Michael Coglianese had the pleasure of moderating a Panel of experts at the NIBA Conference. Mike was impressed by the answers as well as the insight of the questions from the audience. Here are some of the questions summarized below:
Why should IRAs be important to the Business of an Introducing Broker?
- First, the managed futures industry is important to the alternative investment space, giving individual investors another avenue to diversity and protect their portfolio. There are $7.3 Trillion in IRA assets as of 2014. IRAs are investment accounts that allow people particular tax benefits. Individuals need options to help protect their portfolios and the industry needs to help educate people on the different options.
What is the process of a client using IRA Funds to invest in a managed futures product?
- To keep things simple, there is generally a 3 step process for a client using an IRA elsewhere to place money in to a managed futures product. First, the client will need to decide the appropriate IRA type and setup an IRA with a self-directeed IRA Custodian. Once deciding on a broker and futures product, complete the appropriate FCM and CTA documents to submit to self-directed IRA Custodian. Once the accounts have been approved by the FCM, the client will authorize the IRA Custodian to fund the FCM account at the value requested by the client. From there, the broker and client can oversee the account.
Can an unregistered 3rd party signal provider or system vendor be compensated by an NFA Member? If yes, under what circumstances or conditions can these 3rd parties be paid?
- Yes. However, certain conditions must be satisfied. These conditions include the following:
- The 3rd party cannot be engaged in soliciting or marketing the NFA Member’s trading products or programs.
- The 3rd party cannot be involved in the account opening process.
- Care must be taken to ensure that the 3rd party’s total compensation is capped at less than 10% of the IB Member firm’s profits to avoid de facto principal status.
- What are the requirements for CFTC Regulation 4.27 and NFA Compliance Rule 2-46?
What are the requirements for CFTC Regulation 4.27 and NFA Compliance Rule -46?
- This is a quarterly reporting requirement for both Commodity Pool Operators (CPO) and Commodity Trading Advisors (CTA) and the information is used by NFA as part of their monitoring program.
- A CPO is required to file the PQR electronically within 60 days after the end of the quarters ending March, June and September and the year-end within 90 days. The first section of the PQR is the Cover Section which requests general information of the CPO, including but not limited to, the contact name, number of employees, number of pools and AUM. For each pool, the CPO must file a separate form which contains 4 main sections – Relationships (administrator, carrying broker(s), custodian(s), trading manager, pool auditor and if pool marketer), Statement of Changes in NAV (reporting period), Monthly Rates of Return (reporting period) and the Schedule of Investments (cash, alternative investments, derivatives (futures and options), fixed income, etc.).
- A CTA also must electronically file the Form PR but within 45 days after the end of the quarters ending March, June and September and the year-end. The first section of this form is general information of CTA, including the contact name, number of programs offered by the CTA, total assets directed by the CTA, total pool assets directed by the CTA, the name of the pool(s) and the name of the CPO. In addition, the form contains two main sections – Relationships (carrying broker and any CTA(s) that are allocated funds) and Trading Program (name of program, monthly rates of returns and investment allocation of the managed assets directed by the CTA).
What are some important factors in choosing an IRA Custodian?
- In the self-directed IRA industry, there are many different companies that deal with many different types of alternative investments. I always inform clients that you will want to go with a company that is familiar with the sorts of transactions that you will focus on for the IRA. Much of what we do in the self-directed IRA industry is done through a manual process. You will want to make sure the company you are working with is competent, responsive, and has the systems in place to take a complex process and be able to simplify things for you as the Introducing Broker and your clients.
If you have further questions, or need clarification on any of the above questions, or have a unique question of your own, feel free to contact the Panelists from the Panel below:
Michael Coglianese, Michael Coglianese CPA, P.C., mike@cogcpa.com
Brad Janitz, MidlandIRA, bjanitz@midlandira.com
Jeff Henderson, GreenbergTraurig LLP, hendersonj@gtlaw.com
Angelo Gibaldi, DTG Compliance, angelo.gibalsi@dtgcompliance.com
Thomas McCarthy, Liccar, tmccarthy@liccar.com