There is much discussion regarding account type options. The first place to begin understanding is categorizing the account type. While many categorization opinions exist, I organize account type in three categories based on their regulation, distribution channel and primary investor type.
“Direct” or individually managed accounts are regulated by the NFA, CFTC and are available through Futures Commission Merchants (FCMs) and Introducing Brokers (IBs). These account types are typically utilized by individual investors and more sophisticated institutional investors. Investors in these accounts range across the map and are not necessarily restricted based on their net worth or level of sophistication.
“Traditional” Hedge Fund / LP / Pool structure. These managed futures accounts are regulated by the NFA and CFTC but also may be regulated by the SEC and FINRA depending on their distribution. These funds are typically distributed through sophisticated asset managers, family office professionals, investment banks and an elite group of registered investment advisors. Many times these funds are for Qualified Eligible Participants – highly sophisticated investors – and contain exemptions that do not require disclosure documents nor auditing by the NFA.
Mutual Fund / ETFs. These accounts are primarily regulated by the SEC / FINRA but also regulated by the CFTC. They are available through general wirehouse financial advisors and mainstream RIAs. Investors in these low minimum investment accounts range are not restricted based on their net worth or level of sophistication.
While account type is important, understanding the benefits, legal protections and disadvantages of each account type is more significant.
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