What licenses does a broker need in the United States?

In the United States there is no general broker license: the license a broker needs depends on what is being brokered. Securities, freight and customs brokerage are licensed or registered at federal level; real estate, insurance, mortgage and, in some states, yacht and business brokerage are licensed by the states; equipment brokerage has no license of its own.

This article covers the rules that apply in the United States. It is general information, not legal advice, and state rules are given only for the states named.

The word "broker" on a business card settles nothing. Each licensing law defines the activity it covers, usually as doing a listed act for another person in return for compensation, and anyone who does that act is inside the law whatever they call themselves: finder, consultant, advisor, introducer.

The sections below take nine types of broker in turn. Every requirement stated here was read in the statute or on the regulator's own publication named in the sentence. Requirements that could not be checked that way were left out, so a rule absent here may still exist.

Which license applies to which type of broker?

Three types of broker answer to a federal regulator, four to state regulators, and two have a license only in certain states or none at all. The table gives the regulator and the scope for each; the sections that follow give the detail and the source.

A broker whose deals cross two rows needs to satisfy both: a logistics firm that clears goods at the border and then arranges the truck is doing customs business and freight brokerage.

What license does a real estate broker need?

A real estate broker in the United States needs a license from the state where the property is located, issued by that state's real estate regulator. There is no federal real estate license.

The definition is broad. California's Business and Professions Code defines a real estate broker as a person who, for compensation or in expectation of compensation, does or negotiates to do listed acts for others: selling or buying, soliciting buyers or sellers, obtaining listings, leasing or renting, collecting rents, and negotiating loans secured by real property. Florida's statute is similar in shape and adds appraising and auctioning to the list, and names the Florida Real Estate Commission as the body that administers it.

Two tiers are standard. The broker license allows its holder to run a brokerage and to be paid directly by clients. The salesperson license, called a sales associate license in Florida, allows the same acts, but only under a broker: the Florida statute defines a sales associate as a person who performs the acts in the definition of broker under the direction, control or management of another person.

The broker tier has to be earned. The California Department of Real Estate requires an applicant for a broker license to be at least 18 years old, to have a minimum of two years of full-time licensed salesperson experience within the last five years or one of the stated equivalents, to have completed eight statutorily required college-level courses, and to pass a written examination. Other states set their own rules.

Does a business broker need a license?

No federal license exists for selling businesses, but in some states a business broker needs a real estate license, because the state's real estate law reaches the sale of a business. Florida and California are two of them.

Florida's real estate statute defines a broker as a person who, for another and for compensation, sells, exchanges, buys or rents "business enterprises or business opportunities or any real property", and its definition of real estate includes any interest in business enterprises or business opportunities. California's Business and Professions Code likewise defines a real estate broker as someone who, for compensation, negotiates the purchase, sale or exchange of real property or a business opportunity. In those two states, arranging the sale of a business for a fee is real estate brokerage in law.

Other states draw the line differently. The reliable way to know is to read the definition of "broker" and of "real estate" in the licensing statute of each state where you work.

The second question is securities law. A business can be sold as a set of assets or as shares, and a sale of shares is a transaction in securities. The Securities and Exchange Commission's guide to broker-dealer registration lists finders and business brokers among the people who may need to register as a broker, depending on what they actually do, and names finding buyers and sellers of businesses as one of the activities to examine.

What does a securities broker-dealer have to register for?

A securities broker-dealer registers with the Securities and Exchange Commission, joins a self-regulatory organization, and meets the requirements of each state where it does business.

The Securities Exchange Act defines a broker as any person engaged in the business of effecting transactions in securities for the account of others, and a dealer as any person engaged in the business of buying and selling securities for their own account. According to the Commission's guide to broker-dealer registration, most brokers and dealers must register with the Commission and join a self-regulatory organization; a registered firm must become a member of the Financial Industry Regulatory Authority unless it qualifies for a stated exemption, and must be a member of the Securities Investor Protection Corporation, with limited exceptions. The same guide says every state has its own requirements for a person conducting business as a broker-dealer within that state.

Registration is for the firm, and qualification for each person. The guide states that an associated person who effects or is involved in effecting securities transactions must meet qualification requirements, which include passing a securities qualification examination, and notes that many individuals take the comprehensive examination known as the Series 7. An individual does not hold a personal "broker license" in the way a real estate broker does: the individual is registered through a firm.

Whether an activity makes someone a broker depends on conduct. The Commission's guide asks, among other questions, whether the person handles the securities or funds of others and whether the person receives transaction-based compensation.

