In this installment of our series on real estate investment channels, we’ll take a look at broker-dealers. In the first post of the series, I went over some of the basics of reaching out to new potential investors. Then, we looked at high net worth individuals – the foundation and often the first step of large-scale commercial real estate fundraising.

The broker-dealer channel is by far the most costly choice for raising money. It takes the most time, has the most players, and is strictly regulated. But once a sponsor has all the pieces in place, this is a channel that can add predictability to future raises and have a multiplier effect for your firm for years to come.

One main reason I enjoy interacting with the broker-dealer channel is that the advisors are generally more friendly because if you are calling them, they understand you have already made it past their broker-dealer’s due diligence. That said, there are advisors that don’t use alternative investments or non-liquid real estate investments, so don’t waste your time or theirs continually calling them. Call once and MOVE ON. Ok, let’s get into it.

Capital market players needed for the Broker-Dealers channel

Sponsor Principals – AKA, you.

Tip – For larger webinars and presentations, hearing from principals or asset managers is often the most impactful strategy. They are the individuals with the most expertise and knowledge of the markets and assets being bought.

National Accounts

Whether in house or outsourced, if your team is new to the broker-dealer channel, you will benefit greatly from a national accounts individual or team. This individual works closely with your managing broker-dealer and maintains and grows the number of affiliate broker-dealers relationships your firm has. They attend conferences, work with due diligence firms, and keep principals updated on industry trends and how to best structure a deal with affiliate broker-dealers. For detailed information on what a national accounts team does, visit Rep-Driven Results. Michelle and Lee have been in the industry for many years and do great work.

Tip – When you are deciding whom to hire for this position, make sure they have good relationships with many broker-dealers and due diligence firms or a good plan to make those relationships. If you have not had extensive due diligence done on your deals in the past, you will now. Three of the top due diligence firms you may want to consider are Mick Law, FactRight, and Buttonwood.

Managing Broker-Dealers

If you are new to the broker-dealers space, you will have two options when it comes to how you solicit your products. One choice is to register your firm with FINRA and the SEC as your broker-dealer. This allows you to hold on to more fees, but it can be costly, and it opens your firm to more liability. Another option is to register your firm under a “managing” broker-dealer.

Tip – 5 traits to look for in managing broker-dealers: 

  • Compliance – Will they actually keep you compliant? This is a must. 
  • Do they have reps – Will you gain an initial selling syndicate when you partner? 
  • Building relationships – Will they actively help you build relationships with other broker-dealers? Ask for their track record of other deals.
  • Full service – Will they put their reputation on the line for your firm?  
  • Pricing- How much are they charging? If they are charging over 1% and if they are charging a retainer fee, they better be doing the other four things specified here. 

Compliance Officer

This individual works with the SEC and FINRA to make sure your team and marketing materials are compliant. You must have strong compliance, especially if you plan on being your broker-dealer. If you have a managing broker-dealer, they will help you stay compliant, but as your team grows it may become necessary to hire a compliance officer.

Internal Wholesaler

The internal wholesaler acts as a support system for external wholesalers. They are responsible for the first contact with broker-dealer advisors, RIAs, and inbound advisor/investor calls. It’s true at first, much of the internal wholesalers’ job is to familiarize advisor firms with your firm and get your more senior external partner in-person meetings. As your internal wholesaler gains experience and booking meetings becomes easier, the job should encompass selling from the desk.

License Requirements​ – In most cases, internal wholesalers need to be FINRA Series 7 licensed. If you simply need a scheduler, don’t waste time licensing have your external find outsourced help. If you expect the person on the desk to sell, they need to be licensed.

External Wholesaler

External wholesalers are the travel dogs and team closers. They take the in-person meetings, attend big events, and take clients to the ball game. The ideal schedule for an external wholesaler is three meetings a day, every day across the specific territory they cover. This position is not and should not be immune to calling on new prospects and doing similar work to the internal wholesaler on days or slow weeks (my personal opinion).

License Requirements​ – External wholesalers need to be Series 7 licensed.


National Sales Manager

To maintain a group of high-performing external and internal wholesalers, it will become necessary to hire a national sales manager. They are in charge of the firm’s most important relationships and make sure the team has a consistent message to broker-dealer advisors and investors alike.

Sales Desk Manager

Another check on your internal team is a sales desk manager. Beyond the standard managerial roles of keeping internal wholesalers in check, they act as the liaison between the internal and external teams. Often the external thinks they know best, however the internal is the one talking to your everyday investor or all the advisors who have only a few accounts with you. Their input matters, and the sales desk manager helps amplify their voice. 

Where to find broker-dealers and broker-dealer reps for your selling syndicate 

Selling groups are made up of broker-dealer firms. When you hire a national account professional, they will work with your managing broker-dealer to create a selling syndicate.

Once you have broker-dealers that have done due diligence on your product and have accepted you onto their platform, the real sales cycle begins. At this point, your national accounts will be given a list of advisors under the broker-dealer. Now it is time for your internal and external to start making introductory calls to advisors.

Make sure these warm, juicy leads are input into a well-oiled CRM machine. Sometimes advisors stay under one firm for their whole career. More likely, they will move around over the course of their careers. Building good rapport today while they are at firm X could help you get into firm Y down the road.

The name of the game with broker-dealer reps is being politely persistent. They are aware that approved sponsors will be contacting them and are likely to get the same message from three, four…and once a rep even told me he gets 10 solicitations a day! Also, if they have been with a firm for a long time they will already have long-standing relationships. As long as you do your homework, have a great solution, and are politely persistent you will find success.

Tip – A good site for your internal and external to bookmark is BrokerCheck.​ Here you can look up any advisor and see their status and what broker-dealer(s) they’ve worked for. If an advisor has worked for 20 groups and has five red marks on their record, they might not be worth more than an initial call.

What are broker-dealer advisors looking for?

When selling into the broker-dealer channel with a real estate product, it is mostly understood that the front-end load will be something like 10 points. Points are the nice way of saying percent. Of those 10 points, the majority goes to the financial advisor. They have done the scary, long, arduous, fun, rewarding, exhilarating process of obtaining clients and building their trust, and therefore they are paid most generously. If a rep sees two Delaware Statutory Trust products that both look like good properties for their client and one pays 6 points and one pays 7, which will they choose? I will leave that up to you to decide.

Beyond anything monetary, broker-dealer advisors are looking for partners that are easy to work with, that will have longevity, and that will provide clients with great returns. Just like any other client, most like to be kept in the loop as time goes on and appreciate a random email or phone call just to catch up.

Tip – This should go without saying, but make sure your marketing materials have a pretty picture of the asset (or assets for a fund) and try to choose markets that advisors and clients easily know. This sounds so simple, but I have actually been given this advice from a well standing managing broker-dealer.

In the next post in the series, we’ll move on to another channel for large-scale commercial real estate fundraising: registered investment advisors (RIA).

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