How to Start a Broker Business
Brokers are an important component to the economy. As facilitators, they put buyers and sellers together to make deals that otherwise may never happen. Whether one brokers stocks and securities, mortgage loans, real estate, commercial financing or any other commodity, the basic components of the business are identical. Starting a broker business is not overly difficult, but does require proper planning.
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Instructions
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Decide on what broker service to offer. The choices are many. Buyers and sellers always need to be brought together. The expanding power of the Internet has not eliminated the need for successful brokers. Having a specialty or niche is important, as successful brokers must be experts in their chosen field, with excellent contacts and sources of clients and providers.
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Learn about licensing requirements. This is a critical step. For example, if you wish to become a stock or securities broker, you must have the appropriate licenses issued by the SEC (Securities and Exchange Commission). If you wish to broker mortgage loans, you need to be licensed in most U.S. states. Conversely, should you want to broker commercial financing, you may face no licensing requirements.
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Decide on a "business delivery" method. Determine if you need a physical presence for your broker business, or if the company can succeed with a home-office or e-commerce-type structure. Many brokers have little need for a "retail" office, as their business can succeed via telephone, email and/or website. Others, however, may need a physical location, necessitated by face-to-face client/customer meetings or state licensing requirements.
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Locate sources for your product or service specialty. For example, starting a commercial loan broker business requires at least two or three local or national lenders who seek new borrowers. Be sure that at least one source is also an approved SBA (Small Business Administration) lender as many prospective clients will be small businesses. Before generating clients, your new broker business must have sources for your products, be they stocks, loans, shoes, land or any other commodity.
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Make appropriate agreements with sources, identifying the relationship, what each party agrees to provide and, if appropriate, fees to be charged by or paid to the broker. These agreements need not be overly complicated, as most sources will maintain control over products, prices, delivery and all other product/service terms. Yet, there should be a written agreement that establishes a relationship between you the broker and your source to avoid future problems.
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Prepare simple, but thorough, broker agreements for clients. Attempting to act as a broker without written contracts is often dangerous and costly. Brokers without protection of a signed agreement, which outlines the duties of both parties, risk not receiving their fee. For example, a commercial loan broker whose fee is payable at a lender closing typically must submit her fee agreement in advance to receive her earned income at the closing.
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Adopt a marketing plan that will generate sufficient clients/buyers of the products that you offer. For example, a commercial loan broker might use a combination of website, newspaper, trade magazine and intensive personal networking activities (particularly with accountants, attorneys and bankers) to generate new clients.
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Tips & Warnings
Be very clear regarding fees and commissions with clients to avoid payment problems in the future.
Establish strong relationships with sources to avoid misunderstandings regarding products, pricing and availability.
Consider one or more local sources of products along with national or international companies.
Don't oversell the product, as the source normally retains total control. Clients may become very dissatisfied with the broker if they perceive differences between what was promoted and the final product.
Avoid the greed factor. Charging excessive fees for broker services often drives away otherwise good clients, usually before an agreement is signed.
References
Resources
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