For private company sales, the Exchange Act now carries an exemption. Its section on broker registration states that an M&A broker shall be exempt from registration, subject to exclusions. The exemption is lost, for example, by a broker who receives, holds, transmits or has custody of the funds or securities exchanged by the parties, who binds a party to the transfer, who acts in a transaction involving a shell company, or who represents both buyer and seller without written disclosure and written consent from both. The statute also limits the exemption to eligible privately held companies, defined by size tests that are not reproduced here. It is an exemption from federal registration only: state securities law and state real estate licensing remain separate questions.

What license does an insurance broker need?

An insurance broker needs a producer license from the insurance regulator of each state where they sell, solicit or negotiate insurance. Insurance is regulated by the states, and there is no federal producer license.

The National Association of Insurance Commissioners, the body through which state insurance regulators coordinate, defines an insurance producer as an individual who sells, solicits or negotiates insurance, and states that the term producer includes insurance agents and insurance brokers. For licensing purposes, "broker" and "agent" are therefore one category: the license is a producer license.

The same association states that state insurance regulators license producers and set continuing education requirements, and that more than 2 million individuals and more than 236,000 business entities are licensed to provide insurance services in the United States: firms are licensed as well as individuals.

Working across state lines has historically meant meeting separate nonresident licensing requirements in other states, in the association's own description. A national registry built with the association gives states a shared producer database, without removing the need to be licensed in each state where business is done. The lines of insurance, the examination and the hours of education are set state by state.

What license does a mortgage broker need?

An individual who originates residential mortgage loans as a broker needs a state license and a registration in the national mortgage licensing registry, under a federal law that sets the minimum the states must apply. The license is issued by the state; the floor is federal.

The federal statute known as the SAFE Act provides that an individual may not engage in the business of a loan originator without first obtaining, and maintaining annually, either a registration as a registered loan originator or a license and registration as a state-licensed loan originator, together with a unique identifier. The registered route is the one used by employees of federally regulated lending institutions; an independent mortgage broker follows the state-licensed route.

The Consumer Financial Protection Bureau's Regulation H lists what a state must require before it issues that license. The applicant must never have had a loan originator license revoked, must have no felony conviction in the seven years before the application and none at any time for fraud, dishonesty, breach of trust or money laundering, and must demonstrate financial responsibility, character and general fitness. The applicant completes at least 20 hours of approved pre-licensing education, including 3 hours of federal law, 3 hours of ethics and 2 hours on nontraditional mortgage lending, and passes a written test with a score of at least 75 percent. Fingerprints go through the registry for a criminal history check, and the applicant must be covered by a net worth requirement, a surety bond or a state fund, as the state decides.

Those are minimums. Whether the brokerage company needs its own state license as well is a matter of state law that this article does not cover.

What does a freight broker need?

A freight broker needs broker authority from the Federal Motor Carrier Safety Administration, backed by financial security of $75,000 and a designated process agent. It is a federal registration.

Federal transportation law states that a person may provide interstate brokerage services as a broker only if that person is registered and has satisfied the financial security requirements. The Federal Motor Carrier Safety Administration's broker registration page sets out what the applicant files: an application for broker authority, proof of financial security in the form of a surety bond or a trust fund agreement in the amount of $75,000, and a designation of process agents. The requirement applies to brokers of property and to brokers of household goods alike.

Broker authority allows arranging transportation; it is not authority to haul. A company that both arranges loads and moves them with its own trucks holds two registrations, one as a broker and one as a carrier.

The statute names three kinds of intermediary that the broker registration rule does not reach, each only within its own field: an ocean freight intermediary arranging inland transportation as part of an international through movement, a licensed customs broker acting in a transaction involving customs business, and an indirect air carrier acting within its approved security program.

What does a customs broker need?

A customs broker needs a license from Customs and Border Protection, the federal agency that also sets the examination. Nobody may conduct customs business on behalf of others without it.

Federal customs law provides that no person may conduct customs business, other than solely on their own behalf, without a valid customs broker's license, and defines customs business as activities involving transactions with the agency, including the related filings, the preparation of documents and matters of duties and refunds; the mere electronic transmission of data is excluded.

Customs and Border Protection's page on becoming a customs broker gives the conditions for an individual: a United States citizen at least 21 years old, not a current federal government employee, and of good moral character. The examination is open book, with 80 multiple-choice questions, a passing score of 75 percent or better, and two sittings a year, in April and in October.

Companies are licensed too. The agency states that corporations, partnerships and associations must have a broker license to transact customs business, and must have at least one officer, partner or associate who holds an individual license.

