There is nothing wrong with working for a brokerage firm. You should be able to negotiate a good commission split or bonus plan. The better you are, the more strength you have in negotiating a good deal. Many brokers actually like working for someone else, as they don’t have to worry about the business side. They just produce and go home at the end of the day.
Most brokerage firms provide administrative support, leads, mentoring, training, trading terminals and sometimes a credible company name. All these things help a broker conduct business and earn more money – hopefully. The costs of these benefits can be enormous if someone decides to venture out on their own.
Starting a new brokerage firm can be very difficult. The new company probably won’t have any name recognition behind it and attracting new clients will probably be the biggest struggle. The positive is that as the owner of the firm, you keep all the commissions you earn. You can also leverage the efforts of other brokers you bring aboard.
The next thing to consider is whether you want to open a full-service or discount brokerage. As a full-service firm, you will have to manage the trading and open new accounts, while running the business. This can be more work than you expect. Opening an online brokerage firm has it’s own challenges. This has become a very competitive marketplace and traders seek low commissions. You have to be realistic on whether you can compete on low prices or better services with the other larger and more established firms.
The best part about opening a brokerage firm is that you can run the business the way you want to. Almost every broker has some type of issues with the way their firm is run. Being your own boss gives you freedom to prosper without anyone holding you back. Another benefit is that you receive all commissions on any business you do. You keep 100 percent of all your commission transactions.
The negatives is the initial startup costs and the ongoing expenses every month. Theoretically, you will be starting with zero clients and zero dollars in revenue. It will take some time before you can generate enough clients and revenues to support your business. You will also be incurring a large amount of expenses in order to generate the clients. Having enough startup capital is essential for survival.
Some brokers are actually in a good position if they have a large book of clients that they can take to their new firm when they open it. This is often a problem, as most employers will make you sign a non-compete in order to work at their brokerage firm. They don’t like you to take clients or proprietary information.
A good case can be made for taking your clients if you did not fully depend on the brokerage firm for training you and opening the accounts. A brokerage firm that pays for leads and covers all your expenses, in addition to having you sign a non-compete will have a good case against you. You will have a good case if you brought clients in through personal relationships and some of your own expenses without signing a non-compete.
It is a big decision to open a commodity brokerage firm. It is relatively easy to do, but being successful is another story. Look at all the pros and cons and give yourself an honest observation before making the decision. Most people I know who run their own firms are extremely glad that did.