Funding Portal vs Broker-Dealer: Understanding Your Reg CF Options

Funding Portal vs Broker-Dealer: Understanding Your Reg CF Options

Which Intermediary Type is Right for Your Regulation Crowdfunding Campaign?

When planning a Regulation Crowdfunding (Reg CF) campaign, one of your first decisions is choosing an SEC-registered intermediary. Under federal securities law, all Reg CF offerings must be conducted through either a funding portal or a broker-dealer—you cannot legally raise capital directly from your own website or through unregistered platforms.

But what’s the difference between these two types of intermediaries? And which one is right for your business?

This guide explains the regulatory distinctions, operational differences, and strategic considerations to help you make an informed decision.

The Regulatory Framework

The requirement to use an SEC-registered intermediary is a core investor protection built into Regulation Crowdfunding. Congress created this requirement in the JOBS Act of 2012 to ensure that:

• Investors have access to standardized information
• All parties follow consistent disclosure requirements
• Transactions occur on regulated platforms with oversight
• Educational materials are provided to investors
• Proper records are maintained

When the SEC implemented Reg CF rules in 2016, they created two distinct pathways for intermediaries: funding portals and broker-dealers. Each operates under different regulatory requirements and has different capabilities.

Key Definitions

What is a Funding Portal?

A funding portal is an organization registered with the SEC and FINRA specifically to facilitate Regulation Crowdfunding transactions. Funding portals operate under a lighter regulatory framework than broker-dealers but face strict limitations on their activities.

Legal Definition: A funding portal is defined under Securities Act Section 3(a)(80) as “any person acting as an intermediary in a transaction involving the offer or sale of securities for the account of others, solely pursuant to Section 4(a)(6)” (the Reg CF exemption).

What is a Broker-Dealer?

A broker-dealer is a firm or individual registered with the SEC and FINRA that engages in the business of buying and selling securities, either for their own account or on behalf of customers. Broker-dealers can participate in Reg CF offerings alongside their other securities activities.

Legal Definition: Under the Securities Exchange Act Section 3(a)(4), a broker-dealer is “any person engaged in the business of effecting transactions in securities for the account of others” or for their own account.

Major Regulatory Differences

The most significant differences between funding portals and broker-dealers stem from what each is prohibited from or allowed to do.

What Funding Portals CANNOT Do

Funding portals face three critical prohibitions:

1. Cannot Offer Investment Advice or Recommendations

Funding portals are strictly prohibited from:

• Recommending specific investment opportunities to investors
• Providing advice about the value of securities
• Soliciting purchases, sales, or offers to buy securities offered on their platform
• Suggesting that any particular investment is suitable for an investor

This means funding portals must maintain strict neutrality. They can provide factual information about offerings but cannot guide investment decisions.

2. Cannot Hold, Manage, Possess, or Handle Investor Funds or Securities

Funding portals must:

• Direct all funds through a qualified third party (typically a bank or escrow service)
• Never take possession of investor money or securities
• Ensure all transaction funds flow through registered financial institutions

3. Cannot Compensate Employees Based on Sale of Securities

Funding portals are prohibited from:

• Paying commissions based on investment amounts
• Providing bonuses tied to specific offering success
• Creating compensation structures that incentivize promotion of particular offerings

This ensures that portal employees remain neutral and don’t have financial incentives to push specific investments.

What Broker-Dealers CAN Do (That Portals Cannot)

Broker-dealers, operating under full securities broker registration:

• Can provide investment advice to clients (subject to suitability requirements)
• Can hold customer funds and securities in properly registered accounts
• Can compensate employees based on transaction volume or success
• Can participate in multiple exemptions beyond just Reg CF (Reg A+, Reg D, etc.)
• Can engage in secondary market transactions if they develop

However, these additional capabilities come with significantly more regulatory overhead, capital requirements, and compliance obligations.

Funding Portals: A Closer Look

Registration Requirements

To operate as a funding portal, an organization must:

1. Register with the SEC by filing Form Funding Portal
2. Become a member of FINRA (Financial Industry Regulatory Authority)
3. Comply with FINRA Rule 300 series governing funding portal operations
4. Maintain required records and submit regular reports
5. Implement required policies and procedures including:
   • Anti-money laundering (AML) program
   • Privacy policies
   • Cybersecurity measures
   • Investor education requirements

Operational Requirements

Funding portals must:

Investor Protection Measures:

• Provide investor education materials about Reg CF risks
• Require investors to acknowledge understanding of risk factors
• Implement investment limits based on investor income and net worth
• Provide mechanisms for investors to cancel commitments within 48 hours
• Deny access to platform if they reasonably believe bad actor would use it

Issuer Oversight:

• Conduct background checks on issuers
• Have reasonable basis to believe issuer complies with Reg CF
• Deny access to issuers with disqualifying bad actor status
• Monitor for potential fraud or misconduct

Communication Channels:

• Provide channels for issuer-investor communication
• Make all issuer communications available to all platform users
• Ensure communications comply with securities regulations

Funding Portal Business Models

Since funding portals cannot provide advice or hold funds, their business model typically involves:

