The B/D Start-Up Process
We Do It Everyday.

Starting a Broker/Dealer is a time-consuming process requiring the creation, editing and filing of dozens of obscure documents, complicated forms and detailed procedures, all which must be within the regulatory deadlines.  Do you really want your organization to spend valuable time and bandwidth to research, understand and implement a complicated regulatory process, that most likely, your organization will never have to use again?

We know what is required by FINRA, the SEC, and each state, to meet and exceed the qualification standards necessary to obtain their approval.  We have established long-term supportive relationships with regulatory staff members that allows us to move your firm through the process in a cost effective and timely manner.

B/D Solutions will lead the Broker-Dealer Start-Up process which will allow you to focus on planning and building the most important factor in the success of your business – generating revenue.

Basic Requirements for Every Broker-Dealer Start-Up
Disclosure of All Ownership
Two Principals Requirement
FINOP Requirement

Categories of Broker-Dealers
Broker-Dealers are commonly grouped into three categories – “a limited purpose BD”, an “introducing firm”, or a “self-clearing firm”.   These categories are generally based on the firm’s net capital requirements, but firm’s within each category may conduct vastly different businesses activities.

Contact us today for more information on starting your new Broker-Dealer.

Broker/Dealer Startup Guide

"Limited Purpose" Broker-Dealers - Net Capital = $5,000

"Introducing" Broker-Dealers - Net Capital $5,000 to $100,000

"Self-Clearing" Broker-Dealers - Net Capital $250,000+

Investment Adviser Start-Ups

Funding Portal Start-Ups

Transfer Agent Start-Ups

Broker/Dealer Registration Process

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The Broker Dealer Registration Process

 

Phase I – What you need to do first before we file with FINRA

  • Establish a corporate entity as the broker/dealer.
  • Determine who will be the officers and directors of the B/D.
  • Reserve a name for the B/D with FINRA.
  • Establish an accounting system and decide on an independent auditor.
  • Fund the B/D with assets allowable for net capital.
  • Enroll in a study class and prepare for the required FINRA examinations.

 

Phase II – The staff of B/D Solutions moves into action

  • We gather all the information necessary for filing with FINRA and other agencies.
  • We file initial papers with the SEC, FINRA and State regulatory agencies
  • We submit the requests to take the required FINRA exams.
  • We request waivers for the 2 principal requirement (if applicable) and any other exemptions.
  • We work to schedule the FINRA “Pre-Membership Interview” (PMI) at the FINRA District Office.

But, you have responsibilities too:

  • You complete and pass all required FINRA examinations.
  • You create stationery and business cards for the B/D.

 

Phase III – The FINRA “Pre-Membership Interview” (PMI)

  • We prepare the Principals of your firm to attend the FINRA Pre-Membership Interview.
  • We attend the FINRA Pre-Membership Interview with you.
  • We work to provide FINRA any additional materials they request as a result of the PMI.
  • We continue to communicate with your Home State regulators to obtain concurrent approval.

 

Phase IV – After FINRA Approval

  • We submit applications to all remaining states requested by your firm.
  • We will submit to you a complete and detailed reconciliation of all costs and fees.

 

The Bottom Line
Regardless of the roadblocks created by FINRA, the States and other regulatory agencies, the staff of B/D Solutions will do everything we can to get your broker/dealer approved to conduct securities business as quickly as possible. Contact us about broker dealer registration today!

Buy vs Build

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Buy vs. Build?

B/D Solutions receives numerous calls every week from individuals wishing to start securities firms concerning the buy-or-build decision. The following points should help you make the appropriate decision that meets the goals of your business strategy.


 

The Myths of Buying a Broker/Dealer

Myth No. 1  Buying an existing “shell” is a fast and easy way to get a broker/dealer up and running.

While this was true a few years ago, FINRA has changed its rules related to the purchase and sale of broker/dealers. Now the purchase and start-up of a broker/dealer are covered by the same set of rules; therefore many times the process is almost identical in time, money and headaches involved.

Our experience has been that if you start building your own broker/dealer today, the time necessary to receive approval will be almost identical to that necessary to receive approval if you purchased a broker/dealer.

 

Myth No. 2  Buying a broker/dealer will not draw the attention or close scrutiny by the regulators.

This is a huge misconception. FINRA’s awareness and concern about purchased broker/dealers is just as intense as any start-up. Due to the recent regulatory changes brought about by anti-money laundering concerns, FINRA pays close attention to direct, indirect and remote owners and operators of brokerage firms. Their concern regarding the true beneficiary of ownership runs very deep and cannot be avoided. Trying to circumvent FINRA’s concern may very well be your organization’s first rule violation.

