Kim Lisa Taylor, Esq., is the founder and managing attorney of Syndication Attorneys, PLLC. She has guided entrepreneurs through hundreds of securities offerings totaling more than $5 billion. She is the author of two best-selling books on raising capital, How to Legally Raise Private Money and How to Raise Capital for Real Estate Legally, and hosts the Raise Capital Legally podcast and YouTube channel.
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Coaching programs teach a fund of funds as an easy way to raise capital, but a sponsor who selects which other syndications investors' money goes into, for a fee, may be acting as an investment adviser. Depending on the size of the fund and the state involved, that can require registration with a state securities regulator or the SEC, and the requirement does not go away because a coach left it out.
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Coaching programs frequently teach a fund of funds structure as the easiest way to raise capital, often for a substantial enrollment fee, with the pitch that the sponsor "doesn't have to do anything." A fund of funds is not illegal, and many sponsors run one properly, but the version taught in many of these programs skips an essential step: determining whether the sponsor is now required to register as an investment adviser. That requirement does not disappear because a coach failed to mention it.
What the Coaching Programs Actually Sell
The pitch centers on avoiding real estate operations entirely. Rather than underwriting properties, managing tenants, or running a value-add plan, the sponsor raises capital from investors and places it into other sponsors' syndications, deals built and structured by other people, with investor money riding on the fund of funds sponsor's judgment about which ones are sound. The appeal for a beginner audience is clear: no operating track record is required, only investors who trust the sponsor and a network of syndicators willing to accept placed capital.
Why "You Don't Have to Do Anything" Is the Warning Sign
This phrase, sold as the primary benefit, actually points toward the exact activity that triggers regulation. The less operating involved and the more the sponsor is the one deciding, allocating, and vouching for where investor money goes, the closer that activity moves toward a specifically regulated function: advising others on the value of, or the advisability of investing in, securities. Selecting which syndications a fund invests in, on behalf of investors, in exchange for a fee, constitutes exactly that activity. Not managing the underlying property does not change this analysis, since the regulatory concern centers on who is managing the decision about where the money goes.
What Investment Adviser Registration Actually Requires
Depending on the amount of money being managed and the state involved, registration may be required with a state securities regulator or with the SEC as a Registered Investment Adviser. This involves filing Form ADV, a detailed disclosure covering the business, its fees, and its conflicts of interest, along with ongoing obligations including record-keeping, periodic filings, and in many states passing an exam such as the Series 65, or qualifying for a specific exemption.
Registration also creates a fiduciary duty to investors, a higher legal standard than what applies to a typical syndicator raising capital for their own deal. This is not a one-time filing but an ongoing regulatory relationship that continues for the life of the fund.
Why People Skip It Anyway
The requirement gets skipped not because sponsors don't care, but because it represents genuine ongoing work, and because whoever introduced the fund of funds concept often never mentioned it. A common pattern involves a sponsor being told the registration requirement "probably doesn't apply" to their situation.
The incentives behind this gap are worth noting: a coach is paid at the point of enrollment and carries none of the regulatory risk that follows. Whether the registration requirement is addressed accurately or glossed over, the coach has already been compensated either way, leaving the sponsor to live with the consequences of that gap.
What Happens When the Requirement Is Ignored
Operating as an unregistered investment adviser constitutes its own separate violation, independent of whatever securities exemption governs the capital raise for the fund itself. Strong performance in the underlying deals does not make this issue disappear; it remains dormant until something prompts closer scrutiny.
That scrutiny typically arrives the same way most compliance gaps surface: an investor in one of the underlying deals encounters a problem, an attorney begins reviewing records, and the structure of the fund of funds itself, not just the underperforming deal, becomes part of what gets examined. Whether registration was required, and whether it occurred, is often one of the first questions raised in that review.
Why Feeder Funds Make the Problem Worse
Some sponsors attempt to avoid this issue by creating a single-purpose feeder fund for each individual deal, reasoning that a feeder tied to one specific offering looks less like ongoing advisory activity and more like a one-time capital raise. This approach does not resolve the underlying issue. The sponsor is still the one deciding which deal each feeder goes into, still doing so for a fee, and now doing it repeatedly on a deal-by-deal basis, which makes it harder to characterize the arrangement as a single, passive transaction. The registration question remains the same; a feeder structure simply arrives at that question faster.
What a Compliant Path Actually Looks Like
Several paths exist depending on the sponsor's specific structure and scale: registering as an investment adviser where the scale of the activity warrants it, structuring the fund so investors make the underlying allocation decisions rather than the sponsor, or partnering with someone who already holds the required license. A fund of funds structure is not inherently unavailable to a sponsor; the necessary step is identifying which of these paths applies before the first dollar is raised, rather than after an investor's attorney raises the question.
Frequently Asked Questions
Is a real estate fund of funds illegal?
No. A fund of funds is not illegal, and many sponsors run one properly. The problem is that many coaching programs skip the step of determining whether the sponsor is required to register as an investment adviser.
Does a fund of funds sponsor have to register as an investment adviser?
It can be required. Selecting which syndications a fund invests in, on behalf of investors, in exchange for a fee, is advising others on securities. Depending on the amount of money managed and the state involved, registration may be required with a state securities regulator or with the SEC, or the sponsor may need to qualify for a specific exemption.
What does investment adviser registration involve?
Filing Form ADV, a detailed disclosure covering the business, its fees, and its conflicts of interest, along with ongoing record-keeping and periodic filings. In many states it also involves passing an exam such as the Series 65.
Does creating a feeder fund for each deal avoid the issue?
No. The sponsor is still deciding which deal each feeder goes into, for a fee, and doing so repeatedly. The registration question remains the same.
What are the compliant paths for a fund of funds?
Registering as an investment adviser where the scale of the activity warrants it, structuring the fund so investors make the underlying allocation decisions rather than the sponsor, or partnering with someone who already holds the required license. The sponsor should identify which path applies before the first dollar is raised.
Suggested Next Reads:
> You Filed Your Form D. Did You Miss the Step That Comes After?
> Your Investor Hired an Attorney. Here’s Their Checklist.
Conclusion
Sponsors raising, or considering raising, through a fund of funds structure who are uncertain whether their approach triggers investment adviser registration may schedule a consultation at syndicationattorneys.com/schedule.
To learn more about raising capital legally, get a free digital copy of one of our books.
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This content provides general information on federal securities law and is directed to non-Florida residents or companies. It is not legal advice and is not intended as advertising or solicitation of legal services for Florida residents or Florida law matters. Use of this content or contacting us about it does not create an attorney-client relationship.
