Broker-dealer financial services are engagements in effecting
transactions in securities on behalf of others or own account. The name
broker-dealer denotes two relationships. Under the broker relationship, a
person or an entity acts in an agency capacity.
In this case, the broker-dealer helps a customer by facilitating buying
or selling of a security. The facilitator has no money at risk and only
attempts to match up a buyer and a seller.
On the other hand, under the dealer relationship, the dealer is
a principal in the transaction. He/she literally buys or sells securities. A
broker-dealer works under extensive regulations. There is a requirement for
disclosure in writing whenever acting as a dealer. They can only act in one
capacity at each trading and not in both capacities. Some broker-dealers will
call themselves registered
broker-dealers.
Is a broker-dealer the same as a Registered Investment Advisor
(RIA)? A broker-dealer is completely different from RIA.
RIA provides advice, make recommendations or issue reports and analysis
on securities. Note that, there is no involvement in buying and selling.
Broker-Dealer financial services are bound by a low standard of conduct towards
customers. They need to justify recommendations based upon suitability.
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