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Starting a Stock Brokerage Firm Online – A Complete Guide

Do you want to start a stock brokerage firm online? If YES, here is a complete guide to starting a stock brokerage business with NO money and no experience.

Okay, so we have provided you an in-depth sample stock brokerage firm business plan template. We also took it further by analyzing and drafting a sample stock brokerage firm marketing plan backed up by actionable guerrilla marketing ideas for stock brokerage firms. In this article, we will be considering all the requirements for starting a stock brokerage business. So put on your entrepreneurial hat and let’s proceed.

Why Start a Stock Brokerage Firm?

Those who usually start their own stock brokerage firms are those who have reached a considerable height of success at some point in their career. To become a successful stock broker, you should be skilled at negotiating with and persuading clients and you should also have a charismatic attitude. If you are sure you have all these, then it is likely that you can start your own brokerage firm and become successful at it.

You should be aware that starting a brokerage firm means that you will compete in an intensely competitive environment especially against already established brokerage firms who already have the target market and a recognizable brand in the industry.

However, this shouldn’t deter you from starting your own brokerage firm as one of the positives of running your own business is that you will keep all the commissions you earn as well as split commissions with other brokers that you will bring on board to help you run your business.

Another thing you would need to consider when starting your brokerage firm is whether you intend to run a full service or discount brokerage. A full service brokerage firm is one that manages trading and opens new accounts for clients while also running other parts of the business.

Also, while considering the full service option, you should bear in mind that asides initial startup costs; you will be battling with operating expenses every month as it will take a while before you will start attracting clients that will help generate the revenue that you will need to run and grow your business.

Another thing you will also need to decide on is if you intend to run an institutional or retail kind of brokerage firm. If you intend to run an institutionalized brokerage firm, it then means that you will cater to only clients such as money managers and similar brokers like yourself.

f you however intend to run a retail brokerage firm, it means that you will not have access to the stock exchange as you will only be able to trade through member firms. You will generate revenue through commissions and fees that are charged to investors.

Having a business plan before starting your brokerage firm is very important as a comprehensive business plan will help guide you on how to run your business successfully in order for it to become known in the industry. So, while starting your brokerage firm business might look like hard work, looking through this article will help you further.

Starting a Stock Brokerage Firm Online – A Complete Guide

  • Industry Overview

Initially in this industry, brokerage firms controlled the exchange as they helped investors access the markets in exchange for commissions and free trading rebates. This allowed brokerage firms to compete on the basis of customer relationship and quality of service but all this has changed as negotiated commissions were introduced in the United States of America in 1975, which then caused an increase in competition as well as other external challenges for brokerage firms. The process has even accelerated in the last decade especially with the introduction of a change in the market structure as well as technology.

The brokerage industry in the United States of America is one that generates an annual revenue of $143 billion at a growth of 1.8 percent. This growth was between the periods of 2011 and 2016. There are more than 27,000 brokerage firms in the United States of America employing close to 307,000 as at 2016.

The industry is one that is filled with intense competition as new start-ups usually have to engage in expensive marketing and publicity so as to gain the acceptance of its target market. This is why enough start-up capital is required in order to run the business effectively and on a particular standard.

More people are beginning to invest in securities these days especially with the different choices they have as regards the business. There are many more ways for customers these days to invest, starting from full service brokerages to electronic trading, discount brokerages, as well as other exclusive opportunities.

This has led to this industry dealing with an unimaginable large amount of money and this is part of the reason why the market has been steadily rising since the 90s. Another reason why there is a large amount of money in the market is due to the fact that investors now prefer to seek experienced advice and are willing to pay reasonable costs in order to be able to navigate the market.

The brokerage firm industry in the United States has basically two major hubs and they are in New York and Chicago. These two hubs are usually where revolutionary trends start from that affect the brokerage industry globally.

Therefore, when brokers experience deteriorating demand due to pressures from pricing, changes in the market structure as well as an increase in stringent regulation, it affects the global market as well. Also, brokers in the new trend are competing with the exchanges as they now internalize order execution and use alternative exchanges, while the exchanges themselves are offering direct market access.

