How to Start a Stock Brokerage Firm

Important elements to think about when starting your stock brokerage firm:

1. Obtain necessary licenses and certifications — Ensure you have all required licenses and certifications to operate legally. This includes obtaining your FINRA (Financial Industry Regulatory Authority) license and other state-specific licenses.
2. Expertise — Develop a thorough understanding of the stock market, trading strategies, and financial regulations. Consider gaining additional qualifications or certifications to enhance your credibility.
3. Trained and expert staff — Hire experienced and certified staff with a deep knowledge of stock trading and financial advising. Provide ongoing training to keep them updated on market trends and regulatory changes.
4. Online presence — Develop a professional website and maintain a strong online presence. Use your website to provide information about your services, share market insights, and offer online trading platforms.
5. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
6. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
7. Trading software — Invest in reliable and advanced trading software to provide your clients with a seamless trading experience. Ensure the software has robust security features to protect client data.
8. Compliance and regulations — Ensure your firm complies with all financial regulations and industry standards. Implement comprehensive compliance policies and regularly audit your practices.
9. Marketing and promotion — Use a mix of online marketing, networking, and financial events to promote your brokerage firm. Highlight your expertise, specialized services, and the benefits of trading with your firm.
10. Client education and support — Offer educational resources and support to your clients. This can include market analysis, trading tutorials, and personalized financial advice.

You May Also Wonder:

Is a stock brokerage profitable?

Stock brokerages can be very profitable, but it depends on factors such as the size of the firm, trading volume, fee structure, and market conditions.

What happens during a typical day at a stock brokerage?

During a typical day at a stock brokerage, activities include market research, client interaction, trade execution, account management, compliance tasks, and ongoing education and professional development.

What is the growth potential of a stock brokerage?

The growth potential of a stock brokerage relies on factors like market conditions, client acquisition and retention, technological advancements, and expansion into new markets or services.

What type of business is stock brokerage?

A stock brokerage is a financial intermediary that facilitates the buying and selling of securities on behalf of clients, providing services such as trade execution, account management, research, and advisory support. It falls under the category of the financial services industry.

Step 1: Decide if the Business Is Right for You

Pros and cons

Stock brokerage industry trends

Industry size and growth

• Industry size and past growth – The U.S. securities brokering industry is worth $188.3 billion in 2023 after growing 4.2% annually for the last five years.((https://www.ibisworld.com/united-states/market-research-reports/securities-brokering-industry/))
• Growth forecast – The U.S. securities brokering industry is projected to grow .3% in 2023.
• Number of businesses – In 2023, 35,964 securities brokering businesses are operating in the U.S.
• Number of people employed – In 2023, the U.S. securities brokering industry employs 283,353 people.

Trends and challenges

Trends

• Many investors are looking to online brokerages to facilitate transactions, presenting an opportunity for entrepreneurs to start their own online brokerage.
• AI is being increasingly used in the securities industry to analyze data and provide insights.

Challenges

• Regulations on stock brokerages are expected to tighten over the next few years, forcing stock brokerages to adapt to stay in compliance.
• Data breaches are an increasing concern for stock brokerages, forcing them to spend more money on cybersecurity. 

Demand hotspots

• Most popular states – The most popular states for stock brokers are Kansas, New York, and Minnesota.((https://www.zippia.com/stock-broker-jobs/best-states/))
• Least popular states – The least popular states for stock brokers are Florida, Vermont, and Idaho.

What kind of people work in stock brokerages?

• Gender – 14% of stock brokers are female, while 86% are male.
• Average level of education – The average stock broker has a bachelor’s degree.
• Average age – The average stock broker in the US is 43 years old.

How much does it cost to start a stock brokerage business?

Startup costs for a stock brokerage range from $150,000 to $250,000. The largest cost is the capital reserves required by FINRA. Other costs include office space rental and preparation, a computer system and software, and an operating budget.

You’ll also have the costs of licensing and registering with the Securities Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). 

You’ll need a handful of items to successfully launch your stock brokerage business, including: 

• Computer system
• Trading software
• Office furnishings

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$100 - $500	$300
Business licenses and permits	$2,000 - $3,000	$2,500
Insurance	$2,500 - $5,000	$3,750
Website	$500 - $1,000	$750
Computer system and software	$5,000 - $10,000	$7,500
Office space rental and preparation	$5,000 - $10,000	$7,500
Capital reservices	$100,000 - $150,000	$125,000
Sales and marketing budget	$500 - $1,000	$750
Operating budget	$30,000 - $50,000	$40,000
Total	$145,600 - $230,500	$188,050

How much can you earn from a stock brokerage business?

Stock brokerages typically charge a percentage of the assets being managed. Rates are 1 to 2% per year, for an average of 1.5%. Your profit margin after your costs should be about 50%. 

In your first year or two, you could manage $10 million in assets, bringing in $150,000 in revenue. This would mean $75,000 in profit, assuming that 50% margin. 

As you gain traction, you might manage a portfolio of $50 million. With annual revenue of $750,000, you’d make a tidy profit of $375,000.

What barriers to entry are there?

There are a few barriers to entry for a stock brokerage. Your biggest challenges will be:

• Meeting all licensing requirements
• Funding the startup costs
• Competing with big companies like Morgan Stanley and Charles Schwab

Step 2: Hone Your Idea

Now that you know what’s involved in starting a stock brokerage, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research could give you the upper hand even if you’ve got the perfect product. Conducting robust market research is crucial, as it will help you better understand your customers, your competitors, and the broader business landscape.

Analyze your competitors 

Research stock brokerages in your area to examine their products and services, price points, and customer reviews.

• Make a list of stock brokerages that offer similar products or services. 
• Review your competitors’ products – their features, pricing, and quality – and marketing strategies
• Check out their online reviews and ratings on Google, Yelp, and Facebook to get an idea of what their customers like and dislike.
• Identify your competitors’ strengths and weaknesses. 