 

Myth No. 3  Buying a broker/dealer is cheaper than starting one from scratch.

Our extensive experience shows that when you consider all costs of buying an existing broker/dealer, start-up firms are consistently and significantly cheaper in both time and money. The reason is quite simple when you evaluate the two processes. When purchasing a broker/dealer, you must conduct due diligence on the existing firm and negotiate a purchase price. Additionally, a purchase contract must be negotiated to cover the indemnification and clarify the roles, responsibilities and assumptions of liabilities associated with the transaction. Obviously, any such transaction requires significant amounts of your time and focus, and the time and focus of your accountant, attorney, and tax advisor. As with many situations that involve these professionals, there will be a great deal of time and money spent appeasing all of the separate disciplines.


 

Cost Considerations When Making Your “Buy or Build” Decision

Corporate Structure

  • If the broker/dealer entity being considered for purchase is not the appropriate type for your business plan, the consequence and cost of changing the structure may far outweigh the benefits in time and expense.
  • If the broker/dealer is currently an LLC and the LLC is being sold to completely new partners or members, tax laws may require the original partnership to be dissolved and any taxes paid or losses incurred assigned to the prior partners or members. The legal and tax attorney fees alone could eat up any “savings” from buying vs. building your broker/dealer.
  • The time required in accomplishing the transfer for legal and tax purposes is time that could be invested in building a b/d from the ground up.

 

Location

  • If the principals of the new firm do not reside in the same city as the broker/dealer you are purchasing, be prepared to do one of two things: (1) move the broker/dealer; or (2) move the principals.
  • FINRA will not allow anyone to operate, manage or supervise a broker/dealer from a remote location.
  • The process for moving a broker/dealer can be simple or it can be relatively complex, depending upon the FINRA district that handles the transfer. Some districts scrutinize incoming broker/dealers more closely than others, especially if the broker/dealer has any questionable issues, such as a history of being sold or moved, or a disciplinary history.

 

Audit Expenses

  • SEC Rule 17a-5 requires every broker/dealer to have an annual, independent certified audit conducted by an independent accounting firm. Therefore, if you intend to buy an existing broker/dealer, it is important to negotiate a proper split of the audit fees to the selling owners, especially if the sale occurs in the last quarter of the fiscal year.
  • Start-up broker/dealers approved by FINRA within the last quarter of the fiscal year may postpone the requirement for the annual audit until the firm has completed more than a year in operation. Taking advantage of this option can save your broker/dealer up to $5,000.00 in its first year of operation. This option, however, is not available to an organization that has been in operation and has been purchased by new owners.

 

Travel

  • If you wish to purchase an existing broker/dealer (even a shell broker/dealer), you and your partners and/or your attorney should meet the sellers face to face. After all, you are buying any and all liabilities that accumulated during their ownership, even if those liabilities have not yet been booked on the balance sheet of the broker/dealer. Therefore, meeting the sellers, shaking their hands and looking in their eyes are always good ideas. When purchasing a broker/dealer, the expense of travel is rarely considered in the “buy or build” decision.

 

Liabilities

  • When a broker/dealer is purchased, the surviving entity has bought all liabilities, known and unknown, of the broker/dealer being sold. This includes legal liabilities and regulatory liabilities, as well. Regardless of the sale contract, securities regulators will not look to prior owners for the resolution of customer complaints, FINRA arbitrations, or litigation.
  • Remember that all regulatory problems are cumulative. If the firm you are purchasing had a regulatory problem in the past, the next violation, either intentional or unintentional, will escalate the disciplinary action taken against the firm and its principals, regardless of whether they were at the helm of the broker/dealer during the initial violation.

 

Legal Expenses

  • Many individuals who choose to build a broker/dealer rely on their attorneys for advice and assistance through the FINRA process. It is important to understand that FINRA’s broker/dealer registration process is not a legal process, but instead, a regulatory and administrative process, with many requirements not found in the NASD/FINRA Rules and Regulations. Compounding this uncertainty is the fact that each FINRA district office handles the registration of broker/dealers differently. Unless your attorney has worked through several broker/dealer start-ups within that FINRA district, you will pay a high price for your attorney to learn on the job.
  • If you buy an existing broker/dealer, you should expect to spend a significant amount of your attorney’s time and your money crafting a purchase agreement that is suitable to both you and the seller. The indemnification clauses alone may cost several thousand dollars to draft, present, rewrite and finalize.

