Broker-Dealer
A firm that executes trades as agent (broker) or principal (dealer).
What is Broker-Dealer?
Registered with the SEC and a FINRA member. Acting as a broker it executes for clients and earns commission; as a dealer it trades from its own inventory and earns the spread. Its representatives are subject to Reg BI rather than the advisers' fiduciary standard.
Broker-Dealer: a worked example
The same firm can act as agent on one trade and sell from inventory on the next.
More terms in Regulation & Professional Duty
Fiduciary Duty
A legal obligation to act in the client's best interest.
Suitability Standard
A recommendation must be appropriate given the client's profile.
Regulation Best Interest (Reg BI)
SEC rule requiring broker-dealers to act in a retail client's best interest.
Registered Investment Adviser (RIA)
A firm registered to give advice for a fee, holding fiduciary duty.
FINRA
The self-regulatory organization overseeing broker-dealers.
Securities and Exchange Commission (SEC)
The federal agency regulating securities markets.
SIPC
Insurance against broker failure - not against investment losses.
Securities Act of 1933
The 'truth in securities' law governing new issues.