Asset Managers – Trading Under a PoA – Why Do I Need a Contract?

Powers of Attorney are commonly used by Traders (eg Forex Traders) to trade funds for a third party to avoid having to apply for a Fund or Broker’s License.

How it works is:

(a) In the case of forex etc trading an account is opened in the name of the third party investor (“the Account Owner”);

(b) The Trader sets up a tax-free Offshore Company (“IBC”);

(c) The Account Owner (ie a third party investor referred to in a PoA as “the Principal”) signs a Power of Attorney with the Trader’s IBC which appoints at law the Trader’s IBC as the Account Owner’s Authorized Trader and attorney-in-fact (the “Agent”);

(d) The Trader trades the Account Owner’s account and charges a trading fee as agreed (which is commonly a percentage which could be anywhere from 20% to 50%);

(e) The Trading Fee is banked into the Trader’s IBC’s Bank Account free from tax

The Trader/Agent is given full power and authority on behalf of the Principal to buy, sell (including short sales) and trade in a range of things as specified in the PoA/Authority document including for example:

Currencies
Stocks
Mutual funds
Index funds and securities
Bonds
Options (including uncovered option writing)
Physical commodities
Financial instruments
Commodity futures contracts
Financial futures contracts
Equities and single-stock futures contracts
Foreign commodities
Foreign commodity futures contracts
Forward contracts
Contracts in unregulated foreign exchange markets, and options and other derivatives on each of the foregoing, on margin or otherwise,

If you are going to trade someone else’s money under a Power of Attorney, before a Power of Attorney gets signed, first and foremost, you will need to have a legal contract in place (ie signed by both you and the investor) which clearly sets out:

The services you are going to provide
How you are going to provide those services
That you are entitled to get paid for those services
What you are going to get paid for those services
How you are to receive payment
What out of pocket expenses you are entitled to be reimbursed for
When you are entitled to invoice/receive payment
That the client will provide you with a Power of Attorney
What the terms of the Power of Attorney will include
In what circumstances the contract can be cancelled by you
In what circumstances the contract can be cancelled by the investor
How the Power of Attorney can be revoked and by whom
Whether you can assign the benefit of the contract (and how you can assign the benefit of the contract)
Proper law forum (ie what Country’s courts are to hear the case if there is a legal dispute)
etc