How to Set Up as an Independent Stockbroker

Setting up as an independent stockbroker is the equivalent of investing in your own company. There will be a lot of blood, sweat, and tears along the way, but if you want full control over your working life and an open-ended capacity to make money, being an independent broker is the way to go.

The Benefits

The two main reasons why talented individuals set up on their own is the freedom that comes from being your own boss, combined with the unlimited earnings potential. Talented brokers are much in demand by high net-worth individuals.

Are You Ready to Make the Leap?

Before you make the decision to go out on your own, consider the following:

• How much experience do you have?

Most independent brokers have earned their stripes working for large investment firms. This helps them gain the experience they need to make the right decisions at the right time.

• Are you single-minded and focused?

Aside from a talent for numbers, you will need to be ruthlessly organised and focused on your end-goal, which is to grow a successful brokerage. Not everyone is comfortable being the captain of their own ship, so be honest about your personality type.

• Are you a risk-taker?

This might seem like a daft question, given your chosen career path, but setting up as an independent broker is riskier than working for an investment firm. As a cog in a wheel, you are working under other people, with many protections in place. Working on your own and managing client money can put you in a precarious position – if you make the wrong decisions, nobody else is going to pick up the pieces.

Finances and Registration 

It should go without saying that you will need capital to start a stockbroking business. In the US, all stockbrokers must register with FINRA – The Financial Industry Regulatory Authority. FINRA will ask that you have a minimum of six months’ worth of capital to cover your expenditure. Your application will not be approved unless you can show you have enough capital.

In the UK, stockbrokers are regulated by the Financial Conduct Authority (FCA).

Hiring Employees

Everyone who works in a key role must have relevant experience. Look for associates who have direct experience in the industry – the more overall experience your brokerage has, the easier it will be to attract good-quality clients. And without clients, your business is dead in the water!

The business will also need support staff to take care of the admin, customer service, accounts, etc. Bear in mind that managing employees can be tricky if you lack experience. Remember, the more engaged your employees are, the better, as highly engaged employees lead to better company performance. For this reason, it is sensible to track employee engagement analytics, so you don’t lose talented individuals as the company finds its feet.

Be in It to Win!

Many independent traders give up within two years. This need not be your experience. With the right preparation and experience, you can keep your capital intact and grow a successful brokerage.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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