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How to Invest on other peoples behalf?

Friend offered me £5k to invest for them. How do I so legally?

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I have invested on the stock market myself for the last 7 years. Started whilst a univeristy.

Now I am a qualified accountant and a family friend has offered my £5k to invest on thier behalf.

Problem is, I am not a qualifed financal adviser and I am aware their are very strict rules around investing other peoples money and offering financal advise. I dont believe I am legally qualified to do so even as an accountant.

However, one way around this problem, I believe may be to set up as a company where they put the money in as a shareholder and I as a just a diector. This way I am not offering them financal advise as the company is seperate legal entity.

Problem is, from what I can garther they would be tax twice. Capital gains tax + tax on a dividend if they ever extracted the money.

Anyone know how I can do this in a legally + low tax way?

Seems like a lot of messying around for £5k. but I dont want to say no!!!!

Thanks

Joe

Replies (42)

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By Open all hours
20th Nov 2021 16:31

My friends are worth much more than £5K. Don’t risk losing them over small change.

Match it with £5K of your own, find at least 2 more friends to do the same and in the meantime research how to run an investment club.

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By __josephwilk
20th Nov 2021 17:29

Good idea.

Problem is what legal form does an investment club come in? Feel like i still have the same problem.

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By David Ex
20th Nov 2021 17:31

Joe Wilkinson wrote:

but I dont want to say no!!!!

Give me their contact details and I’ll do it for you. You would be insane to even consider the idea. Absolutely nothing to gain and a lot to lose.

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Replying to David Ex:
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By __josephwilk
20th Nov 2021 18:14

What can I lose? If it’s a limited company?

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Replying to __josephwilk:
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By Catherine Newman
20th Nov 2021 18:51

Exclusion as a future director for a start. A bad reputation for a start. Money laundering requirements. Reputation as a newly qualified?

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Replying to Catherine Newman:
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By __josephwilk
20th Nov 2021 19:21

How can it lead to exclusion as a future director?

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Replying to __josephwilk:
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By Catherine Newman
21st Nov 2021 09:47

If it makes losses and fails, you could be disqualified from being a director in the future.

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Replying to __josephwilk:
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By David Ex
20th Nov 2021 19:31

Joe Wilkinson wrote:

What can I lose? If it’s a limited company?

What can you gain?

If you want a career in fund management, then that’s fine. You’ve asked the question and been given the same answer by all respondents.

It’s up to you what you chose to do.

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Replying to David Ex:
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By __josephwilk
20th Nov 2021 19:58

I would like a career in fund management.

I appreciate everyone has given me the same response. Which is concerning.

But no one has said specific. Expect your daft etc.

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By Leywood
20th Nov 2021 17:37

Just say no. This is a mad idea from start to finish.

Thanks (6)
Scooby
By gainsborough
20th Nov 2021 18:14

Or just tell them what you have invested in...they can then decide whether they want to invest directly themselves. Anything else sounds like a major headache and a future risk to friendship.

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Replying to gainsborough:
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By __josephwilk
20th Nov 2021 18:18

See that’s the problem.

Recommending shares to them is actually considered financial advice therefore requires FCA approval.

Putting the money in a company means the directors can allocate the capital outside of FCA regulations. Like any company allocates money internally.

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Replying to __josephwilk:
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By Paul Crowley
20th Nov 2021 19:40

You have just SO MISSED THE POINT

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By Catherine Newman
20th Nov 2021 18:21

Joseph. You have put this on People Per Hour and I have responded with a bid. You are clearly insecure about this. Don't go there.

An accountancy qualification doesn't give you carte blanche to spout on financial transactions. I only ever say "I can only tell you what I do as a friend".

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David Winch
By David Winch
20th Nov 2021 18:41

Easy answer. Just say "No". Being a qualified accountant makes it more difficult / dangerous for you than if you were just a bloke down the pub.

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Replying to davidwinch:
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By __josephwilk
20th Nov 2021 19:20

I do agree. Which is why I am being super cautious.

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Replying to __josephwilk:
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By Paul Crowley
20th Nov 2021 19:28

You are not cautious
You intend to do the daft thing
A company gets no CGT annual allowance
You are supplying company services so you need to register with HMRC as a company service supplier

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Replying to Paul Crowley:
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By __josephwilk
20th Nov 2021 19:52

Even if I am a director of the company?

