Since 2003, we have been assisting firms with starting new broker-dealers and the related registration process with the FINRA, SEC, and MSRB. Some of the types of broker-dealers that we have assisted in starting new firms include Investment Banking firms; Private Placement firms; Retail firms with clearing relationships; and Merger & Acquisition firms.
Starting a new broker-dealer requires patience and is not for the faint of heart. Potential clients often contact our office to determine if starting a broker-dealer is better than purchasing an existing one. Certainly, starting from square one has certain benefits over purchasing an existing shell. When trying to weigh the options, here are key considerations that highlight why starting a new firm might be the more advantageous decision for some.
Timeline for New Broker-Dealers
Generally speaking, the New Member Application (NMA) process takes anywhere from four to six months. Although it may take longer to be approved for transactions, a benefit to this timeline is that it allows firms to ease into the regulatory process. For example, firms can use this time to get to learn more about the regulatory landscape, build and design systems, employ necessary positions, and perform other administrative tasks. Below is a general workflow of starting a new broker-dealer:
- Initial new client consultation;
- Determination of desired business lines;
- Assignment of principal registrations and executive positions;
- Name reservation;
- CRD and Form NMA entitlement process;
- Preparation and submission of the Form BD;
- Documentation of corporate structure;
- Capital funding and establishment of accounting systems;
- Completion of Form NMA process;
- Construction of an application business plan;
- Application for FINS#;
- Completion and submission of Form U4s;
- Construction and submission of Written Supervisory Procedures to satisfy FINRA’s membership checklist;
- State registration assessment and applications;
- Help determine if your representatives will need any additional licenses;
- Application for a fidelity bond;
- Establishment and submission of an Anti-Money Laundering Compliance Program;
- Establishment and submission of a Customer Identification Program;
- Construction and submission of a Business Continuity Plan;
- Registration with a Lost and Stolen Securities Program;
- Gathering of information and additional documents requested in follow-up requests from FINRA once the initial application is submitted; and
- Preparation for FINRA membership interview.
Cost of Starting a New Broker-Dealer
In general, starting a new broker-dealer can be a more cost-efficient process. There is often a premium cost associated with purchasing an existing broker-dealer. For instance, added costs associated with acquiring a firm can include due diligence fees, legal fees related to purchase agreements, and other costs related to conducting research. By starting a new broker-dealer, you may be able to avoid additional costs related to the following types of reviews for existing firms:
- The last FINRA and any other regulatory body review and the Firm’s response
- The Firm’s fidelity bond
- The Firm’s SIPC registration
- Corporate Formation Documents & Operating Agreement if applicable
- Vendor agreements (i.e. leases, personnel, and/or consulting agreements)
- Current membership agreement
- Clearing agreement (if any)
- Copy of Form BD
- The last 4 FOCUS reports
- Current annual financial audit
Availability in the Marketplace
Lastly, by starting a broker-dealer, you do not have to spend the time to find an available broker-dealer with the existing business lines that are desired. Depending on the type of broker-dealer you would like to start, the market for it may not be as readily available. Also, when you locate the broker-dealer, you must factor in more time to perform adequate due diligence. In short, searching for and acquiring an existing firm may take a similar time period and work level in comparison to starting a firm from square one.
You may find additional information on starting a broker-dealer here. We are experts with both starting a broker-dealer and purchasing an existing broker-dealer.
Ultimately, every situation is unique and specific to the details involved, so please contact us today to discuss your goals, timelines, and challenges. Our consultants have extensive knowledge and experience with helping new broker-dealers through the decision and registration process.