The rise of discount brokerage firms and electronic trading has seen more brokerage firms offer other services that are value added which includes offering investment advice and consultancy. Even though revenue in the industry has seen an increase between the periods of 2011 and 2016, the industry is still said to be below pre-recessionary levels. This has caused players in this industry to not only increase their financial offerings but also to move to an asset-based fee structure. The industry is also expected to grow at a steady rate between the periods of 2016 to 2021.

The retail brokerage firm industry is gradually getting rid of the traditional reliance on trade-based commissions as it has started offering more services that are fee-based. This act has led to the regularization of the stream of revenue especially in an industry that is regarded as volatile. This current structure is favoring all participants as firms now get a percentage of the asset under management, while the investors don’t mind as the growth of the assets will be beneficial to everyone.

There have been a lot of mergers in the industry especially in the last few years in the United States of America as well as in other countries. The mergers have included consolidations, takeovers and purchases which has gone on to change the structure of the industry as these mergers have led to job losses, which is not really helpful in a market that is regarded as volatile.

Starting a Stock Brokerage Firm Online – Market Research and Feasibility Studies

  • Demographics and Psychographics

The demographic and psychographic composition of those who require the services of a brokerage firm are not restricted to individuals but to also different types of organizations who are seeking to increase their bottom line by diversifying their portfolios. The rise of the internet has made it very easy for there to be many participants in the brokerage industry.

The brokerage industry also has to liaise with the banking industry as well as with other securities in order to cater to its target market while also meeting up with technological, regulatory and market trends.

List of Niche ideas Within the Stock Brokerage Industry That You Can Specialize in

The brokerage industry is one where firms help their clients to buy and sell securities, and they offer other services as well. The industry is an intensely competitive environment where brokerage firms have to find a way to compete amongst themselves whilst also getting a large share of the available market.

Due to the restructuring of the market where commissions are now negotiated, brokerage firms are now being pressured to offer more than one niche in order to attract the target market. However, it is usually easier for larger brokerage firms to offer more services while smaller brokerage firms usually stick to an area they feel they are more specialized in.

Below are the key niche areas that a brokerage firm may decide to major in;

  • Securities brokerage (bonds, stocks, currencies, options and derivatives)
  • Mutual Fund Sales
  • Margin Lending
  • Financial Advisory Services

The Level of Competition in the Securities Brokerage Industry

The competition in the brokerage industry is one that is very stiff and this is due to the different kinds of brokerages now in existence, which has allowed investors to have more options as regards how to buy and sell securities.

Even though firms are in the business to make money using money, there are now cautious approaches on how to achieve this as excited approaches are what caused the market place to become volatile in the first place. Firms know that in order to be able to compete either within the country or globally, they have to hire capable and proficient professionals who understand the industry.

The volatility of the market place shows that you get to face new challenges daily as there are those who are always trying to be smarter than the market. This is why it is important for firms to remain proactive as their pro-activeness can start an evolutionary trend in the market place.

List of Well – Known Brands in the Securities Brokerage Industry

The well-known brokerage firms listed below are ones that have been able to rise above the challenges in the industry by remaining proactive either through one of the following; intense publicity and marketing strategies, excellent customer relationship, and quick adaptation to technological trends in the industry.

Below therefore are some of the leading brokerage firms in the United State of America and even globally;

  • Wells Fargo
  • Morgan Stanley
  • Bank of America
  • JPMorgan Chase & Co
  • Wachovia and Prudential
  • TD Ameritrade
  • Fidelity Investments
  • Charles Schwab
  • Interactive Brokers

Economic Analysis

There is a large amount of money in the brokerage industry due to the fact that more people are now investing in securities than they did before and this is because of the choices that are available. These choices range from stocks, real estate trusts, bonds, mutual funds and limited partnerships, but there are also more ways an investor can choose to invest their money and this includes electronic trading, full service brokerages and discount brokerages. There are also high end opportunities for investors that want to trade in hedge funds and venture capital funds.

The retail brokerage industry no longer has to rely on trade based commissions as it has adopted a modern form of commission which is called fee based services. This modern form has helped to inject more revenue into the volatile industry. For example, the new form of commission represented more than 25 percent in revenue as at 2004 and this grew to 40 percent at 2009.

