Can someone please explain how to obtain an investment firm license? Kind of brokerage firm or wealth management firm. Now I am not talking about brokers. I am talking about the firm itself. I heard that if a broker has license he can go and form his own firm if he has enough clients. Is that true? What about prop firms do they need a license.
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brokerage license
- Thread starter MZG
- Start date
I have a sevem license. If I trade with Echo I would useit. I could go to bright. The protection of some firms which have cbsx, license for traders whodo not have aseven I would not hold my breath. The realtionship, of the principal managing the firm is the most important point. This only real important point of protection. This is more important than the license of the individual firm.
Quote from MZG:
Can someone please explain how to obtain an investment firm license? Kind of brokerage firm or wealth management firm. Now I am not talking about brokers. I am talking about the firm itself. I heard that if a broker has license he can go and form his own firm if he has enough clients. Is that true? What about prop firms do they need a license.
To start a stock brokerage involves numerous rules and regulations. The principals of the firm not only must hold the licenses required for the type of business to be conducted but more importantly have the experience. The required licenses are known but the required experience is entirely at the discretion of the regulators. The firm must register with the SEC and every state they plan to have public clients. In order to handle OTC business, the firm must be a member of the NASD. The capital requirement varies according to the type of business to be conducted. There are several companies that will handle the registration for a new brokerage. It involves a lot of 'red tape' and nitpicking especially if the firm handles customer accounts. Most small brokerages will clear accounts on a fully disclosed basis with another brokerage to avoid bookkeeping which can be costly.
A prop firm does not need any licenses unless they are a member of an exchange.
The question may have a couple of different answers depending on the definition of "brokerage license."
As a Broker Dealer (acting as a Dealer only) - one must become a member of an exchange (preferred by most) or become an "introducing broker" to another Broker Dealer (ok, but just adds another layer IMO).
As BD, exchange member you then must qualify with a Clearing Firm. The various firms have different levels of qualifications, scrutiny, and overall value.
As BD, you must register with SEC and each State you wish to do business with. You must have a damn good Compliance Officer (Hi Diane, LOL).
An executive must have proper FINRA licenses (7,24, etc.). Must have "Anti-money laundering" expert, and other "roles."
My suggestion is chatting with a Clearing Firm first - they can help with a lot of this. Minimum capital varies from as little as $5million (I'm told) to around $25 million with bigger firms. Again, this is somewhat subjective, I suggest you call around. I haven't had to do this in quite some time, LOL.
All the best,
Don
As a Broker Dealer (acting as a Dealer only) - one must become a member of an exchange (preferred by most) or become an "introducing broker" to another Broker Dealer (ok, but just adds another layer IMO).
As BD, exchange member you then must qualify with a Clearing Firm. The various firms have different levels of qualifications, scrutiny, and overall value.
As BD, you must register with SEC and each State you wish to do business with. You must have a damn good Compliance Officer (Hi Diane, LOL).
An executive must have proper FINRA licenses (7,24, etc.). Must have "Anti-money laundering" expert, and other "roles."
My suggestion is chatting with a Clearing Firm first - they can help with a lot of this. Minimum capital varies from as little as $5million (I'm told) to around $25 million with bigger firms. Again, this is somewhat subjective, I suggest you call around. I haven't had to do this in quite some time, LOL.
All the best,
Don
If a new brokerage plans to be an introducing broker, talking with a clearing firm is an important first step. There are two minimum capital requirements one must meet. If you are clearing with another firm, you will have to meet their financial requirements, including normally a deposit, and the legal financial requirement. The legal requirement can start very low, especially if you are going to sell only mutual funds with which you do not need a clearing agreement. I am not sure now what the lowest minimum legal requirement is but probably around $5,000. Beware it is not easy to become a registered brokerage. It is very difficult for a new firm to obtain regulatory approval unless your principals have many years of experience and you have financials several times greater than the minimum legal requirements.Quote from Don Bright:
The question may have a couple of different answers
I agree. It depends on the type of business to be conducted.
