My relative has been offered a position and I want to get more info to see if it’s legit.

A school advisor connected him with former employees of large international bank, who started their own hedge fund. My relative is a grad school student with no investment experience, aside from his personal accounts and a few college classes. In school, he focused on medicine and healthcare, which aligns with the hedge fund managers' strategy. The potential employers want him to post his own capital before beginning work. They have hired interns previously, who worked without compensation and didn’t need to invest personal funds.

The whole thing sets me on edge, since it could be seen as receiving a position in exchange for investing personal funds. I imagine his potential employers walking away with his money, and leaving him no recourse to recover or even complain. After all, they already informed him of its high risk. It wouldn’t even need to be a scam, and he could end up losing part of his savings.

On the other hand, I don’t want to dissuade him from a potentially rewarding or at least exciting career move. This might just be their way of testing his dedication. I have no way of decreasing the uncertainty of this decision, and want to offer the best advice to my relative. I would appreciate any further perspectives about this crossroad. Thanks!

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    Is this in the US? If so, is your relative an accredited investor (Roughly, $1 million net worth, or earned at least $200,000 in each of the last two years). What percentage of his net worth is he being asked to invest? – Patricia Shanahan Apr 10 '17 at 23:55
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    Talk to a qualified financial advisor rather than random strangers on the Internet, voting to close as off topic as asking for advice – The Wandering Dev Manager Apr 11 '17 at 1:20
  • @TheWanderingDevManager: I agree that asking for investment advice is off-topic here (though there is money.stackexchange.com ). However, I read OP as asking whether it is common to require investment when starting a job - that looks on-topic to me. – sleske Apr 11 '17 at 7:28
  • @sleske - the problem is the question is "does this sound legit?" and that's a very hard question to answer, in terms of legality, regional rules etc. If someone posted here "should I invest in company x?" I'd vote to close, the only difference is "should I invest in company x so I can get a job with them?". I would hate for someone here to speculate an answer, the OP needs qualified advice. If JoeStrazzere with his 166k rep said "do it", I'd still say no (no ofence Joe, just using you as highest rep), there is no way of validating financial advice here. – The Wandering Dev Manager Apr 11 '17 at 15:15
  • I'll see if I can find references, but I've read, in the past, that a financial adviser having their own money invested in the hedge fund they are trying to sell you is an indication that they actually believe in the product, and aren't trying to bamboozle you and sell you junk. I seem to recall this being a test a potential candidate should give, and someone not invested in the fund would be a red flag to stay away. Again, I'll look for specific citations to that effect. – PoloHoleSet Apr 11 '17 at 16:11

In no way is this a test of his dedication.

The only jobs I know of that require employees to make an up-front investment into the business are network marketing companies and scams. Network marketing firms (the legit ones) are usually clear that you're building your business, using their platform and products (and you only make serious money if you're good at recruiting others). This opportunity doesn't sound like that sort of deal.

By requiring an up-front investment, they're either a scam, or they're making an offer of equity (ownership) in the company. As such, your friend needs to be aware of much more than just trading his medical and healthcare knowledge for money. He will need business understanding, and probably his own legal advisor to make sure he's not walking into a one-sided deal.

At the very least, he should receive some kind of a prospectus detailing the type of investment and the responsibilities, rights and expectations of shareholders/owners. He should read it carefully.

No prospectus? Walk away. Quickly.

EDIT ... and the school advisor who connected him to this "opportunity" should be asked to disclose the full nature of their relationship with this firm. Is there a commission or finder's fee being paid for referrals who get "hired"? Run from this. Seriously.

  • Also, there are partnerships where you "buy into" the partnership. But then you get a sizable part of the business (10, 20 % or more). That does not apply here, of course. – sleske Apr 11 '17 at 7:29
  • thanks for your info! I work entirely outside finance and don't have a clear perspective on this job offer. thanks for your help in describing the implications of this offer. – user3489590 Apr 13 '17 at 1:18

There's nothing to worry here. It might be your friend's only chance to get into the field. You might want to congratulate your friend for the job offer. It's a deal. Your friends buys a job. That's no free lunch, remember your friend has no relevant experience. Your friend is expected to pay to learn. It's just like buying a car, buying a house ... It's a business deal. Nothing suspicious here. Why the bankers receive so much money, and your friends can't (your friend has to pay!)? Want to blame? Blame for the incompetence. Your friend is not good enough, Simple. Read on.

Unfortunately this is common in finance startups. I know it well because I was in finance.

The finance startups can do that because:

  • They have too many candidates. There're not enough finance jobs for fresh graduates. Remember the financial industry is extremely competitive.
  • So many graduates want a finance job. But lot's of them are not intelligent. Those untalented graduates wouldn't stand a chance for world-class companies such as JP Morgan, State Street.
  • But they insist to stay in finance... So what do they do? Many small finance startups offer them a job if they pay for themself.
  • In exchange, the company would give a good review for the graduate's next job. Something useful on the resume.
  • This is a deal: I give you experience, and you give me money.

Usually, it's like this:

  • The firm hires a not-very-smart graduate, and requests for his/her money for trading in the financial market. The position would be something like: assistant trader.
  • If the graduate makes money, most of the profits must goto the company.
  • If the graduate loses money, the company wouldn't compensate for anything. The graduate would be fired for underperformance.

It's good for the startup:

  • Lose nothing.
  • Persuade the graduate's family to invest in the company. If they don't invest, terminate the employment. Do you want bright future for your son? Then you must pay because he's not smart.

We can't do this to experienced financial practitioners because they are competitive and highly employable. For your friend - Pay or never step into finance.

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    None of what you say sounds even remotely like a good opportunity for the new employee. – Erik Apr 11 '17 at 5:33
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    Except it's not a paying job if you need to invest money first. It won't become a paying job until you made back your investment, and that'll probably never happen. – Erik Apr 11 '17 at 5:37
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    Sources? Never heard of a single company asking people to pay them for experience. It's a daft idea and just sounds like a scheme. Far too dodgy. You're also assuming they're paying to get experience and not for the opportunity to be conned out of money. Giving money up front is always a terrible idea – Draken Apr 11 '17 at 5:54
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    @StudentT Perhaps you were the one suckered into paying for a job ;) Also - no need to denigrate OP's relative. The job market is hard to navigate, especially for a new grad. – kc m Apr 11 '17 at 14:50
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    Yes, you're 100% right, it's common practice, for scammers that is. Again, you don't "buy" jobs, neither as graduate nor as senior, that's not how this works, that's now how any of this works... – Seth Apr 11 '17 at 15:02

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