Jun
15
2010
10 things to look for in a broker dealer
I had created this list many years ago as a guide to help me conduct the necessary due diligence on brokerage firms. I’ve updated it for today’s climate but it is by no means all-inclusive.
- Independence
Is the firm owned by another company? If so, there will always be the temptation to pressure you to sell certain products that benefit the parent company’s bottom line.
- Compliance
The compliance record of any broker dealer can be found at www.finra.org. Pay attention to the number of infractions as well as the dollar amount of any fines. Be sure the firm is registered in all 50 states. If you are a Series 6 Rep, ask if they will accept targeted licenses such as Series 22, 52, 62 and 72.
- Quotas
FINRA prohibits “parking” a license, so every Registered Representative must have a profitable, viable business. But beware of a production quota, which could be a sign that the firm will intrude on your business plan when they see fit.
- Financial Stability
A number of broker dealers have gone out of business in the past year or are threatened by bankruptcy. Look at the financial statements as well as the products sold by the firm.
- Payout, Fees
Payout is important, but so are miscellaneous charges that may be assessed to you. Ticket charges, technology fees, audit fees and account fees all impact your revenue.
- Client Account Ownership
You should be the “Rep of Record” on your accounts and you’ll want the freedom to transfer your accounts to another brokerage firm if necessary. Look at the broker dealer’s privacy policy to see how confidential information is handled.
- Fee-based Accounts
The trend is away from commissions and toward fee-based accounts. This can be valuable to the client and result in much higher valuations when you sell your business.
- Products
Broker dealers will limit the types of products available based on several factors, including the sophistication of their advisors. Be sure alternative products are available and that there are no proprietary products (to avoid a conflict of interest).
- Rep Base
Does the firm attract product salespeople or advisors? Divide gross revenue by number of Reps to find average production. Look at magazine surveys for additional information.
- Technology
Technology should help you do your job more efficiently. Does the firm require you to use specific financial planning software or other program? Is forms population available?