As a Broker Dealer (acting as a Dealer only) - one must become a member of an exchange (preferred by most) or become an "introducing broker" to another Broker Dealer
This is not entirely true. Again it depends on the type of business to be conducted by the BD. There are numerous independent brokerages conducting an OTC business that are not a member of an exchange and self clear. Forty years ago when I started in the business, the majority of registered brokerages were independents. Now due to changes in regulations, especially financial reporting, most small brokerages are becoming 'introducing brokers'.
As BD, exchange member you then must qualify with a Clearing Firm. The various firms have different levels of qualifications, scrutiny, and overall value.
Agree. This is for members of an exchange that excutes trades on the exchange. Exchanges have requirements for their members that are not 'legal' requirements but self-imposed by the exchange. Then each clearing member determines their own requirements for clearing transactions for non-clearing members.
As BD, you must register with SEC and each State you wish to do business with. You must have a damn good Compliance Officer (Hi Diane, LOL).
An executive must have proper FINRA licenses (7,24, etc.). Must have "Anti-money laundering" expert, and other "roles."
Agree. This is where the major changes have been made in the brokerage business over the years. It should be pointed out that a brokerage does not have to register in a state unless they have 'public' customers. They can do business with other brokers, banks, insurance companies, credit unions, etc... without registration.
My suggestion is chatting with a Clearing Firm first - they can help with a lot of this. Minimum capital varies from as little as $5million (I'm told) to around $25 million with bigger firms. Again, this is somewhat subjective, I suggest you call around. I haven't had to do this in quite some time, LOL.
Quote from Don Bright:
The question may have a couple of different answers depending on the definition of "brokerage license."
As a Broker Dealer (acting as a Dealer only) - one must become a member of an exchange (preferred by most) or become an "introducing broker" to another Broker Dealer (ok, but just adds another layer IMO).
As BD, exchange member you then must qualify with a Clearing Firm. The various firms have different levels of qualifications, scrutiny, and overall value.
As BD, you must register with SEC and each State you wish to do business with. You must have a damn good Compliance Officer (Hi Diane, LOL).
An executive must have proper FINRA licenses (7,24, etc.). Must have "Anti-money laundering" expert, and other "roles."
My suggestion is chatting with a Clearing Firm first - they can help with a lot of this. Minimum capital varies from as little as $5million (I'm told) to around $25 million with bigger firms. Again, this is somewhat subjective, I suggest you call around. I haven't had to do this in quite some time, LOL.
All the best,
Don
OP, Don gave you good advice! And I concur. A TOP notch 24 is a MUST!!!
Also, OP if you were to do something silly like I did years ago, and go to work for a wirehouse, they will sponsor you through the 7 and 66 (investment Advisor Rep)
From your other threads, I would suggest giving Don a call after the New Year. Out of the prop firms out there his and a select few would be what I consider the real deal.
Quote from LEAPup:
Also, OP if you were to do something silly like I did years ago, and go to work for a wirehouse, they will sponsor you through the 7 and 66 (investment Advisor Rep)
I appreciate your comment and reply, but why you consider working for a wirehouse is something silly? It looks like chartman had a good experience in brokerage. It least it gives people entry in wall street. I am looking to enter in ML or MSSB but they require that you know at least 20 people who have 200K or more. Something thatâs I do not have.
Quote from MZG:
I appreciate your comment and reply, but why you consider working for a wirehouse is something silly? It looks like chartman had a good experience in brokerage. It least it gives people entry in wall street. I am looking to enter in ML or MSSB but they require that you know at least 20 people who have 200K or more. Something thatâs I do not have.
Ok, sounds like it's still the same ol' same ol' crap they pulled when I was a newly licensed broker with mother merrill. I will type out what I can, but if you want to call me, send a pm, and I can give you all the stuff you need to know.
