In this post I will walk through some simple tactics that you can use to generate and grow your income faster.
This will help you to make more money from your trading business, while growing your performance track record.
Building your income will ensure you can cover your costs and focus on trading consistently and profitably without pressure.
There are two main tactics that we will be looking at:
- Trade copying online to retail traders
- Building a product ladder into your fund
Most start-up managers believe that the only way to make money is through growing their AUM and taking a performance fee.
According to glassdoor.com the average salary of a portfolio manager in the UK in 2018 was £86,000 pa. As a start-up manager building from scratch your average salary is usually zero.
Without any kind of base salary things can start to get extremely frustrating and stressful. One bad year can be a terminal event for your entire business.
In the early years, your AUM will naturally be lower. This can put pressure on you to perform due to the costs of maintaining a money management business.
Even with positive performance it can be difficult to raise extra AUM if your track record is less than three years.
As long as your AUM remains below £10 million you will be subject to the stresses of trying to cover costs and stay afloat.
Fortunately, there are a couple of ways to increase your income even if you have less than £10 million AUM. These also apply if your track record is less than three years old.
Applying all or even both of these strategies could have a huge impact on the sustainability of your young asset management business.
Trade Copying To Retail Traders
One of the very first ways that I started generating an income from my trading was by selling signals to other traders online.
When I started I had very little trading capital and so used that income to actually fund my first live trading account.
I would log into the website and manually type in the trade I was taking. This would be sent via email to my paying subscribers. They could then follow the same trades on their own account.
Since that time technology has dramatically improved. It is now possible to share your trades with thousands of people without doing any extra work.
Instead of manually sending each trade via email it is now possible for subscribers to receive each trade you take, directly into their trading account.
When you press the buy or sell button, the exact same trade is placed on their account.
It doesn’t matter where their broker is or how much they have in their account. They simply pay a monthly subscription fee to receive your trades.
Depending on where you reside and operate from this is classified as a regulated activity. The FCA for example, considers this type of activity as investment management.
If you are managing client funds already then this is no major issue. Just make sure to alert your compliance officer to the fact that you have started this type of business.
If you need guidance on becoming regulated to manage money in a cost effective way then you should read this article.
Getting set up is relatively simple although you do need to be trading on a platform that retail traders are familiar with.
Setting Up A Trade Copying Business
Once you have a track record on a trading platform that retail traders are familiar with your next step is to find a trade copying site.
There are dozens of sites offering slightly different variations of the trade copying model.
The two core things to look for are that they are broker neutral and that they have a community of traders.
If they are not attached to a broker then your clients can follow your trades more easily without opening new accounts. This increases your possible following.
If they have an active community then this provides you with an instant marketplace through which to attract new followers.
Of course, you can join as many sites as you wish but if you’re starting with one then it’s good to have these two things.
Some sites will allow you to completely re-brand everything to your logos and name. This allows you to promote your signals without promoting anyone else’s.
Other sites will demand that you co-exist on their platform amongst all of the other signal providers. This has the benefit of your offering being visible at all times.
You should aim to have a profile across as many different sites as possible and promote your branded site.
Many of the sites will have lots of traffic and a large community of traders already in place. It is worth contacting each one to find out how you can promote your signals.
Very often they will have special promotional options that allow you to attract a base of followers. This can provide an income almost instantly.
Offering a free trial period for your signals is a good way to draw in followers.
Promoting Your Signals
Once you have everything set up your next step is to get as many paying subscribers as possible. A good way to start is to calculate the cost of running your business and the salary you need.
You then promote and grow the signals business until it generates enough cash to cover all of these costs.
Do not operate a signals business under your own name. This will attract investors that would otherwise invest with you directly.
Most investors would rather pay $100 per month than an annual management fee and percentage performance fee.
Select a pseudonym for your retail business and use that to promote your signals and attract retail followers.
Remember that the signals business is merely a channel through which to generate an income while building your main business up.
Your account size and track record are going to have a big impact on how many followers you will attract.
Create social media channels and possibly even a blog site. The purpose of those things is to demonstrate your value to potential followers.
You can share your performance but also try and educate people. Show them that you are an expert and that their account will prosper by following your signals.
You can teach about trading principles or even how your particular strategy works as you trade it. When building and educating an audience one of the most important features is that of an email list.
This allows you to communicate with your followers whenever you have something important to say.
This also leads us very nicely into the second hack that will help you generate an extra income from your trading business.
Building A Ladder Into Your Fund
A product ladder is one of the most important elements of pretty much any business. It gives your fans and followers an opportunity to pay you.
It’s called a ladder because each rung is a new product or service that leads your clients towards the ultimate goal of investing.
If you build it correctly then it can help you significantly grow your AUM. At the same time it can also provide you with an extra trading income.
A money management business is a business like any other. Your product is slightly different but you still reply on people paying you for a service.
You have a main product or service which is most likely your investment programme. The goal is to create several other products and services.
This gives potential clients an opportunity to pay you even before they become a full investor. These payments start to add up and generate an income that you can live off.
These extra products and services also allow people that cannot invest an opportunity to work with you too.
This expands the amount of people you can help and the money that you make. The key is to offer things that relate to why they follow you in the first place.
They are interested in trading and investing. Think of products that relate to that interest.
For example, you could offer them the chance to pay for trading signals before investing. This gives them the chance to see how your trading operates before risking their capital.
You could also create a newsletter with your analysis and research inside. This gives them access to all of your insights and your best trading ideas.
Both of these things offer value to the investor and lets them pay you money to receive them. This income can then top up your salary or cover the costs of your fund.
Value Of A Product Ladder
It may seem trivial but the value of a product ladder can make a huge impact on your money management business.
It can significantly increase the amount of investors you attract while also generating a revenue that you never had before.
If you structure your ladder correctly then it also allows you to advertise and reach new clients with almost zero cost.
Imagine being able to attract high net worth investors into your business and having them pay you before they make any investment.
Now, imagine scaling this up to dozens or even hundreds of new investors each month. This type of structure is what allows a complete start-up survive with a very low AUM.
It gives you time to extend your performance track record and sustain your business with far less pressure.
Simply put, building a product ladder is a secret hack to making sure your business thrives even if you have low starting capital.
It is a secret tactic that large and established hedge fund managers are not even aware of. After all, they can raise larger amounts of initial capital.
This allows them to cover all costs and take a healthy salary during the first few years of operation.
If you don’t have this luxury but are keen to launch your own hedge fund or managed account programme then consider a product ladder.
The goal of this article was to show you two methods that can be set up and implemented right away.
They will help you to grow your income while focusing fully on your trading business.
If you’re an aspiring asset manager looking for guidance on a topic I have not covered please leave your comment below.
I read everyone and try to use them when creating new articles and videos.