Key Steps for Starting a Broker-Dealer

Charles Schwab serves investors of varying experience levels, from brand-new investors to very sophisticated ones. The company has also been able to integrate help centers across various user-friendly platforms. Unlike traditional brokerage firms tied to specific product offerings, IBDs provide various investment choices from multiple sources, giving investors greater flexibility and diversity in their portfolios. These independent firms often prioritize personalized client relationships and tailored investment strategies, striving to meet their client’s unique financial goals and objectives.

The team at Blueleaf is offering 2 free months to Nerd’s Eye View readers who sign up for a 1-year subscription. Blueleaf offers a number of partner-level integrations with some of the leading providers in analytics, reporting, CRM, and Financial Planning. Wealthbox also integrates with a wide list of industry solutions, including Blueleaf, Mailchimp, MoneyGuidePro, RightCapital, Twitter, TD Ameritrade, and more. I recently found out that by being an FPA member I qualify for an even lower rate. If you’re a CFP certificant or carry other industry designations, you may qualify for a lower rate as well. In California, depending on your income, you may qualify for up-front tax credits when you enroll in health insurance in California through the Covered California Health Exchange.

To give you an idea, some of my clients have moved their accounts with me several times since I first entered the business in 2010 at the ripe age of 22. If at all possible, though, I’d like to make this the last move for my clients. As the volume of inquiries about my business has grown to a fairly sizable number, so did my interest in sharing the story of my own journey to independence. How I actually set up my independent RIA after breaking away from Merrill Lynch (and managed to retain 100% of my clients). How I’ve grown my business over the past year in ways I didn’t see possible while working at predecessor firms. You’ll certainly have an easier transition in setting up your own b/d if you’ve already worked in the independent contractor space.

An RIA is regulated under the Investment Advisers Act of 1940 and as such, they’re held to a fiduciary standard. Being a fiduciary means that a registered investment advisor has a duty to act in their clients’ best interests at all times. Many discount brokers pay their reps a flat salary with a bonus for reaching production targets at the branch or office level. The commission percentages depend on production level, tenure, and the relationship with the company.

They also tend to prefer the freedom to offer a wide range of products rather than being limited to proprietary offerings dictated by a firm’s marketing department. IBDs are thus distinguished by providing a more extensive array of products and services, more than what is typically available through discount or full-service brokerage firms. Advisors and brokerage firms that cater to specific types of clients can charge more money.

Investors’ accounts are covered by Securities Investor Protection Corporation (SIPC) insurance if the broker-dealer files for bankruptcy. The SIPC will reimburse investors for up to $500,000, including $250,000 in cash, in the event that a firm becomes insolvent. They provide information about their investment goals, time horizon, and risk tolerance. Though some platforms only ask basic questions, others will pose a more detailed range of queries. Based upon that information, the robo-advisor fashions a portfolio and adjusts it periodically.

After all, advisors who are running independent offices already do about 80 percent of the compliance and administrative work, says Warren Forest of Forest Brokerage Advisers, a b/d compliance consultant in Winter Springs, Fla. Because independent b/d-affiliated reps typically have their own staff in place, starting a b/d basically requires little more than some additional training and education. After two decades as an employee broker at two large wirehouse firms, he decided it was time to take his $1.5 billion business, and go out on his own. Rather than join an independent b/d, Ran launched Telemus Capital Partners in February 2005.

• I originally went with a financial planning software that was the preferred provider at HighTower Advisors, MoneyGuidePro.
• Evaluating all of my expenses and negotiating with service providers where possible.
• RIA in a Box publishes great content and provides a number of resources for free.
• If you have the money, you may want to hire a lawyer who can help determine the appropriate legal structure for your business, as the benefits of LLCs vs partnerships vs S corporations are beyond the scope of my discussion here.

But letting a broker-dealer run the compliance end of a new business and outsourcing back-office functions may be a good idea to also keep things running smoothly. There is, however, nothing stopping an advisor from giving clients their private email or home phone number so that the clients can choose to contact the advisors themselves if they wish to continue a relationship. In those cases, when an advisor is permitted to take their clients’ basic contact information with them when they leave a firm, they typically are not allowed to take any information with them concerning their clients’ accounts. In this case, you may want to send out a mailing to your clients letting them know your whereabouts, in the hopes that the clients will then follow up and provide any information they wish you to have. That’s why advisors planning to make a move should start shoring up their client relationships months in advance. Loyal clients will often remain with their advisor when they move to a different firm or open up a new one.

Daniel didn’t say he was leaving but started talking more with clients about transitioning to a full fiduciary, fee-only model. Last but not least, before your broker dealership is granted a FINRA membership, you have to become a member of yet another organization. Roth says it’s likely a defensive move by these b/ds, but a smart way to keep the advisors on their platforms.

Ran says he knew getting FINRA (then NASD) approval would require both proof of capital and strategic sustainability. He says many brokers he knows don’t start their own firms because they lack managerial skills. We have a five-person finance team, an accountant, compliance officer, administrative officer, CFO, COO and more.

There are licenses and memberships involved that you can’t miss if you want to operate as a fully legal enterprise. “Their refrain was, ‘Man, we really love working with you, but some of the things that you do today are probably not aligned with the evolution of how a custodian should support us,’” he says. Bank of New York Mellon (BK) is the world’s largest custodian, with roughly $25.8 trillion in total assets under custody. A broker-dealer is an individual or firm and as the name suggests, they can perform two different functions. FINRA asks that would-be Applicants take time to review and understand all FINRA’s substantive and procedural requirements prior to applying.

The firm also has a more-formalized succession planning and M&A capability, where advisors can get access to capital to use for succession or growth through acquisitions. Rich Steinmeier, managing director, divisional president, business development at LPL, says the firm started looking more intentionally at serving fee-only RIAs after Starting Up An Independent Broker-dealer hearing from a number of LPL advisors who dropped their FINRA licenses. The number of dual registrants—FINRA-registered reps who are also investment advisor representatives of RIAs—has steadily risen since 2008, according to FINRA data. At year-end 2020, there were 299,613 dual registrants, up from 295,677 at the end of 2019.

At prior RIA firms, we used Excel spreadsheets for calculating quarterly billing and generating invoices. But this is both time-consuming and cumbersome with different fee schedules, clients joining your practice mid-quarter, prorated billing, etc. What I really like about Billfin is that once it’s all set up and you learn the user interface, you’re no longer wasting hours calculating client management fees and generating professional-looking invoices. I use Blueleaf for performance reporting, although it is more than just a consolidated performance reporting system. They’ve coached me time and again on how to best utilize their software and team in order to win new business. Thanks to the team at Blueleaf, their reporting system has become an integral part of my prospecting strategy (and not just for giving performance reporting to existing clients!).

If you don’t already hold them, you will need to obtain several licenses to sell financial products, deal in securities, and provide financial advice. Firstly, you will need a Series 7 to sell securities, such as stocks, bonds, mutual funds, and variable annuities. To obtain this Financial Industry Regulatory Authority (FINRA)-issued license, you will need to pass a multiple-choice Series 7 exam. Depending on what state you plan to operate in, you may also need to acquire the Series 63 and Series 66 licenses, which allow you to sell certain securities based on state regulations.