In this post we will be looking at how you can find a reliable FX broker for your asset management business.
This will help you select a broker to grow with and achieve stable development. We will be looking at the following points throughout the article:
- A list of checks you must look for
- How you can perform comprehensive due diligence
- Some tips and tricks to secure a better deal
A broker is one of the most important parts of your asset management business. It is also central to your long-term growth and development.
The wrong broker could deter potential investors and even damage your performance track record. This could occur through them trading against you and limiting your profits.
A low quality broker will also make it impossible to attract high quality investors. They will avoid placing their capital with a company they do not trust.
There are many things to consider and we will be walking through them in the following guide. If you’re building up from scratch then it is likely you will have to work with several brokers.
The main goal of this article is to help you move from a retail broker to one that you can work with to grow your business.
Any broker you work with must operate under regulation in a credible jurisdiction. This is the most basic of protections for traders and investors.
Regulation doesn’t stop a broker breaking the rules but it does offer recourse if they do. Ensure that the regulatory jurisdiction is also credible.
Credible jurisdictions maintain high barriers to entry and robust capital adequacy requirements. These include places like the UK, EU, US, Canada, Japan and Australia.
Any broker operating in an unregulated jurisdiction is a red flag to avoid.
There may be reliable brokers in these places but it’s important to protect against risks. This is especially true if your business is new and trying to grow.
As a general guide a start-up is any fund that has less than £10 million in AUM.
You should also check their trading platform and infrastructure. Is it reliable and user friendly? Do you understand it well enough to risk your own money and that of your clients?
Is their pricing competitive? It is imperative you constantly check your costs in the same way you would any other business.
If the broker increases their fees you need to know about it and what impact it has on your results. Constantly compare brokers and maintain the best pricing structure you can get.
As your AUM grows the broker will be willing to do more to keep your business.
You should also check and test their support team and processes. Help should be fast and effective.
Poor customer service from a broker can cause your investors to lose trust in your judgement. Make sure your broker is not a weak link in this regard.
Contact them using every channel they offer and track the quality of their service.
Performing External Due Diligence
Once you are happy with what you have experienced you need to gather external opinions. This includes online reviews.
They do have their limitations but will give you a good general feel for how others have fared with the broker.
The most useful opinion is that of other industry professionals. It’s surprising how small the FX industry is and how much you can find out through general conversations.
Ask around every contact that you have in the industry. You can also ask any existing clients that you may have.
If there are any rumours about the company then you will hear about it using this method. This will alert you to things that might remain unknown.
I once worked with a broker that was well known for being a pure ECN/STP broker. Their pricing was excellent and the platform perfect.
They were later bought out by a bigger company. They completely changed their business model to a B-book / market maker.
This was never publicly announced of course. My contacts warned me and I was able to avoid any potential conflicts developing.
This also allowed me to protect my funds and those of my clients. Things change and you need to constantly update your due diligence.
Tips To Secure The Best Deal
You should also leverage your client base to extract more value from any new broker.
Demand that the new broker introduce new clients to you in exchange for you moving your business to them.
All professional brokers will have large clients trading their own accounts. Many of these will be losing and open to talking to a profitable fund manager.
All it takes is an introduction from the broker themselves. This can help you grow your AUM quickly in a short space of time.
A tip here is to build a personal relationship with your broker as far as possible. When vetting new brokers check how willing they are to do this.
Having a personal relationship will help you get so much more value in the future. Any broker that doesn’t seem open to meeting up in person is best avoided.
This will help you re-negotiate the terms of your relationship as your business grows. Never be afraid to do this as it is one of the most powerful ways to build.
Even after you have found a broker you are happy with never stop talking to other brokers. This will keep you aware of what’s possible and your current broker competitive.
I have known traders save over 90% on their fees and commissions by simply switching brokers. This is because over time they never checked to see what kind of deals that were available.
When they eventually did look, they found the opportunities amazing. If a broker promises you client introductions make sure you secure this in a basic agreement.
Any agreement should state how much in new client assets you will receive and in what timeframe. This will protect you from switching brokers unnecessarily.
This goal of this short guide is to help you prepare for finding a professional broker. This is critical as you build your asset management business.
Any broker you are considering should be properly regulated. It must also have good trading infrastructure and pricing.
Fast and high quality support is also essential. Ensure that the broker is open to building a personal relationship too.
They can be a great asset in helping you grow your client base. Constantly be on the lookout for more competitive deals to help you grow.
Never stop negotiating and trying to find the best deal for you and your clients.
It is also important to avoid switching brokers unless there is a clear advantage. Any deal should include solid capital introduction.
We have professional brokers in our network. If you have at least $100,000 under management then please contact our team for more information.
If have any questions that were not covered in this article please write them in the comments below. I read each one and respond to as many as I can.