 

Summary

While buying an existing broker/dealer does have merit in specific targeted situations, it is the long-held opinion of the experts at B/D Solutions Consulting that if you have a clear vision of the broker/dealer you wish to establish, building your own brand new broker/dealer is the best and most prudent decision you can make.

The following items will greatly assist in building your broker/dealer in the shortest amount of time:

  1. Establish a clear vision of the products, services, and operations of your broker/dealer.
  2. Retain the appropriately qualified and registered principals to meet the FINRA regulations related to the products and services you plan to offer.
  3. Acquire adequate funding and sufficient capital to operate the broker/dealer for at least one year in a non-profitable situation.
  4. Appropriately license all owners, both direct and indirect, who have an ownership stake in an operating broker/dealer.

If your organization has these four criteria in place, you are ready to create and establish a brand new broker/dealer. Your next step should be to call B/D Solutions Consulting for a detailed proposal regarding specific costs and procedures.

 

BD "Estimator"

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Request a Detailed

Broker-Dealer Start-Up Estimate

 

CLICK HERE to fill out the “B/D Estimatorand receive, without obligation, a good-faith proposal of the time, costs and fees based on the size and business activities you wish to conduct.

The proposal will include a detailed cost estimate of:

  • Membership Application fee charged by FINRA
  • Registration fees charged by the SEC, FINRA and each state for registering the Broker-Dealer
  • Registration fees charged by the SEC, FINRA and each state for registering the Associated Persons
  • Consulting fees charged by B/D Solutions for obtaining SEC, FINRA and state approvals the Broker-Dealer
  • Consulting fees charged by B/D Solutions for obtaining SEC, FINRA and state approvals for the Associated Persons

Completing the “B/D Estimator” will take less than 5 minutes and you only need to choose from a checklist the following:

  • WHO will be registered with the BD (how many associated persons in what capacity)?
  • WHAT types of business activities will be conducted (stock, bonds, alternative investments)?
  • HOW will the securities be sold (private placement, retail, etc)?
  • WHERE will the BD operate (in which states)?

Upon completion, you will receive via email a nine-page good-faith proposal which B/D Solutions will honor for up to 90 days.

If you wish to remain anonymous, you only need to provide an email address. No one will contact you unless you request a call back from a BD Start-Up Expert. All information provided to B/D Solutions regarding the potential of starting a Broker-Dealer is always held in strict confidence and is not used for any other purpose whatsoever.

 

Private Placements - Investment Banking/M&A

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Investment Banking / M&A

 

The terms “Investment Banking”, “Private Equity”, “Merchant Banking”, “Corporate Finance” and “Mergers & Acquisition” (and many others) are used in the securities industry in many different ways by many different firms to describe a wide range of business activities.

But FINRA defines Investment Banking (1) as “…any advising or facilitating activity in connection with a public offering or private placement of debt or equity, that includes (but is not limited to) the:

  • origination
  • underwriting
  • marketing
  • structuring
  • syndication
  • pricing
  • managing the allocation
  • stabilization activities, and/or
  • rendering a fairness, solvency or similar opinion in connection any corporate reorganization or business combination transaction”.

 

FINRA Requirements for Investment Banking
Start-Ups wishing to conduct Investment Banking activities will be required to provide a detailed explanation of the following aspects of the proposed business:

  • Market Segment
    • M&A
    • Bridge Financing
    • Venture Capital
    • etc
  • Profile of “Typical” Offering
    • M&A
    • Debt/Equity
    • Specialty Finance/Distressed
    • Buy Side or Sell Side
    • Size Range
    • Industry or Niche
  • Profile of Targeted Investors
    • Accredited Investors
    • Investment Funds
    • Institutional (>$50 million)
  • Source & Methods of Investor Acquisition
    • Existing Relationships
    • Marketing Channels
    • Referral Sources and Compensation

 

Proper Registration
The Investment Banking Representative exam – Series 79, does NOT include the qualification to conduct, or be compensated for, any SALES activities relating to Investment Banking transactions. Participation in and compensation for Investment Banking transactions requires qualification with either a Series 7 or a Series 62 exam. In addition, many states require a Series 63 exam in order to be compensated for sales solicited or effected within that state.

