August 25, 2015

Buy or Sell a Broker/Dealer

We have been assisting clients with the purchase or sale of broker/dealers and the related application process FINRA since 2003.  At times, clients will come to us with the need for a broker/dealer, and often, the best way to accomplish that goal is to purchase a broker/dealer.  We have years of experience and expertise in putting these deals together to benefit all parties involved.

One advantage to purchasing an existing broker/dealer rather than starting one from scratch is the amount of time involved. In purchasing an existing broker/dealer, if the deal is structured properly, you can be operational and conducting business in a very short period of time. Our services include an initial assessment of the situation, presentation of various suitable alternatives, and other possible options to consider.

Please note that it is important to conduct thorough due-diligence prior to buying an existing broker/dealer. It is our experience that a successor firm could be named liable for business conducted by the predecessor firm. Broker/dealer acquisitions are ideal when the predecessor firm has no prior operating history. You are advised to talk to an attorney regarding successor liability, which will involve corporate law and not FINRA or the SEC. Additionally, when acquiring a broker/dealer, you must ensure that all compliance documents are delivered to the successor firm. Historical records will be subject to future FINRA and/or SEC audits and examinations.

FINRA requires notification of the purchase/sale of a broker/dealer no less than thirty (30) days prior to effecting such transaction. If you are willing to pay a premium price to acquire an existing broker/dealer, you may be able to immediately conduct the business outlined in the firm’s FINRA membership agreement once the transaction has been executed. It is important to note that there are various purchase structures that can be custom tailored to different situations and needs. Representatives that are currently registered with other member firms will experience a much easier transition if they purchase a broker/dealer as opposed to starting a new one.

Upon notification of the proposed transaction, the buyer will then begin the “CMA” (Continuing Membership Application) process immediately, pursuant to FINRA Membership Rule 1017.

Upon application submission, FINRA has 30-days to respond to the broker/dealer application with questions and/or requests for clarification or additional information. Once a request from FINRA is issued, the applicant then has 30-days to respond. In order to keep the process moving, we strive to provide response turn-around as quickly as possible. FINRA then has another 30-days to respond with further questions or requests, if needed. Once this second request is issued, the applicant has another 30-days to respond. It is common at this point in the application process to schedule a membership interview; however, there may be circumstances that warrant a third request letter, which again follows the 30-day FINRA and applicant response windows.

Once a membership interview has been conducted, FINRA will typically approve the broker/dealer within 30-days from the meeting date if no further information is requested. Based on our experience, the entire process can take three to six months. It is important to note that FINRA is obligated to issue a final decision on the application no later than 6 months following the application submission unless extraordinary circumstances require an application extension.

Some of the details and work required to complete a broker/dealer acquisition include:

  • Initial Client Consultation
  • Determination of Desired Business Lines
  • Preparation and Submission of the Form BD
  • Documentation of new ownership structure
  • Completion of Form CMA Process
  • Construction of an Application Business Plan
  • Completion and Submission of Form U4s
  • Analysis of current and potential submission of Written Supervisory Procedures to satisfy FINRA membership checklist
  • Help determine which additional licenses, if any, your representatives will need
  • Application for Fidelity bond
  • Analysis of current and potential submission of an Anti-Money Laundering Compliance Program
  • Analysis of current and potential submission of a Customer Identification Program
  • Analysis of current and potential submission of a Business Continuity Plan
  • Gathering of information and additional documents requested in follow-up requests from FINRA once the initial application is submitted
  • Preparation for FINRA membership interview

 
To learn more about our services, contact us or call 1-404-841-1010.