How to Start A Brokerage Firm: A Step by Step Guide

how to start a brokerage firm real estate property selling broker guide

Time to break into the brokerage business but you still need to learn how to start a broker firm?

Before you get started, you need to make sure this business is a good match for you. There is a lot that goes into getting started, and making sure it is what you want to do will save you a lot of unnecessary work.

Continue reading this article to learn if this is a good choice for you—and if it is—how to get started.


The 411 on How to Start a Brokerage Firm and More

A brokerage company can be very lucrative which is probably one of the reasons you're looking into starting this business. There's more to owning a business than collecting a paycheck though and you need to know what you're getting into.


The Day-to-Day with a Brokerage Firm

When you're getting started one of the biggest things you'll be doing is contacting potential clients. There's plenty of sales to do when you're trying to build your book of business.

Unless you have a lot of connections when you're getting started, the beginning of your business might be a little slow.

Once you have a list of clients, you have to hire and manage employees, manage clients and deal with legal issues. The financial industry has many regulations and you have to make sure you're up to date on all of the latest laws that affect your business.

Most brokerage firms target clients with a minimum of $500,000 in assets so be ready to talk to affluent people.


How Do You Make Money?

Here's the real question! You know what you're going to be doing now but how do you make money?

Most of the time brokerage firms make money by gathering and managing assets and charging a fee that is a percentage of the assets they're managing. Some firms also charge a flat fee for managing the accounts.

The more successful you help your clients become, the more money you'll make as a brokerage firm.

Depending on the assets you're managing, you have great potential for growth. But you have to be good at sales if you want to make it in this business since people have to put a lot of trust in your abilities.


Skills & Experience Needed to Start a Stock Brokerage

You can't just decide that you want to start a stock brokerage and be off to the races. There are some skills and experience you need to get started.

Before you're able to advise anyone about investments, you have to be a registered investment advisor. You'll also have to be a fiduciary for all the investment accounts you manage.

You may need to take state exams but you'll be directly responsible on a federal level.

You'll need to understand risk management, financial modeling, portfolio management and investing. You also have to have experience as a manager before you can start your brokerage firm.

The Financial Industry Regulatory Authority will require that you have managerial experience and if you don't have an experienced principal on your team, it is unlikely they will approve your application for your brokerage.


Costs

Besides skills and experience, there are also costs when you're starting up.

One of the things you'll need when you get started is capital reserves. The FINRA requires you have $100,000 or possibly even $150,000 in capital reserves, to begin with.

The cost for capital reserves is on top of fees for state registration, employee salaries, consultant fees, deposits for clearing firms and more. You're likely looking at needing $200,000 to $300,000 to get started.


Steps for Planning Your Business

Now that you understand more about what you're going to need, there are some simple steps you need to take to get started.


1. Create Your Business Plan

The more in-depth you can go with your business plan, the better. You may need to secure funding from a bank or find investors that are interested in backing you.

When you have a clear business plan in place it makes everyone involved feel safer because you've thought out all the details.


2. Get the Legalities Out of the Way

Since you're in the financial industry, there are a lot of legalities to take care of. We listed some of the important things you need to keep in mind above, like state exams.

You'll also need to register for any special licenses and permits. In addition, you will need insurance that is going to cover you in case of things like workers' compensation claims.


3. Define Your Brand

There is a lot of competition in this industry and you have to set yourself apart from everyone else. 

One of the ways that you can stand out is by creating a brand that people want to work with.

Clearly defining your brand and letting people know what you stand for is a must.


4. Market Your Business

Once you have everything set up, you have to spend a lot of your time marketing your brokerage business and doing sales. The more real estate business you bring in, the less you'll have to focus on the marketing because you'll get word-of-mouth referrals but right now—market, market, market and sell, sell, sell!


Ready to Build Your Business to the Next Level?

Now that you know how to start a brokerage firm and sell real estate properties, why not learn more about making your business grow? We have many articles that will help you as you're building your real estate or property management business.

Navigate through our Frugal Finance site, find your favorite section such as Real Estate, drop a bookmark, and come back for more great reads. Also, read our article on how much real estate agents earn throughout their career.

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