Does a yacht broker need a license?

A yacht broker needs no federal license, and needs a state license only where a state has written one; Florida and California both have. In a state with no yacht broker statute, the activity is unlicensed.

Florida's Yacht and Ship Brokers' Act states that a person may not act as a broker or salesperson unless licensed under the Act. It defines a yacht as a vessel propelled by sail or machinery that exceeds 32 feet in length and is manufactured or operated primarily for pleasure, so the license is not required for smaller boats. The regulator is a division of the Florida Department of Business and Professional Regulation. A broker must deliver a surety bond or irrevocable letter of credit of $25,000, and a salesperson a bond of $10,000. The Act also lists who needs no license, including a person who sells their own yacht, a transaction involving the sale of a new yacht, an attorney acting in a professional capacity and a person acting under a court order.

California draws its line lower. The California Division of Boating and Waterways states that any person selling used vessels 16 feet or longer and less than 300 gross tons for others, and who does not own those vessels, is required to be licensed in California. The division administers the Yacht and Ship Brokers Act and holds the broker and salesperson examinations.

The threshold matters: a 28-foot used boat sold for a client is outside the Florida Act and inside the California one.

Does an equipment broker need a license?

No license specific to equipment brokers was found in any federal source read for this article, and an equipment broker who simply introduces a buyer and a seller of machinery generally works under ordinary contract law. What can bring a license into play is the nature of what is sold or of the service around it.

Three situations deserve a check before you take the mandate. If the equipment is a vehicle or a vessel that is titled and registered, state dealer or broker licensing for that kind of asset may apply, as the yacht statutes above show for boats. If you arrange the financing or the lease as well as the sale, state lending and loan brokering laws may cover that part of your work. And if you arrange the transport of the machine by truck across state lines for compensation, that part is freight brokerage, and it requires the federal broker authority described earlier.

A certification offered by a trade association is a credential, not a license: it is granted by a private body, and working without it breaks no law.

What happens to the fee of an unlicensed broker?

In general terms, an unlicensed broker risks losing the right to collect the fee, and in the federally regulated fields risks a civil penalty on top. The fee agreement itself is the first casualty.

In real estate, the rule is written into the licensing statutes. Florida's statute provides that no contract for a commission or compensation for a brokerage act is valid unless the broker or sales associate held a license when the act was performed. California's Business and Professions Code bars a person acting as a real estate broker or salesperson from bringing or maintaining a court action to collect compensation without alleging and proving that they were licensed when the claim arose. Because both states treat a business opportunity as real estate, the same consequence reaches a business broker's fee there.

In securities, the Exchange Act provides that a contract made in violation of the Act or of its rules is void as regards the rights of the person who committed the violation. A success fee agreed by a person who should have been registered is exposed to that provision.

In freight and customs, the statutes set a price. Federal transportation law makes a person who knowingly authorizes, consents to or permits unregistered brokerage liable to the federal government for a civil penalty of up to $10,000 for each violation, and to the injured party for all valid claims without limit of amount; that liability applies jointly and severally to the company and to its individual officers, directors and principals. Federal customs law makes a person who intentionally conducts customs business for others without a license liable for a penalty of up to $10,000 for each transaction.

The table sets those consequences against three illustrative cases. The deal sizes, fee rate and margins are assumptions chosen for the example; only the statutory ceilings come from the sources named above.

The first case has a second layer. Suppose the $192,000 fee was to be shared 60/40 between a lead broker and a co-broker, $115,200 and $76,800. If only one of the two holds the license the state requires, the other's share rests on a contract the statute does not recognize, and state laws may also restrict what a licensee may pay to an unlicensed person. That question should be settled before the mandate is signed.

How do you work out which license your own deal needs?

You work out which license a deal needs by identifying what changes hands, where, and what you do for your fee, then reading the definition in the statute that covers it. Five checks, in order, cover most situations.

Timing matters as much as the answer. The Florida and California statutes quoted above look at whether the license was held when the act was performed or when the claim arose, so a license obtained after the introduction was made may not repair the fee.

How do other countries differ?

Other countries organize broker licensing on different lines, and nothing in this article carries over to them. The split between federal and state regulators described here is specific to the United States.

Three things can differ: the level of government that issues the license, national where the United States works state by state; the scope, since an activity left unlicensed in one country may be a regulated profession in another; and the holder, which may be the firm, the individual or both.

A broker on a cross-border deal therefore has one set of questions for each country where an act of brokerage takes place, and a license held in one country gives no right to act in the other.