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Replying to __josephwilk:
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By David Ex
20th Nov 2021 23:47

Joe Wilkinson wrote:

I do agree. Which is why I am being super cautious.

You can take advice from the rest of us with a pinch of salt but if someone with the knowledge and expertise of David W tells you it’s a bad idea, you’d better believe it’s a bad idea.

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Replying to David Ex:
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By Paul Crowley
21st Nov 2021 13:22

+1
David is an expert

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By Paul Crowley
20th Nov 2021 19:24

NHS
suggess not an accountant in practice
No PII
But then PII would not cover it
Qualified accountant? AAT or CIPFA

Being accountant does not make you in any way able to offer advice on investments

If you are daft enough to do it then get in writing that this is an interest free loan and should you so choose pay over any after tax profits you make, but accept all losses.

Anything else is just inappropriate

If you are a genuinely qualified accountant then you really ought to know better than to get involved

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Replying to Paul Crowley:
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By __josephwilk
20th Nov 2021 19:50

No I am not in practice. ACCA for the NHS.

PII has nothing to do with investment advice. Which is what I said in my first post. I am not FCA regulated.

My plan was to use a linked Hargreaves Lansdown account. So I never actually touch the money.

My account would be linked to his account. But his would set up in a company name.

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Replying to __josephwilk:
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By David Ex
20th Nov 2021 19:59

Joe Wilkinson wrote:

My plan was to use a linked Hargreaves Lansdown account. So I never actually touch the money.

My account would be linked to his account. But his would set up in a company name.

Have you run that plan past HL?

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Replying to David Ex:
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By __josephwilk
20th Nov 2021 20:09

Linked accounts are a service they offer.

But no I haven’t.

I was trying to verify from the accounting/legal perspective instead.

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Replying to __josephwilk:
the sea otter
By memyself-eye
21st Nov 2021 11:39

forget the legal/accounts perspective - don't do it - the moment your investment 'dips' in value your (now erstwhile) friend will; say "you lost me money".
I invest many tens of thousands on the stock market and NEVER offer to invest for a friend.

Thanks (1)
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By Paul Crowley
20th Nov 2021 19:36

"How to Invest on other peoples behalf?
Friend offered me £5k to invest for them. How do I so legally?"
Register with FCA, get some qualifications and get the correct insurance

Thanks (4)
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By Tax Dragon
21st Nov 2021 08:54

If you are looking after someone else's money, you are not acting as an advisor but as a trustee.

https://www.icaew.com/technical/practice-resources/supporting-your-clien...

(your governing body will have similar guidance).

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By AndyC555
21st Nov 2021 11:29

"I have invested in a company called Kainos Group PLC.

I am not licensed to give financial investment advice and so this in no way should be taken as a recommendation for you to do the same. To be absolutely clear, this is not a recommendation. You've asked me what I've invested in and I've told you. That's all this is. A statement of my actions. You should do your own research and I strongly advise you to contact a qualified and licensed financial advisor before any investment and to take no action until you have. Whatever you chose to invest in it is your money and so your risk. I cannot be held responsible for your actions. Investments can go down in value as well as up in value. Your entire investment could be at risk. Don't come crying to me if it all goes wrong. It's entirely up to you."

Cut, paste and amend that first line and away you go.

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Replying to AndyC555:
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By Hugo Fair
21st Nov 2021 13:25

Excellent advice.
Not sure if example company was real investment for you ... but, with 1 YEAR CHANGE +48.59%, a good call if it was! :-)

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Replying to Hugo Fair:
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By AndyC555
21st Nov 2021 13:42

Been invested since July 2017 :-) . Like every investor, I won't say anything about my mistakes......just don't mention Patisserie Valerie when I'm around :-( .

It's a funny game investing, every time I think that if I'd invested my entire SIPP in Kainos I'd be retired by now, I have to remind myself that if I'd invested my entire SIPP in Patisserie I'd be working till I drop.

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Replying to AndyC555:
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By I'msorryIhaven'taclue
21st Nov 2021 13:41

Impressive! Can you invest £5k for me, Andy?

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By tom123
21st Nov 2021 13:34

One of the first things we got taught on my accountancy degree was that accountancy was virtually useless when it came to giving an edge with regard to investing.

So, not sure why your friends think you should be any better than the man or woman down the pub just because you can do double entry book keeping..

