MasterCompliance has been assisting clients with the purchase or sale of broker-dealers and the related FINRA application process 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 buy an existing broker-dealer. There are many benefits to purchasing an existing broker-dealer. We have years of experience and vast expertise in putting these deals together to benefit all parties involved.

Timeline for Startup

Depending on the structure of the transaction, purchasing an existing broker-dealer could allow you to commence operations in a much shorter amount of time than creating one from scratch. The timeline does require the buyer to begin the Continuing Membership Application (“CMA”) process immediately, pursuant to FINRA Membership Rule 1017. The application submission can take generally 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.

Necessary Due Diligence for Purchasing a Broker-Dealer

One aspect that must be considered is the time and expense of a due diligence review. Due diligence should be conducted on the existing broker-dealer. This is essential because certain liabilities of the broker-dealer may transfer to the buyer, such as financial, legal, or regulatory liabilities. Recognizing these in advance can position the buyer to determine if the firm is a good fit for their goals.

Broker-dealer acquisitions are ideal when the predecessor firm has no prior operating history. In other words, the predecessor firm has done no business. In some cases, a group may have had the initial purpose of forming a broker-dealer, but one of the partners may have backed out prior to operations. On the other hand, the group could have simply determined that they no longer wish to own and operate this asset. Buyers 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, it is important that all compliance documents are delivered to the successor firm. Historical records will be subject to future FINRA and/or SEC audits and examinations.

Efficiency for Growth

Depending on the existing structure and business lines, buying a broker-dealer can provide the buyer with a great foundation. The parties may be able to ramp up growth more quickly compared to starting from scratch.

If the buyer is able to find an available firm with similar infrastructure and approved business lines to their plans and desires, then the buyer has taken care of one large part of the equation. When starting a broker-dealer from scratch, gaining approval for the necessary business lines may take additional time and effort. With the right existing firm, a buyer might be able to avoid this process. However, the buyer should ensure that they have experienced supervisors for each business line.

It is important to note that there are various purchase structures that can be custom-tailored to different situations and needs. For example, 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.

You may find additional information on buying or selling a broker-dealer here. To weigh your options for starting a broker-dealer, check out our previous blog post on the Benefits of Starting a New Broker-Dealer.

We are experts with both starting a broker-dealer or purchasing an existing broker-dealer. As every situation is unique, contact our office to discuss your goals, timelines, and challenges.