• Success fees: Percentage of funds raised (typically 2-7% depending on platform and services)
• Listing or setup fees: One-time charges to list offering on platform
• Payment processing fees: Charges for transaction processing
• Optional services: Marketing support, investor relations tools, post-campaign services

Advantages of Funding Portals

For Issuers:

• Lower fee structures compared to traditional broker-dealers
• Streamlined process focused specifically on Reg CF
• Technology-driven platforms with modern user experience
• Transparency in pricing and process
• Focus on community-building and mission alignment

For Investors:

• Neutral platform without conflicts of interest
• Clear educational resources about investment risks
• Consistent, standardized information presentation
• Direct access to issuer communications

Broker-Dealers: A Closer Look

Registration Requirements

Broker-dealer registration is significantly more complex than funding portal registration:

1. SEC Registration: File Form BD with detailed business information
2. FINRA Membership: Complete FINRA new member application process
3. State Registration: Register in each state where conducting business
4. Individual Registration: All associated persons must pass qualifying exams (Series 7, Series 63, etc.)
5. Capital Requirements: Maintain minimum net capital based on business model
6. Insurance Requirements: Obtain SIPC coverage and fidelity bonds

Regulatory Obligations

Broker-dealers face extensive ongoing compliance requirements:

• Net Capital Rule: Must maintain minimum capital reserves
• Customer Protection Rule: Segregate and protect customer assets
• Books and Records: Maintain detailed transaction records
• Supervision: Implement comprehensive supervisory procedures
• Examinations: Regular FINRA and SEC examinations
• Annual Audits: Financial statements audited by independent accountants
• Continuing Education: Ongoing training for registered representatives

Broker-Dealer Business Models

Broker-dealers participating in Reg CF typically:

• Operate across multiple securities exemptions (not just Reg CF)
• May provide more hands-on support and advisory services
• Often charge higher fees reflecting their broader capabilities
• May have established investor networks from other activities
• Can offer broader suite of capital markets services

When Broker-Dealers Make Sense

Companies might work with a broker-dealer instead of a funding portal when:

• Seeking more direct guidance on offering structure and terms
• Planning to raise capital through multiple exemptions simultaneously
• Wanting dedicated sales efforts to institutional or accredited investors
• Needing ongoing capital markets relationships beyond single raise
• Preferring traditional investment banking relationships

Side-by-Side Comparison

Which Should You Choose?

Choose a Funding Portal If:

• Reg CF is your primary focus: You’re planning a single Reg CF raise and don’t need other securities services
• Community engagement is key: You want to build a community of investors aligned with your mission
• Cost efficiency matters: Lower fee structures are important for your capital raise
• You prefer self-directed marketing: You’re driving your own marketing and investor outreach
• Transparency is important: You value the neutrality and lack of sales pressure
• Technology-forward approach: You prefer modern, digital-first platforms

Choose a Broker-Dealer If:

• You need investment advice: You want guidance on structuring terms and pricing
• Multi-exemption strategy: You’re raising through Reg CF alongside Reg D or Reg A+
• Sales support needed: You want proactive investor solicitation assistance
• Institutional investors targeted: Your strategy includes significant institutional capital
• Ongoing capital needs: You anticipate multiple raises or eventual public markets
• Traditional banking relationships: You prefer established investment banking models

Key Considerations

Regulatory Compliance: Both funding portals and broker-dealers must comply with SEC and FINRA rules. The question is which model better fits your business needs.

Fee Structures: While specific fees vary by intermediary, funding portals generally have lower fee structures due to their focused business model and lighter regulatory burden.

Investor Experience: Consider how your target investors prefer to engage. Community-focused raises often work well on funding portals. Raises targeting sophisticated or institutional investors might benefit from broker-dealer relationships.

Mission Alignment: If your business addresses social or environmental challenges, specialized funding portals focused on impact investing may better connect you with aligned investors.

Registration & Oversight

How to Verify Registration

Before working with any intermediary, verify their registration:

For Funding Portals:

1. Check SEC’s EDGAR database for Form Funding Portal filing
2. Verify FINRA membership on FINRA’s website
3. Review the platform’s disclosures and terms of service
4. Confirm they follow funding portal restrictions (no advice, no holding funds)

For Broker-Dealers:

1. Search FINRA’s BrokerCheck database
2. Review Form BD filing on SEC’s EDGAR
3. Check for any disciplinary history or regulatory actions
4. Verify individual representatives are properly licensed

Regulatory Oversight

Both funding portals and broker-dealers are subject to:

• SEC Oversight: Examination authority and enforcement powers
• FINRA Regulation: Rule compliance, examinations, and disciplinary authority
• Investor Protection Rules: Requirements to protect investor interests
• Anti-Fraud Provisions: Prohibition on fraudulent or manipulative practices

This dual oversight (SEC and FINRA) provides multiple layers of protection for both issuers and investors.

