“What is the FINRA BD Startup Cost?” That is a question frequently fielded by FirstMark Regulatory Solutions, a broker-dealer consulting firm which helps individuals form new FINRA broker-dealers. And, when providing the answer to this question it is often complex and variable, depending on the nature and size of the planned business. So let’s walk through an some of the fees.
The first step in the journey to owning a new broker-dealer is the filing of a FINRA New Member Application (or NMA). Consultants like FirstMark often charge a flat fee for their services in handling the application from the start all the way through the FINRA approval. While using a consultant can add to the FINRA BD startup cost, it can save quite a bit of time if you hire a FINRA NMA expert. This process is complex and can take 6 months or longer. FINRA’s rules permit it 180 days from receipt of an application to issue a decision. And fees that consultants charge range “all over the map.” It is important to understand the experience and qualifications of the consultant who will actually be handling the application. That can also factor into the price. A consultant will quote a fee after understanding the nature of the business to be conducted and after estimating the amount of time required to complete the process. Most consultants will quote a fee that includes everything needed to satisfy FINRA’s application process (e. g. written supervisory procedures, business continuity plans, anti-money laundering compliance program, Regulation SP compliance program, Regulation S-ID compliance program, etc.).
After settling on a fee with your consultant, there are other fees that will be required. First, FINRA requires a fee. FINRA NMA fees, which can be found on page 8, vary based on the proposed size of the broker-dealer. And here size means number of registered persons proposed at the start of the application. So for a broker-dealer with fewer than 10 registered persons, the FINRA fee is $7,500. That fee ranges all the way up to $55,000 for members with over 5,000 registered persons. But the reality is that the vast majority of the applications are for those with 10 or fewer persons.
The Small Fees Can Add Up in Calculating FINRA BD Startup Cost
In addition to the FINRA fee, an applicant will be required to pay registration fees for branch offices it desires to maintain ($75 / branch), disclosure processing fees for any disclosures required to be reported on Form U4 ($95 / each), fingerprint fees ($30 / each), principal and representative application fees ($85 / person), exam fees (varies depending on exam – $290 for the Series 7), registered representative state registration fees (varies depending on state – $60 in New Jersey), broker-dealer registration fees (varies depending on state – $525 in Pennsylvania), and the MSRB fee if applicable ($600). There are other FINRA BD startup cost items, including the legal fees that relate to filing the corporation which vary. FINRA will require that a broker-dealer maintain minimum net capital (which again varies depending on the manner in which the business is run, but the minimum is $5,000). And FINRA requires that broker-dealers keep 120% of their minimum net capital requirement in the broker-dealer – $6,000 therefore is the minimum. FINRA will ask that the broker-dealer demonstrate assets and revenues sufficient to cover 12 months of initial estimated fixed operating expenses, obtain a broker-dealer fidelity bond, and contract for an annual certified audit by a CPA (which has gotten very expensive in recent years). Although not required by FINRA, a broker-dealer will want to obtain E&O insurance. On an ongoing basis, SIPC charges a fee of .0025 of Net Operating Revenues. If the broker-dealer will be opening accounts for customers other than on a direct basis with mutual fund, annuity and other similar product providers (or simply selling private placements), it will need to obtain a clearing agreement. The clearing firm will require a deposit, generally ranging from $10,000 – $100,000 again depending on the business to be conducted by the broker-dealer.
So as you are probably beginning to see, the FINRA BD startup cost can quickly add up. Clearly, registering a broker-dealer is not an inexpensive proposition. But the rewards can also be substantial. The list above is certainly not all inclusive, but designed to give an idea of the fees and capital required. A rule of thumb is that for a small broker-dealer, a minimum initial capital investment of between $75,000 and $150,000 is required. Because the costs vary substantially depending on the nature of the business and many other factors, this figure is also subject to variation.
If you have questions about becoming a FINRA member, or about the FINRA BD startup cost, seek the services of a FINRA NMA expert. Mitch Atkins, FINRA’s former South Region Director, has extensive experience with FINRA new member applications, having previously overseen the membership application function at the regional level. If you have questions about a FINRA CMA or NMA, contact Mitch Atkins, Principal of FirstMark Regulatory Solutions at 561-948-6511.