Broker Licensing Options

Today, Business Brokers/Intermediaries have a whole world of new options for legally securing commissions. In the past, most brokers have been licensed as Real Estate Salesman/Brokers in the state they were in or not licensed at all if their state did not require licensing or if there was no real estate involved. That would include a lease to be transferred to the buyer. The lease was a favorite way of requiring brokers to be licensed and to pay a DRE (Department of Real Estate) fee. The place where being properly licensed really becomes an issue is in court when you are trying to collect your fee. That is where the rubber really meets the road.

Not much attention was paid to the business being transferred if it became a stock transaction instead of an asset sale under the Uniform Commercial Code. Attorneys can handle stock transactions but may try to reduce your fee to justify theirs. With the advent of the new FINRA (FINANCIAL INDUSTRY REGULATORY AUTHORITY) Series 79 license there is now an option for handling stock, multi-state, partial interest, equity financing and a whole variety of other transactions we were prohibited from doing as business brokers. Also, currently underway with a big push from several organizations, is another type of license that would permit transactions similar to those described in the SEC CBI (Country Business, Inc) No-Action letter. It has been nicknamed a BrokerLite license and is still under negotiation. It would require limited background check and almost no testing. Opinions vary as to the success of this license being approved.

For the purposes of this discussion, I will limit further comments to the Series 79 license and what is required to obtain one. The Series 79 license was developed as an alternative to the much more complex Series 7 licenses that stockbrokers require. It is nicknamed the Investment Bankers license. To become Series 79 licensed, you must have a FINRA licensed Broker/Dealer sponsor you. They will have to be comfortable with you and how you intend to secure business. Most Broker/Dealers shy away from transaction work so, it will take some discussion to convince them that you are not a risk to their current operation. You will need to negotiate the percentage they take of your commission and the various fees they charge you while affiliated. Their share of your fee usually ranges between 10-20% of your commission with a quarterly minimum. You will also need to discuss asset sales and any other fees you receive. Once they have approved you, they will require fingerprints that are submitted to FINRA, your signature on their Registered Representative agreement and they will register you on the FINRA website. A U4 form (39 pages) will need to be completed and arrangements made to take the Series 79 Exam. It is 175 questions and takes up to 4.5 hours to complete. The current passing grade is about 73% but can change. There are at least two firms that offer training for about $500. Check the internet.

On passing, it is your license as long as you keep it with a broker/dealer and for two years thereafter if you don’t. There are provisions for active military. One requirement is that FINRA will monitor all your e-mails and will occasionally do word searches looking for words that can be a concern to them. Otherwise, all the FINRA problems are the broker/dealers. You may also be thinking about becoming your own broker/dealer. I would discourage this thinking. It is very expensive and with issues you can’t control. For instance, they will require a Certified Audit of your brokerage each year and can make an onsite random audit at any time of their choosing, at your expense. You will have to put $5,000 on deposit, at a minimum, which you will probably never see again.

This article is intended to be a general overview and no attempt has been made to make it accurate. Consult your legal advisors or FINRA with any concerns you may have.