Understanding Costs

Funding Portal Fee Structures

Typical funding portal fees include:

• Success Fees: Percentage of funds raised (varies by platform and services provided)
• Payment Processing: Transaction fees for credit card or ACH processing
• Optional Services: Additional marketing support, investor relations tools, or consulting

Example: FundingHope charges a 4% success fee plus payment processing fees.

Broker-Dealer Fee Structures

Broker-dealer fees often include:

• Higher Success Fees: Typically reflecting advisory services and broader capabilities
• Retainer or Upfront Fees: Monthly retainers or engagement fees
• Due Diligence Fees: Charges for investigation and review
• Administrative Fees: Document preparation and compliance costs

Total Cost Comparison

When comparing costs, consider:

• All-in costs: Success fees plus any upfront, monthly, or administrative charges
• Services included: What marketing, compliance, or advisory support is provided
• Payment terms: When fees are due and how they’re structured
• Success alignment: Whether fees align incentives with your campaign success

Questions to Ask Potential Intermediaries

Registration & Compliance Questions

1. Are you registered with the SEC as a funding portal or broker-dealer?
2. Are you a member of FINRA? What is your CRD number?
3. Have you had any regulatory actions or disciplinary proceedings?
4. What compliance procedures do you have in place?
5. How do you ensure offerings comply with Reg CF requirements?

Operational Questions

1. How many Reg CF campaigns have you hosted?
2. What is your success rate for campaigns reaching their minimum goal?
3. What is the average amount raised on your platform?
4. How long does the typical campaign run?
5. What marketing support do you provide?
6. How do you handle investor communications?
7. What post-campaign services do you offer?

Fee & Cost Questions

1. What are your success fees?
2. Are there any upfront or monthly fees?
3. What payment processing fees apply?
4. Are there any additional costs I should anticipate?
5. When are fees due?
6. What happens if the campaign doesn’t reach its goal?

Platform & Technology Questions

1. What features does your platform offer?
2. How do investors discover campaigns on your platform?
3. What analytics and reporting do you provide?
4. How do you handle investor onboarding and verification?
5. What investor relations tools are available post-campaign?

Strategic Fit Questions

1. Do you specialize in any particular industries or types of companies?
2. What is your typical investor base like?
3. How do you support issuers during the campaign?
4. Can you provide references from recent campaigns?
5. What differentiates you from other intermediaries?

Common Misconceptions

Misconception #1: “Funding portals are less regulated”

Reality: Funding portals are highly regulated—they just operate under a different regulatory framework than broker-dealers. Both must register with SEC and FINRA and comply with extensive rules.

Misconception #2: “Broker-dealers can guarantee better results”

Reality: No intermediary can guarantee campaign success. Success depends primarily on the issuer’s business fundamentals, market traction, and marketing efforts.

Misconception #3: “The platform will bring all the investors”

Reality: Whether funding portal or broker-dealer, issuers should expect to drive much of their own investor interest through marketing and network engagement.

Misconception #4: “Funding portals can’t help with strategy”

Reality: While funding portals cannot provide investment advice, they can offer educational resources, best practices, and operational guidance for running successful campaigns.

Misconception #5: “All funding portals are the same”

Reality: Funding portals vary significantly in their specialization, fee structures, services, investor networks, and platform capabilities. Research and comparison are essential.

Making Your Decision

Choosing between a funding portal and broker-dealer—or selecting which specific intermediary to work with—is a strategic decision that should consider:

• Your fundraising goals and strategy
• The level of support and guidance you need
• Your target investor audience
• Cost considerations and budget
• Long-term capital markets plans
• Mission and values alignment

For most companies conducting a focused Reg CF raise—particularly those with strong community engagement and mission-driven focus—a specialized funding portal offers the right combination of regulatory compliance, cost efficiency, and platform capabilities.

For companies needing broader capital markets services, multi-exemption strategies, or significant hand-holding through the process, a broker-dealer relationship might make more sense despite higher costs.

Key Takeaways

1. Legal Requirement: All Reg CF offerings must be conducted through an SEC-registered funding portal or broker-dealer
2. Different Capabilities: Funding portals and broker-dealers operate under different rules with different capabilities and limitations
3. Funding Portal Restrictions: Cannot provide investment advice, hold funds, or compensate based on sales
4. Broker-Dealer Flexibility: Can provide advice and broader services but face more extensive regulatory requirements
5. Cost Differences: Funding portals typically have lower fee structures due to their specialized focus
6. Verify Registration: Always confirm SEC and FINRA registration before working with any intermediary
7. Mission Alignment: For impact-driven companies, specialized funding portals may offer better investor alignment
8. No Guarantees: Neither intermediary type can guarantee campaign success—your business fundamentals and marketing drive results

Additional Resources

• SEC’s Funding Portal Resources: Official guidance on funding portal registration and operation
• FINRA’s Funding Portal Rules: Rule 300 series governing funding portal conduct
• SEC’s Guide to Broker-Dealer Registration: Information on broker-dealer requirements
• FINRA BrokerCheck: Verify broker-dealer and individual registration status
• SEC’s EDGAR Database: Search for Form Funding Portal and Form BD filings

Last Updated: January 2026 | For educational purposes only