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might purchase a brokerage, need some info
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might purchase a brokerage, need some info

  #1 (permalink)
Trading Apprentice
st. louis missouri
Futures Experience: Intermediate
Platform: tradestation
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Posts: 6 since Jun 2014
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might purchase a brokerage, need some info

hello traders. first time on the site and first post. i am considering purchasing a retiring brokerage's book of clients to add to my own. i have never done this before. one option that is being considered is a cash buyout with trailing commissions to the broker i would be buying out. do any of you have experience with this? how long are trailing commissions usually paid? 1 year? 5 years? is there an average client retention %? any info or advice would be greatly appreciated.


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  #3 (permalink)
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Lots of experience with that...

but speaking here in generalities. The selling broker might not have authority to negotiate this. The brokerage firm, if there is one, or the clearing firm, even if the same as yours, may be the ultimate authority.

DO NOT EVER agree to any compensation model for this purchase that is not TOTALLY based on client retention and solely on the continued gross production from those clients. From a regulatory perspective you MUST have full licensing and maintain all appointments PRIOR to the assumption of clients. Also the retiring broker would have to maintain all licenses and appointments including continuing education for all registrations.

Structure the comp deal so that you get paid first and have NO or as little out of pocket or expense against cash flow. You will want the "new" clients in a joint rep number with the commission split done at the firm level. This way there is no tax issue or need for you to issue 1099's. Do not agree to pay the selling broker a % based on HIS trailing twelve. Insist on face to face conferences with the selling broker and the top 25% of the accounts. Make sure both spouses are present and get a commitment to transition the relationship at those meetings. Insist on reviewing BOTH the posting book and client account statements. Don't buy a book that is blown up or blowing up.

This is a relationship business, if you can not establish relationship as trusted adviser in the first year the deal is "off". Really best to do a transition year or two depending on the book and type of business.

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