To Buy A Broker/Dealer, Or To Start a Broker/Dealer? That Is The Question!

Acquiring a Broker/Dealer, whether through a purchase, or by starting from scratch, is a daunting process.  On top of the many difficulties that are common to all business beginnings, Broker/Dealers face numerous regulatory issues as well.  The brokerage industry is one of the most heavily regulated industries in the country.  Regulatory bodies overseeing this industry include the Securities and Exchange Commission (“SEC”, or the ”Commission”), the Financial Industry Regulatory Authority (“FINRA”) and the North American Securities Administrators Association (NASAA”), which is comprised of the States and Territories Securities Regulators.

​Whether you start, or purchase, your ownership must be approved by each of these regulatory bodies. The approval process is anything but simple.  Any potential owner of a B/D, will be thoroughly vetted by the regulatory bodies. The process is costly and time consuming.  For potential owners of B/Ds that are not exchange member firms, most of the vetting and approval processes are conducted by FINRA.

For most of its history, FINRA conducted the ownership approval process for free.  However, several years ago, FINRA started charging fees for this process. It matters not whether you buy one, or start one. You will still pay the fees.

Many times we are approached by individuals that think an acquisition is easier, and, or faster, than a start up.  While the rules regarding starting a BD, are different than acquiring a BD through a purchase are different, they remain surprisingly similar.  The thought that a purchase acquisition is faster than a start up, is a misconception.

If you start a Broker/Dealer, or if you buy a Broker/Dealer, both FINRA and the SEC, give themselves the same amount of time to approve, or deny the Membership Application.  That amount of time, for either situation is 180 days from the time the Membership Application is submitted to FINRA.  Since the application is submitted to FINRA electronically, the timing is down to the second.

Sometimes buyers are interested in purchasing what they call “Shell” Broker/Dealers.  The thought process is that they can acquire a Broker/Dealer inexpensively and get approved quickly, often thinking the process can be wrapped up in 31 days. This thinking is simply incorrect.

A Shell Broker/Dealer is a dormant B/D that has no revenue stream attached to it. The term “Shell B/D” is a vernacular term and is not recognized by the SEC, FINRA, or any of the State Securities Regulatory bodies.  The regulatory structure is a ”one size fits all” model.  Regulators treat all B/Ds similarly, whether you are generating revenues, or not, owners of Brokerage Firms have the same regulatory responsibilities and duties.

Other times, buyers are interested in purchasing a producing Broker/Dealer.  While the regulatory approval process may be expedited in this scenario, it is the most costly approach.  In addition to buying a Broker/Dealer, buyers must also purchase the revenue stream.  Invariably the purchase price of the revenue stream is increased by a multiple factor, often 2.5 to 3 times earnings.

​A third approach is to start a Broker/Dealer from scratch.  On the surface, it may appear more time consuming than a purchase, the reality is that it may take less time than getting a Shell Broker/Dealer, or a producing B/D approved. Especially if you factor in negotiating time, between buyers and sellers.

Starting a Broker/Dealer from scratch, is also the least expensive approach.  If you purchase a Shell B/D, it will cost $50,000 dollars or more, just for the purchase price.  Buying a producing B/D, often comes with a high six, to seven figure price tag attached to it.

​Another consideration, is consumer liability.  Most customer disputes involving Securities Firms, are adjudicated through binding arbitration.  The Statute of Limitations for bringing an action to arbitration is six years.  A buyer can do the best due diligence in making a purchase decision.  A seller can provide all assurances that there are no customer disputes whatsoever.  A Purchase and Sale Contract can have indemnifications built into it.

​We have seen situations, that despite all the cautionary steps taken, have resulted in adverse customer actions being initiated years after the Purchase/Sale transaction has occurred.  In our estimation, there is less than a 2% chance of this situation happening, but if it happens to you, it’s a 100% chance of occurring.

As you may surmise, each situation, buying a Shell B/D, acquiring a Producing Broker/Dealer, or starting a Brokerage Firm from scratch, has its own distinct advantages and disadvantages.  Forest Brokerage Advisers, Inc. (“FBA”) and Broker Dealer Place, a division of FBA, have helped hundreds achieve their goals.

If you are considering acquiring a Broker/Dealer, please do not hesitate to contact us.  We would be most happy to discuss each scenario with you in detail. We are only a phone call, or click away.  You can reach us at (407) 696-9600, or


Posted by: editor September 13, 2018

Tel: 407-696-9600

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