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Suppose person X is managing money for person Y without compensation. That is, person X has trading authority over person's Y account. In this case, I claim person X is not an Investment Advisor for purposes of the Investment Advisers Act of 1940.

If person X buys the XYZ stock (a name I made up) in person's Y account, can he legally buy it for his own account the same day? I believe not. He needs to wait some time. How long does he need to wait? 1 day? 3 days?

I am in the United States.

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I agree that someone with trading authority over another person's account who does so without compensation (e.g. an adult child with a power of attorney authorizing them to trade in their incapacitated parent's account) is not an Investment Advisor subject to regulation under the Investment Advisors Act of 1940 (the pertinent definition is here).

If person X buys the XYZ stock (a name I made up) in person's Y account, can he legally buy it for his own account the same day? I believe not. He needs to wait some time. How long does he need to wait? 1 day? 3 days?

It is not clear from the question what kind of transaction you are talking about. Are you asking if X can buy the particular shares of stock that are in Y's account, or are you asking if X can buy XYZ shares on the open market for X's account after having also done so for Y?

Also, if you believe not, why would you have that belief? Do you believe that this would constitute a form of indirect compensation?

Someone who has the authority to trade in another person's account for that other person's benefit is necessarily some sort of fiduciary and owes fiduciary duties of loyalty to Y.

It isn't clear to me why making a parallel purchase of the same stock purchased for Y on X's own account would violate the fiduciary duty that X owed to Y. But perhaps I am not understanding some aspect of the transaction described in the question that is pertinent.

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  • I am asking: if X can buy XYZ shares on the open market for X's account after having also done so for Y
    – Bob
    Jan 1, 2022 at 21:29
  • The reason I am asking the question is that a while back I was an Investment Advisor. That is, I managed other people's account for a fee. At that time, it was not okay for me to buy a stock (in the open market) for a customer and then buy it for my own account(in the open market). I had to wait 3 days to buy it for my own account. That came from my lawyer. Today, I have trading authority over several accounts that I manage for a relative. Since I am not compensated, do they same rules apply?
    – Bob
    Jan 1, 2022 at 21:33
  • The reason for this restriction is that by buying the stock, I might disturb the market. I think this would be more of an issue if I was buying before the person whose account I was managing.
    – Bob
    Jan 1, 2022 at 21:37
  • I would not think it is an form of indirect compensation.
    – Bob
    Jan 2, 2022 at 4:34
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    @Bob That is helpful. The concern you are raising is largely particular to Investment Advisors. It could, in theory, come up in the case of an extremely large parallel purchase when not compensated, but generally speaking, the purchases that an individual makes, as opposed to an Investment Advisor driving large volumes of purchases, is so negligible relative to the volume in the market that this isn't a concern and is not illegal.
    – ohwilleke
    Jan 3, 2022 at 15:18

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