Due to the cost it takes to train new brokers and to maintain seasoned brokers, firms have been finding it difficult to cope with most major firms preferring to consolidate in order to reduce costs. Smaller brokerage firms have also merged in order to remain afloat especially during an economic downturn.

There are a variety of opportunities in this industry as brokerage firms can decide to pursue several of these opportunities such as marketing, investment managing, retail brokerage or even hedge funds.

Starting Your Securities Brokerage Firm Business from Scratch versus Buying a Franchise

Starting a business from scratch or buying a franchise will totally depend on what the goals and objectives of the entrepreneur are. While some entrepreneurs want to be in control of their business from the start, others do not mind being tutored by others so as to overcome the start-up phase challenges and run the business to success later on. Each option comes with its pros and cons, and the decision on whether to start from scratch or not lies solely on you and what you want for your business.

With starting from scratch, you are able to control how your business should grow and what path it should take according to how it was laid out in your business plan. You would however have to contend with paperwork and having to remain proactive as you roll out marketing and publicity strategies for your brokerage firm.

Buying a franchise will mean that certain aspects of the business will not be under your control and this might benefit you in some ways especially as you will be relying on the experience of the company which you have bought a franchise from to help guide you through the starting phase of your business

Possible Threats and Challenges You Will Face When Starting a Securities Brokerage Firm

Every business either new or already existing usually faces threats and challenges that can either cause the business to fail or seriously derail from its set path. This is why any serious entrepreneur ought to be proactive as to what threats and challenges it might encounter and devise how best to overcome or manage them when they occur.

Some of the threats and challenges that you might likely face during the course of starting your brokerage firm business are having to intensely compete with rivals in the same industry, changing government policies and changing industry trends.

Starting a Stock Brokerage Firm Online – Legal Matters

  • Best legal entity to use for a brokerage firm

As a new business that is about to start up, one of the most important decisions you will have to take will be what legal entity is right for your business. The reason for its importance is because the legal entity you choose will determine how well your business can achieve its goals and objectives and grow nationally as well as internationally.

As one who is intending to start a brokerage firm, you have five kinds of possible legal entities that you can choose from and they are; sole proprietorship, partnership, Limited Liability Company (LLC), S Corporation and C Corporation. Each legal entity has its pros and cons, which is why it is necessary to seek the services of an attorney or a Certified Public Accountant (CPA) who has the right experience in this field to help you determine what legal entity would best suit your brokerage firm.

Most businesses in this industry usually prefer to start off as an LLC and this is because an LLC protects one from any form of personal liability; should any incident occur during the course of running the business, you will only lose what you have put into the business.

This is why brokerage firms also have an errors and omission insurance as well. LLCs are very simple to set up and more flexible. It also has a flexible tax treatment that will benefit the owner, as an LLC can be taxed as a corporate entity or as a pass-through entity.

In some states, it is not allowed for a brokerage firm to start off as an LLC, which is why research is very important as it will lead you to know what is required before choosing a legal entity for your business.

Catchy Business Name Ideas Suitable for a Stock Brokerage Firm

Choosing the right name for your business is very important as this is what will create an impression about your business to your target market. Choosing a name for your business is not something that should be done lightly as the name might go a long way in affecting how your business grows and becomes a success. When choosing a name for your business, you should ensure that the name is not only creative and unique but memorable as well so that your customers may remember you easily.

Below are some unique and memorable names to consider when starting your own brokerage firm in the United States of America;

  • S&M Brokers Inc
  • Silver Lining Brokers LLC
  • Kendrick Brokerage Firm
  • Mo Brokerage and Consulting Firm
  • TPP Brokers LLC
  • AMC Group and Co Brokers

Insurance Policies

Every business that runs legally in the United States of America has insurance policies that will help protect the business against any sort of liability that might crop up during the course of starting or running the business. However, while there are basic insurance policies that any business ought to have; there are also specific insurance policies that will be peculiar to the industry where one is operating from. In order not to be confused, it is best to approach an insurance broker or agent who will then advise you on what insurance policies to get for your brokerage firm.

