5 Steps to Becoming an Independent Broker Dealer

Kreg Bale
Kreg Bale December 2, 2021
Updated 2021/12/02 at 12:53 PM
5 Steps to Becoming an Independent Broker Dealer

There are two options to becoming a broker dealer—going solo or joining an existing firm. Each has its upsides and downsides. If you choose to become an independent broker-dealer, be ready to put in work. It’s just like starting your own business. You must be willing to invest your money, time, and energy to see results.

On the other hand, joining an established firm may come with a lower workload, but you won’t be calling the shots in the company. If you’re thinking of becoming an independent broker dealer, here’s how to go about it.

1.  Pass Industry Exams

Before you register the company and get licensed, you must pass qualification exams administered by the Financial Industry Regulatory Authority (FINRA). These exams cover a range of topics on the securities industry and regulatory structure. You’ll have to pass the exams to demonstrate your knowledge of securities before you start handling clients. The exams also ensure you have the expertise required to run a successful brokerage firm.

2.  Secure Funding

Like any other startup, you need money to launch and run your brokerage firm. The amount you’ll need will depend on how you intend to operate. A good estimate is $50,000 to $100,000. You can explore multiple funding options such as banks loans, grants, and small business loans. Short-term loans which have lower interest rates, like car title loans, can also help boost cash flow when business is slow.

However, if you want your brokerage to trade for its accounts, you may need between $100,000 and $150,000. You can consider this option later as the business grows.

3.  Fill Form BD

Before applying for registration as a broker dealer, you must fill Form BD through the Central Registration Depository and submit it to the Securities and Exchange Commission (SEC) for approval. The SEC reviews your personal information–including your professional background and that of your employees and partners–to ensure there’s no conflict of interest. The SEC also examines your organizational structure, the types of securities you intend to sell, and the list of states you plan to trade in.

4.  Submit the Form to Regulatory Authorities for Registration

Your form BD will take 45 days to be approved. Once approved, you’ll need to register with the following regulatory bodies to operate lawfully.

  • Self-Regulatory Organization (SRO)
  • Securities Investor Protection Corporation (SIPC)
  • Securities Exchange Commission (SEC)
  • Investment Advisor Registration Depository (IARD)
  • Central Registration Depository (CRD)

You may need to comply with other registration requirements depending on your location.

5.  Hire Co-Principals

Your odds of success will significantly increase if you have a background working as an independent contractor. But it’s important to hire at least two principals and a financial operations principal. Besides helping you sign agency contracts and supervising other agents in your brokerage firm, the principals will also play an important role during registration.

However, they will need to have at least two years of indirect experience and one year of direct experience working in a brokerage firm. They must also pass FINRA’s qualifying exams and register with FINRA.

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