Financial Services

Starting a Broker-Dealer? Here's What You Should Know


Written by Finalis

Last edited on Jun 29, 2023

2 min read

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Starting your own broker-dealer (BD) or joining an established one can be a viable option for investment banking managing directors' large books of business. A primary motivation is the need for a more direct compensation structure, and a substantial degree of independence in one’s investment banking career. However, there are multiple major factors to consider when deciding between starting your own broker-dealer, or partnering with an established firm.

For the uninitiated, or if you’re reading this blog post because the title caught your eye: a broker-dealer is a financial services entity that buys and sells securities for its own account, or on behalf of its clients. Broker-dealers can act as both brokers or agents when executing orders on behalf of clients, and as dealers or principals when trading for their own account. This blog post breaks down the costs and benefits for an independent investment banker of starting your own broker-dealer, and compares these to those associated with outsourcing to a third party broker-dealer.

Should I start a broker-dealer?

To cut to the chase: it’s an expensive proposition, and is not a quick process by any means. As a BD, you become subject to numerous rules and regulations from the U.S. Securities and Exchange Commission, and the investment banking industry’s regulator, the Financial Industry Regulatory Authority (FINRA), as well as regulators in every single state in which your BD will operate (including any state that your transactions touch, such as the principal place of business of your clients and your clients’ counterparts).

How long does it take to start a broker-dealer firm?

Once you submit your application to FINRA, FINRA must review and process your application within 180 days. It will take a substantial amount of time to accumulate and organize all information required as part of the application process, which can take anywhere from 9 to 18 months. FINRA will typically make ongoing requests for documentation and engaging in constant back-and-forth communication. 

What are the requirements for starting your own broker-dealer?

The most important step is to register with FINRA via the New Member Application (NMA) process, which typically takes from 3 to 6 months with many document requirements and an in-person interview. Next is to take the Series 24 exam, since a broker-dealer requires a supervisory principal. You will need to appoint a Chief Compliance Officer, a Finance Operations Principal, and another registered principal (FINRA requires two principals in a firm, with a principal waiver process a possibility). Registration in all states where you intend to conduct securities transactions is required, as well as joining the Securities Investor Protection Corporation (SIPC). All of the firm’s principals will need to be properly licensed, with all required exams taken and passed; and the firm will need to have written supervisory procedures on all its lines of business (which will require in-depth review by FINRA). And these are all just for starters. 

Consider partnering with an established BD instead

Starting your own broker-dealer means learning all the complexities of operations,  distracting you from your core strengths and responsibilities. This is where partnering with a broker-dealer firm can be advantageous. By taking care of operational aspects in the background, managing directors are free to focus on what they do best—building relationships with clients and closing transactions. With Finalis Securities, registered representatives receive the lion’s share of the economics for their transactions and benefit from a more cost-effective and efficient model than if they were to be managing directors at traditional investment banks.

As the fastest-growing and already the largest broker-dealer third party platform for investment bankers in the U.S., Finalis aims to offer managing directors the kind of leverage value that they might have previously enjoyed at larger institutions, without the cost burden. Finalis’ product connects investment bankers with an unprecedented network of 200 investment banks with over 1,000 active mandates in-market worth an aggregate $75B in total deal potential, with untold opportunities for deal origination, syndication, and distribution. 

How can Finalis help you?

Finalis provides bankers access to compliant, tech-driven workflows; with a focus on providing world-class regulatory compliance support and legal resources, in a 100% cloud-based technology platform. With Finalis, you can rest assured that you have a reliable partner who can help you navigate the complexities of the investment banking industry and ensure that you can launch and grow your investment banking business with confidence. Contact us to learn how we can help you.

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