pitch to investors. Now, I've built a name for myself in this space and I have investors that like me, investors that want to put money in, I have a track record so now, I feel confident putting a fee, a management fee into our docs, into our pitch for our fund. And this is going to be a fun time. We're launching our next fund. We're actually going to probably document the whole process. I believe it's going to be a 506 fund. We're not sure yet, but I believe it's going to be a 506 fund so that we can publicly advertise. Now, on this episode, we are not looking for investment. I don't need more money. I got plenty of investors lined up. I don't need you guys to invest in our fund, but I want to share with you the process. I like sharing with you guys how it's going behind the scenes. And what's happening? I want you guys to know that I'm I'm doing this, right? I like I don't just talk about it. I'm doing it. I'm in the game. That's why I'm getting my Series 65 license right now. I'm going to go through the process, and I hopefully they'll teach me a lot of stuff I don't know. Little nooks and crannies of this world. Whole life insurance versus term life insurance. I'm very curious about that as well. And I'll be able to share you know more stuff with you guys. But that's why I'm doing it as well. So there you go. Finally, just last you know call at the beginning I talked about we have that free Facebook group. If you guys want to get questions answered or talk to me directly, Facebook if you type investment fund secrets, we have a private mastermind group, those are for our high mastermind students that have paid in, but we have a free group as well and I go live in there every Wednesday if you guys want to hop on and get questions answered, we go back and forth on stuff. It's actually pretty fun to interact with other people launching and scaling funds and we have different guides and downloads and PDFs, so there you go. Investment Fund Secrets on Facebook, go check us out. Just request, you have to request to join the group and we'll like check your email and stuff and have you answer a few questions, make sure you're serious, we don't want people just kicking the tires coming in here. But if you're serious about learning about funds, come in the group. It's actually a really cool group and I go, we go live in there, share content, all sorts of stuff. So hit that up. I will probably put it in the show notes below so you guys can access it. But that's it, okay? You guys are awesome. I'll see you in the next episode. Bye.