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From: "Scot Billington" said:
Why then do most large FCM's pay their sales people a commissions on how much money they bring in - not a percentage of commissions garnered? Why is there a "window" (usually 3-7 weeks) that additional funds deposited into a new account within that "window" accrue to the salespersons pay check? Could it be related to the average life expectancy of a newbie? Could the "window" exist because the newbie will be meeting margin calls afterwards? Could the desire to place their clients with a professional money manager be an effort to prolong this life expectancy, and thereby garner additional commissions, and T-Bill interest? The salespeople that raise money for CTA's get paid a percentage of the commissions that the CTA generates for the "house" - unlike the general salespeople. Unfortunately if there are two CTA's with equal percentage returns, however one CTA has an average of 5,000 round turns per million under management, and another CTA has 2,200 R/T's per million - who do you think a salesperson with no scruples promotes? Granted the risk parameters are totally different, and granted the salesperson could be gaining money of the front end, and losing it on the far end.
There is a huge demand for CTA's, especially those that will accept less than $50,000 US, there are very few that accept less. Why should they if they are any good? I know a few CTA's that developed an effective trading methodology, used their own audited returns to attract some "seed clients", and traded those "seed" accounts for a year or two before attracting the attention of sales people. The secret is to have Daniel Stark monitor their performance. His reports are read by many in the industry looking for new talent. The road to become a CTA is an difficult one. It is something that takes time, however the actually cost to become a CTA is fairly inexpensive (less than $3,000), and if the number of clients are not too many then the accounting fees will not be prohibitive (considerably less than $50K).
If the new CTA would accept accounts of $10K, and he had a decent track record (20%+), with proper risk control strategies then there is no doubt that he would attract money. My challenge was fining decent CTA's that had decent performance, for my smaller clients. Believe me that I was constantly looking for new talent.
I highly recommended to everyone that I talked with that they should diversify their portfolio by allocating a percentage of their funds with a CTA. What could be better training than to monitor in real time what a "professional trader" is doing in the market? - especially one that has a valid track record? One of the side benefits of working where I did - real time monitoring.
Here is an example: Michael Clarke is a CTA out of Chicago, he manages tens of millions of dollars (could be over a $100 million), uses very strict risk control rules, charges a 25% incentive fee, averages 1000-2000 R/T's per million, reasonable drawdowns (>15%), and has a equity to margin ratio of 20% (on average). Using his Global Basic Program trading methodology (one of many)(with more than 10 Mil in it alone) he made 145% (1996), 52% (1997), 42% (1998), and (~12%) for this year. Better than the S&P at first glance. However as Michael on average uses 20% and never more than 50% of available equity as margin his actually returns would be easily twice. Additionally those returns are after ALL fees. All the time with drawdowns less than 12% - pretty damn good! Do you honestly think that Michael ever would even dream of selling anything other than his service?
Marty was down the hall, I didn't really know Tom. I did my job, and hung out with the people in my department (Managed).
On another note, every CTA must have a disclosure document. I found it often times informative to read these. I am no longer raising money for CTA's, nor do I plan on becoming one. I have no association with Michale Clark, other than as a friend. If any one wants more information about how CTA's operate you can contact: toddfulton@xxxxxxxxxxx who is a friend of mine, and raises money for CTA's.
.oİş°¨¨°şİ[ John Hayden ]İş°¨¨°şİo. ¨¨°şİo.,.oİş°¨¨°şİ[ Have a bodaciously outrageous day! ]İş°¨¨°şİo.,.oİş°¨¨
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