1st and foremost, the wirehouse retail gig is all sales. If you go in saying you are a good trader that is NOT a plus. What they want is blood, and you have to get it done.
Why is it they want 20 people with at least 200m? That's because you as a newly licensed broker will be forced into a 3 month "mentorship" program where you bring the friends, family, etc., and the "mentor" will close the deal. Here's the problem. When you go into production after the forced mentorship, the mentor gets to keep every account you brought him in those 3 months. And don't even think about calling them and having them move over to you! That will get you in deep shit.
They call it "payment" for the mentor "teaching" you how to sell financial products. I call it sickening as the mentor 9 times out of 10 will hint to your friends and family that you are a rookie, and he knows best. And yes, many will stay with the asshole out of fear. Its really sad!
And if you leave to go independent (the only way to fly imo), your non compete is a 2 year, so the "mentor" gets to mildly shit talk you in that time, and trust me, you'll NEVER see all of those accounts come to you.
this is wirehouse 101, and sounds like it hasn't changed. even cnbc pointed out that there is a mass exodus from wirehouses to independent, and in the coming years wirehouses will be hurting for brokers so badly they'll take about anyone.
There's so much more, but I'd be typing all day. My advice, let them sponsor you through licensing, and get the hell out of there fast after that! If you want to know more about the evil bastards, you can call me after New Year's.
Once licensed, you can go to IB, and go RIA. I'm performance only, but you can be fee based no matter your performance. That's up to you. Again, Independent is the only way to go in 2011 on...
Now on the better side, you do get to see some cool things on the inside, but the bad far outweighs the good for the broken wirehouse model these days...
Best wishes
Quote from MZG:
Can someone please explain how to obtain an investment firm license? Now I am not talking about brokers. I am talking about the firm itself.
I tried to provide some information pertaining to your question of how to start a stock brokerage firm. It appears some of the responses have written about obtaining a Series 7 license and working for a brokerage.
If you do not currently have a brokers license and several years of actual experience with at least a 24 or 27, or you are going into business with individuals with the proper licenese and experience, you will never get the approval from the regulatory agencies to start a stock brokerage firm regardless of your capital.
As far as getting a brokerage to sponsor you for the Series 7 and working for them, be advised that it is strictly, as has been reported, a salesman job. Nothing more or less. They are not interested in you trading their account or yours but getting new customers. They want you to churn the accounts as much as you can but if you get a complaint filed, you are on your own. When I first started I noticed brokers calling cutomers holding bonds and advising them to sell the bonds and buy stocks. If they held stocks, they were told to sell the stocks and purchase bonds.
If you are new in the business, beware, it can be a minefield.
Quote from chartman:
I tried to provide some information pertaining to your question of how to start a stock brokerage firm. It appears some of the responses have written about obtaining a Series 7 license and working for a brokerage.
If you do not currently have a brokers license and several years of actual experience with at least a 24 or 27, or you are going into business with individuals with the proper licenese and experience, you will never get the approval from the regulatory agencies to start a stock brokerage firm regardless of your capital.
As far as getting a brokerage to sponsor you for the Series 7 and working for them, be advised that it is strictly, as has been reported, a salesman job. Nothing more or less. They are not interested in you trading their account or yours but getting new customers. They want you to churn the accounts as much as you can but if you get a complaint filed, you are on your own. When I first started I noticed brokers calling cutomers holding bonds and advising them to sell the bonds and buy stocks. If they held stocks, they were told to sell the stocks and purchase bonds.
If you are new in the business, beware, it can be a minefield.
So, so true! Great post!
I'll have to say, I knew several guys who retired from the retail brokerage World (wirehouse guys) back in the late 80's-mid 90's. Those guys were much more respected back then, made big money, and lived "the life" if you will. Today? Wow! What a change!
I had a 1.5M/year producer stealing my leads out of my desk when I was a rookie. Times have changed...