You might think that purchasing an existing broker/dealer is a faster way to get your new business up and running. However, experience tells us that going through the FINRA “Change in Ownership” process for a broker/dealer can be just as time consuming and burdensome as starting a new broker/dealer. In fact, it can often be more expensive to purchase an existing broker/dealer than to start a new one, especially after taking into consideration all of the hidden costs that can be involved.
In addition to the burdensome “Change in Ownership” process required by FINRA, you will have to involve attorneys to draft a purchase agreement that is acceptable to you and the seller. You will likely spend thousands of dollars in attorneys’ fees for the attorney to draft, present, rewrite and finalize a purchase agreement.
It is also important to remember that when you purchase a broker/dealer, you are purchasing all of the assets and liabilities of the broker/dealer. Regulators will look to you to deal with all customer complaints, arbitrations and litigation, even if the activity occurred at the broker/dealer prior to your ownership. Regulatory disciplinary actions also tend to be cumulative and if the firm you are purchasing has already been the subject of any regulatory disciplinary action, then the next regulatory violation, whether intentional or not, will escalate the disciplinary action taken against the firm and its principals, regardless of whether the current owners were in place at the time of previous violations.
In summary, there are certain circumstances where it may be beneficial to purchase an existing broker/dealer. However, it more often makes sense to start a new broker/dealer and avoid many of the expenses and liabilities that can accompany the purchase of an existing broker/dealer. Please call BDCA at (770) 263-6003 if you would like to speak with a consultant regarding which decision is right for you.