Some of the basic insurance policies that you should however consider purchasing if you intend starting your own brokerage firm in the United States of America is;

  • General Insurance
  • Liability Insurance
  • Workers’ Compensation Insurance
  • Business Owners’ Policy Group Insurance
  • Auto Insurance
  • Health Insurance
  • Errors and Omission Insurance
  • Payment Protection Insurance

Intellectual Property Protection/Trademark

The brokerage firm industry is a service oriented kind of business and therefore does not need to apply for any form of intellectual property protection. While it is important that one protects their intellectual property, it can be an experience that can be stressful especially for a service oriented business. This is why those that intend to file for an IPP use an attorney.

It should however be noted that those in this industry do not consider applying for an intellectual property protection and those that do usually seek to protect their logo, slogan or jingle.

Is Professional Certification Needed to Run a Stock Brokerage Firm?

The securities brokerage industry is one that is highly dependent on results and experience. While there are certain documentations that must be in place before starting this business, you however do not require any form of compulsory professional certification before starting this business.

If you however want to have an edge over your competitors, then your best bet is to go for certifications that will boost the profile of your company and allow you have more clients.

List of Legal Documents You Need to Run a Securities Brokerage Firm

Having legal documentation before starting your brokerage firm in the United States of America is very essential as the law frowns on those operating illegally within the country and often imposes stiff punishments to discourage others from trying to establish their businesses illegally.

This means that you cannot run your brokerage firm without proper documentation in the United States of America. Before starting your brokerage firm, you will not only need to conduct proper research, you will also need to approach regulated authorities that will point out what documents you will need for your business.

Some of the basic legal documents that you will therefore need to have in place in order to legally run your brokerage firm in the United States of America are;

  • Certificate of Incorporation
  • Operating Agreement
  • Business License
  • Business Certification and Permit
  • Business Plan
  • Insurance Policy
  • Federal Tax Identification Number
  • Employee Identification Number (EIN)
  • Contract Documents
  • Non Disclosure Agreement
  • Form BD
  • Form U-4 and U-5
  • Agreement documents with banks, clearing agents and service bureaus
  • Supervisory procedures

Financing Your Brokerage Firm Business

The start-up capital for a business is very important because it is what enables a business to change from being a concept into becoming something realistic. This is why it is very important to have a good and comprehensive business plan as this document will help convince whoever you intend to approach for a loan about your seriousness and enable them to invest in your intending brokerage firm business.

You should however know that investors are more impressed when part of the funding comes from you; they are likely to be willing to invest in your business than if you didn’t put up any money at all. Therefore some of the options that you will need to consider when sourcing for start-up capital for your brokerage firm are;

  • Raising money from personal savings and from sale of stock or properties
  • Applying for loan from the bank or any financial institution
  • Sourcing for soft loans from friends and family members
  • Approaching venture capitalists and private investors for capital in exchange for equity

Choosing a Suitable Location for your Stock Brokerage Firm

Choosing a suitable location for your brokerage firm is very important especially if you intend to attend to clients both online and offline. There are several factors that you need to consider in choosing the right location for your business and a careful consideration of these factors will ensure that you will not experience much hitches when starting your brokerage firm.

There are some brokers who are only operating from their website and therefore have the luxury of running their business from home or from anywhere convenient. If this is the route you choose to go, then you should ensure that you build a secure website that has separate servers and also get a stock trading software to use in running your business.

If you do not want to use the services of an agent, then ensure that the place you intend to lease or rent is one that is in the hub of your target market. This will help you remain visible to your target market and also allow you to spend less engaging in publicity strategies so as to raise awareness for your business.

Ensure that you have a budget as regards the facility you intend to lease so that you do not add a strain to your budget as you are likely not going to generate revenue in your first few months of starting your brokerage firm.

Starting a Stock Brokerage Firm Online – Technical & Manpower Details

Before starting your brokerage firm, you will need to choose your operation model from either being a retail brokerage firm or an institutionalized brokerage firm. Whatever decision you choose will have an overall effect on how you intend to run your business and therefore form how your business plan will be written.

