What Licenses do I Need to Start my Fund?

Nobody wants to get tangled up with the SEC.

I have a close family member that was dealing in securities and made one mistake in regulations.

Two years later and they’ve just barely gotten back on their feet after having been put under investigation.

That’s why it’s so crucial that we understand the nature of licenses with the SEC, and when you’re going to need one.

When you’re working with investment funds you’re primarily going to be dealing with the Series 65 and Series 7 licenses.

I’ve hyperlinked both of those to definitions from Investopedia, so feel free to check those out if you’re unfamiliar with them.

However, my real goal today is to show you how you can legally set up a fund with no license at all.

Let’s get to it!

Management Fees

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A management fee is something that you’ll commonly see with large established funds, aka, the ones on Wall Street.

It basically allows the GP (General Partner) to charge a percentage – usually between .5-5% – of the total AUM of the fund, just for overseeing the funds operations.

May not seem like all that much, but when you’re dealing with hundreds of millions of dollars 3% starts looking pretty lucrative.

However, when you charge a management fee you’re basically suggesting that you are so qualified in your role as fund manager that the LPs need to compensate you just for being there.

Regardless of how the investments/projects actually perform.

The way that you can put yourself in to such a position is by securing these licenses, such as the Series 65 and Series 7.

But boy does that get complicated and messy.

Truly if you’re looking at starting your own fund it’s going to be difficult to pitch a management fee to your investors, given that you have little to no track record.

Differences Between Series 7 and Series 65

If you did take the the route of acquiring a license for your fund because you want to be able to charge a management fee, there’s a couple of different things to consider.

When you have a series 7 you are going to be structuring your fund as a Broker/Dealer setup.

This will allow you to charge a commission of of the fund itself.

However, with the 65 you do not qualify for any commissions.

Rather, you’ll be charging an advisory fee, and positioning yourself as the RIA (Registered Investment Advisor).

At the end of the day both of these paths will lead you to a management fee, but those are some simple, yet essential, differences between the two.

Performance Fee

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So how do we get around this? How do we set up the fund sans licenses, and still make money?

The answer, a performance fee.

A performance fee is really just carried interest based off of the return of the investment or project that the fund is working on.

You can read more on carried interest here.

A performance fee basically shows the SEC that you are not claiming to be an RIA, and the only way you’ll make money is if your fund does so well that it compensates your investors, and has even more return left over.

That’s how I’ve structured each of my debt funds in the past, and it’s been very successful.

On top of all that it’s a great way to attract investors if you’re new to the fund space.

That’s because you are showing them that you are so confident in your deal that you’re going to get them a great return before you ever see a dime.

Obviously the key here is going to be making sure you can identify the right deals.


Once you can identify the best deals, structuring funds without a license should be a no-brainer.

If you are looking at being an RIA, go get those series licenses and reap the reward.

Either way be careful with the SEC and do your research before you launch.

Best of Luck,

Bridger Pennington

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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.

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