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Replying to tom123:
paddle steamer
By DJKL
22nd Nov 2021 10:42

Not sure that is totally true, you at least can sometimes understand the company's published accounts, review their debt profile, appreciate their imaginative creation of goodwill, and appreciate that the underfunded pension scheme they operate looks ******.

In addition the business finance elements of the course may assist re considering portfolio construction, risk, yield requirements etc.

Having said all the above, for me investing comes down to spreading risk, choosing sectors not companies and patience, but it took me nearly 20-30 years and a fair few ups and downs to come to these conclusions. (should have listened more to my Dad, buy, stuff share certs in a drawer, forget)

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By I'msorryIhaven'taclue
21st Nov 2021 13:39

Why don't you want to say no????

What's in it for you? Sounds like you'll be on a hiding to nothing! As a qualified accountant you are presumed to have a higher nous of financial matters (which means you'll carry the can if things go belly-up).

Is it a case of your not knowing how to say no? Or perhaps your pushy friend won't take no for an answer? And, to top it all, a £5k table-stake is such small-potatoes to take such a risk over. No, no, and no again!

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By Truthsayer
21st Nov 2021 13:40

'....but I dont want to say no!!!!'

If you have not got the qualifications, experience, or any proper incentive to do this work (and clearly you haven't), just tell your friend that and say no for those reasons! If he asked you to take his appendix out or fix his gas boiler, that's what you would say, so do it in this case.

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Replying to Truthsayer:
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By I'msorryIhaven'taclue
21st Nov 2021 13:44

I'd like to remove a few body parts from the dilatory client whose accounts I'm preparing on a Sunday!

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Replying to Truthsayer:
the sea otter
By memyself-eye
21st Nov 2021 15:49

I would rather fix his boiler!
Investing can be long game - who'd have thought that safe dull Bloomsbury publishing would be a stand out star during covid?
But like overnight successes that studied for decades, it was.
For years though it just drifted along.
I'm happy, Bloomsbury was my first investment - now £12k up...deep joy (eventually)

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By bernard michael
22nd Nov 2021 09:34

Practice in front of a mirror
NNNNNNOOOOOOOO !!!!
NO
The easiest ways to lose a friend I know are giving them a cert winning outsider and investing their money
DO NOT DO IT
You have the perfect excuse as you outlined in that you cannot do it due to not being a registered financial advisor

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By lesley.barnes
22nd Nov 2021 10:01

Lots of good advice from long standing contributors. Ask yourself why the good friend is giving you £5k of their money to invest on their behalf? Why aren't they doing it themselves - it really is no different. They could pick up the phone and ring up Hargreaves Lansdowne or whoever. Clients often ask us about investing in pensions etc and unless we are qualified the answer is always the same - get professional advice from someone qualified in that field.

Have you done your due diligence as to were the £5k is coming from? Is your friend looking to hide the money? If you set up a limited company as a director as others have said its your responsibility to look after all the Companies House regulation, corporation tax etc are you going to do all that work for free? For a £5k investment I would suggest that it simply isn't worth it. If you think that by putting the money through a limited company you can't be held liable that isn't correct, your friend as an investor could make a claim in court and argue that you were not qualified to invest the money.

I don't understand why you would want to take on all the responsibility. You have so much to lose.

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paddle steamer
By DJKL
22nd Nov 2021 10:50

It can be tricky.

I have managed ISAs for my Mother in Law for a fair few years now (must be 20) the initial period post initial investment, when funds dipped below sum invested, made for uncomfortable Sunday dinners. Luckily she persevered with my efforts which bore fruit (and a refit of her kitchen from the gains)

The catch is whilst your investment ideas may be sound the market does not always do what you think it ought to do when you think it ought to do it, with your own money that is fine, you can ride out the drops, with the money of others it is a lot harder to be convinced by yourself whilst looking at a red screen and accordingly your nerves may prompt sales that ought not be made. Over trading (meddling) can often mean investment downfall.

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Melchett
By thestudyman
22nd Nov 2021 21:42

If a friend offered me the same proposition whilst knowing I'm not a financial advisor, and they could easily do it themselves, my mind would start to wonder about the source of their money and their motivation. This will open up a separate can of worms.

I'm not suggesting your friend is trying to use you as a money mule, but I hope you can understand how it can look from the outside.

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By Leywood
23rd Nov 2021 05:34

Have you run your plan past ACCA?

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