You will also need to organize your platform and infrastructure in such a way that it can receive and also route the orders of customers. Brokerage firms in keeping up with the changing trends in the industry usually allow their customers to have access to their online accounts in order to manage it and also trade securities online.

Because brokerage firms now operate both offline and online, you will need to lease a standard facility and also build a website; you will also need to create a stock trading software and have computer servers so as to serve your clients well.

Regarding the number of employees you will need to help you run your brokerage firm, they are; the chief executive officer, an admin and human resources manager, an accountant, a compliance officer, a chief financial officer, a marketing executive and a business development officer, a customer care executive and a cleaner.

To be able to run your brokerage firm successfully and according to industry standards, you would require at least 8 people.

The Service Delivery Process of a Securities Brokerage Firm Business

A securities brokerage firm facilitates the purchase and sale of financial securities on behalf of an investor. A full service brokerage firm does not only carry out a bond trade, it also studies the market so as to offer recommendations to portfolio and personal fund managers. They also offer margin loans that are subject to agreed-upon terms and conditions to certain approved clients.

Brokerage firms, due to the volume of securities that are transacted each day have employed a process known as the Exception Processing. This form of processing uses powerful computer systems and applications in order to identify transactions that were not correctly processed.

The operations carried out by a brokerage firm usually falls between self-clearing and correspondent clearing. During self-clearing, the brokerage firm usually processes all the required trade submissions, settlement and clearance transactions on behalf of itself and its own accounts. In correspondent clearing, all the above mentioned tasks are given to another firm to handle on behalf of the brokerage firm. This clearing firm also helps to maintain accounting records and books on behalf of the brokerage firm.

Starting a Securities Brokerage Firm Online – The Marketing Plan

  • Marketing ideas and strategies

While creating effective marketing strategies is good, it is essential that capable marketing executives who understand the goals and objectives of the firm are empowered to help achieve these goals, which would help grow and sustain the business.

Below therefore, are some of the platforms that can be used to market our brokerage firm;

  • Ensure that the business is formally introduced to clients and stakeholders by sending introductory letters that states your services as well as your charges
  • Place adverts in newspapers and relevant magazines as well as on radio and television stations
  • Ensure that the brokerage firm is listed in yellow pages as well as online directories
  • Carry out direct marketing by using the marketing executives
  • Use social media platforms such as Facebook, Twitter, Linkedin and Google Plus as well as the official company website to market the services of the brokerage firm.
  • Attend conferences, seminars and expos in order to network and market your brokerage firm

Strategies to Boost Your Securities Brokerage Brand Awareness and Create Your Corporate Identity

The brokerage business is one that is very competitive and tough to stand out, which is why firms – whether existing or new – in this industry usually engage in intense publicity so as to remain long in business, and as a new brokerage firm, you cannot afford not to engage in publicity. One thing to note about publicity is that you have a chance at not only increasing awareness about your business but also increasing the revenue generating chance for your business.

The publicity strategies you should create for your brokerage firm business is one that will allow you to not only be able to penetrate and get a fair share of the target market, but to compete favorably against similar competitors in the same industry.

In order to achieve this, you should make use of different forms of publicity strategies from using the internet and various social media platforms to using physical means of boosting awareness about your brand and creating a corporate identity as well.

Due to the seriousness of the need to boost the awareness of your brand, you need to engage the services of a reputable consultant who thoroughly understands your kind of business and has a long experience in helping brokerage firms like yours attain its goals and objectives.

Therefore, the platforms that you should consider using in boosting your brand and also promoting and advertising your brokerage firm is;

  • Placing of adverts in print (local newspapers and magazines) and in audio and visual media (radio and television stations)
  • Ensure that you install billboards in conspicuous and strategic places so as to raise awareness about your brokerage firm
  • Use social media platforms such as Facebook, Twitter, Google Plus, and Linkedin in order to create awareness about your brokerage firm
  • Distribute your handbills and paste fliers in strategic and conspicuous locations
  • Create educative and informative topics about the brokerage firms and about trends in the industry in order to create a loyal audience
  • Attend seminars and conferences as well as special events in order to not only network but also create awareness about your brokerage firm.
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