 

The Merger & Acquisition Process
B/D Solutions has assisted buyers and sellers in the placement and purchase of broker/dealers and their constituent parts.
B/D Solutions starts by helping a firm identify its corporate strategy. Next, we investigate whether growth by merger or acquisition would offer benefits to the firm’s operational or financial situation.
Through our extensive knowledge of the industry and its participants, we can place two firms that strategically complement one another in negotiations aimed toward realizing the synergies created by joining forces.
After the planning stages, B/D Solutions is skilled in executing the transaction and joining the various parts to best take advantage of their strengths.

  • Evaluate the most beneficial growth strategy for the client.
  • Determine the best target company for merger or acquisition.
  • Perform due diligence and offer to assist in the preparation of fairness opinions.
  • Assist in structuring the resulting company to maximize operational efficiency.

 

(1) This is condensed definition for simplified use on this page only – please refer to NASD 1032(a)(i).

Private Placements - Limited Partnerships, Hedge Funds

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Partnerships, Hedge Funds

 

Currently Updating

 

Private Placements - EB-5 Immigration Program

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EB5 Immigration Program

 

EB-5 Broker-Dealers shave numerous specific restrictions and limitations – including recent scrutiny by the SEC and FINRA – in order to comply with securities rules and regulations.

Regulatory concerns relating to EB-5 Broker-Dealers include:

  • Due diligence on the Regional Center and its offerings
  • Investor suitability to a Regional Center’s offerings
  • Wholesale recommendation of a single Regional Center’s offerings
  • Risk disclosures to foreign investors
  • Payment of placement fees to unregistered persons and/or entities

CLICK HERE to obtain a no-obligation “B/D Start-Up Estimate”.

 

Private Placements - Real Estate Securities, REITs

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Estate Securities & REITs

 

Currently Updating

Private Placements - Non-Profit Organizations

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Private Placements – Non-Profit Organizations

(e.g. Church Bonds, etc)

 

Currently Updating

Dealer-Manager / Product Distributor - For Affiliated Issuers

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Dealer-Manager / Product Distributor

For Affiliated Issuers

 

Currently Updating

Dealer-Manager / Product Distributor - For Non-Affiliated Issuers

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Dealer-Manager / Product Distributor

For Non-Affiliated Issuers

 

Currently Updating

Retail Packaged Products - Mutual Funds, Variable Annuities

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Retail Packaged Products –

Mutual Funds, Variable Annuities

 

Currently Updating

U.S. Chaperon B/D for Foreign Broker-Dealers

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U.S. Chaperon B/D for Foreign Broker-Dealers

 

Currently Updating

Referral or Finder Broker-Dealers

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Referral or Finder Broker-Dealers

 

Currently Updating

Retail Brokerage - Corporate Debt, Equity, Options, Riskless Principal Trading

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Retail Brokerage – Corporate Debt, Equity, Options, Riskless Principal Trading

 

Currently Updating

Foreign Retail Brokerage & Foreign Institutional

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Foreign Retail Brokerage &

Foreign Institutional

 

Currently Updating

Municipal Securities - Retail & Trading

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Municipal Securities – Retail & Trading

 

Currently Updating

Proprietary Trading & Market Making

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Proprietary Trading & Market Making

 

Currently Updating

Investment Banking/M&A - Public Company Underwriter/ Syndicate Member

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Investment Banking/M&A –

Public Company Underwriter/ Syndicate Member

 

Currently Updating

Research Distribution & Institutional Sales

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Research Distribution & Institutional Sales

 

Currently Updating

Self-Clearing Operations - Clearance, Settlement, Custody

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Self-Clearing Operations –

Clearance, Settlement, Custody

 

Currently Updating

Commission Recapture and/or Soft Dollar Payments

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Commission Recapture and/or

Soft Dollar Payments

 

Currently Updating

SEC Registered Advisers

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SEC Registered Advisers

 

Currently Updating

State Registered Advisers

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State Registered Advisers

 

Currently Updating

Conversion from State Registration to SEC Registration

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Conversion from State Registration

to SEC Registration

 

Currently Updating

De-conversion from SEC Registration to State Registration

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De-conversion from SEC Registration

to State Registration

 

Currently Updating

Funding Portal within a Broker-Dealer

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Funding Portal within a Broker-Dealer

 

Currently Updating

Funding Portal Intermediary (Stand Alone)

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Funding Portal Intermediary (Stand Alone)

 

Currently Updating

Qualified Third Party Services (i.e. "Escrow Services")

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Qualified Third Party Services (i.e. “Escrow Services”)

 

Currently Updating

Transfer Agent for Affiliated Issuer

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Transfer Agent for Affiliated Issuer

 

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Sub-Transfer Agent Arrangements

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Sub-Transfer Agent Arrangements

 

Currently Updating