Steps to start an independent broker

If you want to become a broker-dealer, you can join an existing company or start your own company. If you choose to work for someone, you may be investing in a management team that you know little about. But the payoff is that the workload is much lighter. However, if you decide to go out on your own, please pay attention to what is involved. This is almost like investing in your own startup company, requiring a lot of work, time, patience and money. One advantage is that you know who is leading this company-you. So, if you are not afraid of a lot of hard work—not to mention the time and money you have to sacrifice—you may be ready to start your own broker-dealer company. Read on to learn more about what is involved in achieving and developing a successful broker-dealer company.

Key points

Starting your own brokerage dealership company can be a rewarding and challenging adventure.

Ask yourself if you are capable of sacrificing the required funds.

You need to demonstrate experience, arrange a principal, and submit the necessary forms to be approved.

The benefits of entering the broker-dealer business

Just like any other business, there are some obvious benefits to doing business for yourself as a broker-dealer. First, there is no bureaucracy to work for others. Bureaucracy often leads to more formal and rigid systems, with little room for innovation, and sets rules that companies must strictly abide by. Doing business for yourself also gives you the freedom to do things your own way. Don’t forget, there is also the potential for huge wealth. This last point may inspire most readers, but it is not easy to get there. You need a scalable business, experienced managers who can lead and successfully navigate difficult times, funding, and the right licenses and memberships, including:

before the start

If you are an independent contractor and are still hesitant about your branch, please calculate your annual net income. Accept this answer and apply it to the human aspect of the equation. For example, do you have enough capital to take risks without changing your lifestyle? Whether you admit it or not, lifestyle plays a huge role. You still want that summer vacation, a luxury car, and a beautiful house in a good school district, even if it requires the most dangerous word in the financial world—debt.

People with the least debt are generally happier. If you have kept your personal costs low and you perform well with your current broker-dealer, the transition will be much easier. Of course, the best way is to build capital from your current location while reducing personal costs. Your available funds will increase rapidly, which will result in less risk for your own broker-dealer. FINRA essentially wants to know that your capital will pay the net capital requirement plus the expenses for the first six months without any income. FINRA wants to keep the industry strong. Therefore, it will only approve applications that have the necessary capital and strong and experienced management support.

To give you a more basic understanding of start-up costs, please consider the following candidate list:

  • FINRA registration
  • National registration
  • consultant
  • employee
  • Clearing company deposits

Although the list is short, the costs can be huge—especially unexpected costs. A key to success is to hire a management team that is good at keeping costs low without sacrificing growth potential. This is the thin line of toes that very few people can.

It is not to prevent you from taking this risk, but you should also know that most new brokerage dealers lose money in the first year, with an average of between 10% and 20%. Remember, it takes three years for any business to be profitable. Therefore, this should not act as a deterrent. As long as the people around you have composure, leadership and problem-solving skills, the chances of success will be in your favor. Just make sure to balance the team with sales-oriented brokers and experienced managers.

getting Started

First of all, you need money. How much you need to start depends on how you intend to operate. At the beginning, at least US$50,000 to US$100,000 are needed.If you intend to let the broker-dealer trade for its own account, the amount will increase to between 100,000 USD and 150,000 USD

Experience also plays an important role. If you have worked as an independent contractor, you will be more successful. Otherwise, the risk will increase. Think about it, would you give money to someone with little trading experience?

If you want to be approved, you will need two persons in charge and one person in charge of financial operations-with one year of direct experience and two years of indirect experience. The principal officials must register with FINRA, take the qualification examination and press their fingerprints.

After submitting the Form BD through the Central Registry, the SEC has 45 days to decide whether you are approved. This form allows the SEC to review your personal and professional information and background, review the information of your business partners and employees, and help it determine whether there is any conflict of interest. The US Securities and Exchange Commission wants to see high professional standards, financial responsibilities, detailed information about the types of securities that will be sold, the organization and operating structure of the company, and a list of states where products will be sold. If you receive good news, your order to grant registration will not take effect until you become a member of a self-regulatory organization (SRO).

Once approved, you must become a member of a self-regulatory organization (SRO) before your order for granting registration will take effect.

Financial Industry Regulatory Authority

The huge amount of information can make things very confusing. Let’s wait a moment and see what it takes to become a FINRA member:

  • Form BD
  • U-4 and U-5 forms (used by broker-dealers to register or cancel their registration with the SEC, SRO and jurisdictions)
  • A comprehensive business plan
  • Copies of agreements with banks, clearing agents and service bureaus
  • Sources of funds
  • Description of the supervisory system
  • Written supervision procedures
  • Complete anti-money laundering (AML) plan
  • Description of the company’s continuing education program

Bottom line

All this information can be overwhelming. FINRA is known for continuous file requests and continuous back and forth communication. However, if you go through the approval process and then plan your work and execute it according to your plan, then the potential return of a successful broker-dealer can be exceptionally high.


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