This should identify areas where you can strengthen your business and gain a competitive edge to make better business decisions.

Why? Identify an opportunity

You’re looking for a market gap to fill. For instance, maybe the local market is missing a stock brokerage firm that also has an online trading platform, or a discount brokerage firm.

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your services

Your best bet is to offer a variety of services. Full service brokers offer mutual funds, stocks, bonds, commodities, and annuities. You can also offer financial planning services to increase your revenue.

How much should you charge for stock brokerage services?

Your fees should be based on market prices in your area, but also on your ongoing costs. 

Once you know your costs, use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market should be higher net worth individuals, who you can market to on Facebook or LinkedIn. 

Where? Choose your business premises

You’ll need to rent out an office space. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Stock Brokerage Firm Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “brokerage” or “brokerage firm”, boosts SEO
• Name should allow for expansion, for ex: “Dynamic Investments Group” over “Capital Trade Partners”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation. 

Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward. 

Step 4: Create a Stock Brokerage Business Plan

Here are the key components of a business plan:

• Executive Summary: Summarize the key points of your business plan, including your vision, target market, and competitive advantage.
• Business Overview: Describe your stock brokerage firm, its location, the range of financial products it will offer, and the types of clients it aims to serve.
• Product and Services: Detail the specific financial products and services your brokerage will provide, such as stock trading, investment advisory, and retirement planning.
• Market Analysis: Analyze the current state of the stock market, potential for growth, and the demographics of your target clients.
• Competitive Analysis: Identify and assess your competitors in the stock brokerage industry, highlighting what sets your firm apart, such as advanced trading tools or personalized investment strategies.
• Sales and Marketing: Outline your strategies for acquiring clients and expanding your customer base, including digital marketing, partnerships, and educational resources.
• Management Team: Introduce the key members of your team, emphasizing their expertise in finance, investment, and compliance.
• Operations Plan: Explain how your brokerage will operate on a daily basis, covering aspects like trading hours, technology infrastructure, and compliance with financial regulations.
• Financial Plan: Present financial projections, including revenue forecasts, fee structures, and investment strategies, to demonstrate the profitability and sustainability of your Stock Brokerage business.
• Appendix: Include any supplementary documents, such as financial statements, regulatory licenses, or client testimonials, to support your business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to stock brokerages. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your stock brokerage will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts. Here’s how to form an LLC.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation. Read how to start a corporation here.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Venture capital: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
• Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities. 
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a stock brokerage business. You might also try crowdfunding if you have an innovative concept.  

Step 8: Apply for Brokerage Business Licenses and Permits

Starting a stock brokerage business requires obtaining a number of licenses and permits from local, state, and federal governments.

You’ll need Series 6, 7, 63, and 66 licenses, as well as insurance licenses. You’ll also need to register with the SEC, FINRA, and SIPC. Check with your state for other requirements.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your stock brokerage business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

You may want to use industry-specific software, such as Proactivesoft or Fidelity, to manage your accounts, transactions, and billing. 

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Create a website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. 

Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Schedule Consultation Now”. This can sharply increase purchases.

Marketing

Here are some powerful marketing strategies for your future business:

• Educational Webinars and Workshops: Conduct regular online seminars and workshops to educate potential clients about stock market trends, investment strategies, and the benefits of using your brokerage services.
• Social Media Engagement: Leverage social media platforms to share market insights, investment tips, and engage with your audience. Utilize targeted ads to reach specific demographics interested in stock trading.
• Partnerships with Financial Advisors: Collaborate with financial advisors and consultants to offer comprehensive financial planning services, creating a one-stop solution for clients seeking investment advice.
• Referral Programs: Institute a referral program that rewards existing clients for referring new customers, fostering loyalty and incentivizing word-of-mouth marketing.
• Customer Success Stories: Showcase success stories of clients who have profited from using your brokerage services, emphasizing real-world examples of positive outcomes.
• Mobile App Optimization: Ensure your brokerage platform has a user-friendly mobile app, providing convenience for clients to trade on the go and stay connected to market updates.
• Exclusive Research Reports: Produce and distribute exclusive research reports, providing valuable market insights and establishing your firm as an authority in the industry.
• Community Involvement: Sponsor local events, charities, or educational programs to enhance your firm’s community presence, creating a positive brand image.
• Incentive-based Trading Contests: Organize trading contests with attractive prizes to encourage client participation, fostering a sense of competitiveness and engagement.
• 24/7 Customer Support: Offer round-the-clock customer support to address client concerns promptly, enhancing trust and satisfaction.
• Strategic Alliances with Corporates: Form strategic alliances with corporations to offer stock investment plans as part of their employee benefits, tapping into a broader client base.
• Continuous Training for Employees: Invest in ongoing training for your employees to ensure they stay updated on market trends, regulations, and technological advancements, providing top-notch service to clients.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your stock brokerage meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your stock brokerage business could be:

• Financial advisors you can trust
• Sound financial planning, secure transactions
• Build wealth for your future

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a stock brokerage business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in stock brokerages for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in stock brokerages. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a stock brokerage business include:

• Investment advisors – assist clients with planning and transactions
• Traders – make exchange transactions
• Investment analyst – research and recommend investments
• Receptionist – greet clients, answer phones, make appointments
• Market Lead – create and implement marketing strategies

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Stock Brokerage Business – Start Making Money!

Stock brokerages play a valuable role in any community, helping people meet their financial goals. By starting your own brokerage, you’d be serving clients and making a good living. If you’re successful, you can hire a whole team of investment advisors and take your brokerage to the next level.

You understand the business, so you’re ready to get your lucrative stock brokerage up and running!