The Key to Broker-Dealer Affiliations


Written by Finalis

Last edited on Jun 29, 2023

2 min read

Sharing options

Over time, the financial industry’s atomization has led to increased competition and complexity in the sector, posing challenges for small financial entities in terms of differentiation, market reach, and service offerings.

In this landscape, one key strategy that has proven to be a game-changer is the adoption of broker-dealer (BD) affiliations. This blog piece explores how broker-dealer affiliations can help, and provides a comprehensive guide for financial entities looking to harness their potential for accelerated growth.

Let's start with the basics:

When exploring a broker-dealer affiliation, there are a few concepts we need to know.

Let's start with the most fundamental one: the broker-dealer. In our previous article in which we addressed what you should know about starting a broker-dealer, we defined it as: “a financial services entity that buys and sells securities for its own account, or on behalf of its clients.” 

In many cases, broker-dealers firm affiliations—associations with another entity—to leverage their resources, infrastructure and brand recognition. Typically, these entities are financial institutions (e.g., banks and investment firms).

Broker-dealer affiliations vs. broker-dealer sponsorships

While you dive into our articles, you may come across a question: "Is it the same thing talking about BD affiliations as it is talking about BD sponsorships?"

It's a valid question arising from the subtle distinctions between these two concepts.

Broker-dealer affiliations encompass collaborative partnerships, shared resources, and mutual support among entities within a specific industry or field. On the other hand, broker-dealer sponsorships involve a sponsor providing financial or other support to another entity in exchange for recognition, promotion, or specific benefits. 

Although there might be instances in which these terms overlap, it's essential to understand that they both have distinct objectives and implications. 

Itching to dig deeper into broker-dealer sponsorship? Take a peek at our previous article!

How can broker-dealer affiliations help with financial institutions' challenges?

Broker-dealer affiliations provide significant benefits to both parties involved—from easing regulatory compliance requirements to accessing key resources. Specific opportunities and arrangements for broker-dealer affiliation depends on what financial institutions are aiming for and the opportunities available to them.

BD affiliations benefit financial institutions in many ways that ease their atomization and operational challenges:

  1. Mitigate regulations requirements: financial institutions operate in a highly regulated industry. Therefore, affiliating with BDs that may have established risk management systems, supervisory protocols and procedures, can provide support in meeting regulatory requirements.
  1. Collaborative solutions: broker-dealer affiliations encourage collaboration and joint problem-solving that lead to the sharing of ideas, resources and strategies that can address the atomization problem. 
  1. Range of products and services expansion: a broker-dealer affiliation provides financial entities access to a wide variety of investment products, wealth management services, and specialized financial solutions. This allows them to provide customers with a more comprehensive range of options, increasing differentiation from competitors.
  1. Business enhancement: Another significant advantage of a broker-dealer affiliation is the opportunity to expand into new markets (e.g., new regions or new segments of the financial industry) by accessing the broker-dealer’s existing client base and distribution network. At Finalis’ Connect platform we have over 1000 deals with an average size of $52.7M to explore.
  1. Economies of scale: consolidating resources and operations can lead to cost savings and efficiencies, which can lead to investment in automation technologies and address atomization issues.
  1. Market presence: associating with a well-established broker-dealer, strengthens the brand perception of financial institutions. Aligning with a recognized broker-dealer may help the financial entity look more reliable and trustworthy.

Relevant aspects to look over

No doubt there are lots of reasons to think about a broker-dealer affiliation, but it's not all sunshine and rainbows. Just like anything else in life, there are a few hurdles to consider before affiliating with a BD:

  1. Conflicts of interest: financial institutions should make sure that the BD affiliation does not compromise their independence, or ability to act in the best interests of their clients.
  1. Alignment of business objectives: it is advisable to carefully evaluate terms, conduct due diligence and seek regulatory guidance to ensure compliance and business integrity.
  1. Culture: when associating with a BD, it is important to ascertain that it aligns with your goals, values, and business philosophy.

Can any financial institution secure a broker-dealer affiliation?

Any financial institution has the potential to secure a broker-dealer affiliation, but there may be specific requirements to meet that can vary depending on the nature of the affiliation and the entities involved.

Some factors like reputation, industry know-how, financial stability and being on the same page in terms of goals and values can come into play when deciding if a financial institution is eligible for a broker-dealer affiliation. It's important for FI to demonstrate their suitability and potential value as a partner in order to secure affiliations.

If you’re interested in the Finalis Platform, you might be wondering about the licensing exams

The need to pass FINRA’s licensing exams depends on the specific nature of the broker-dealer affiliation, the regulatory requirements of the financial institution and the jurisdiction in which it operates. FINRA (Financial Industry Regulatory Authority) is a regulatory organization in the United States that oversees the securities industry and administers licensing exams. These, such as the Series exams, are commonly required for individuals who engage in activities such as selling securities or providing investment advice.

How can Finalis help you?

If you're running a financial entity and want to explore options for a broker-dealer affiliation, we want to know you! We're here to help you navigate the exciting world of affiliations and find the perfect fit for your business.

Finalis offers white-labeled U.S. regulatory broker-dealer affiliations for boutique investment banks, placement agencies and independent investment bankers. We provide partners with flexible coverage across all 53 U.S. states and territories, and international coverage for foreign broker-dealers seeking access to U.S. investors via 15a-6 chaperoning. 

Contact us—we can take care of the back-office details while you focus on taking your financial entity to new heights!

Learn how Finalis can be
your dealmaking partner

Speak to the team