Definition: Under the Securities Exchange Act of 1934, a broker is a person engaged in the business of effecting securities transactions for the account of others. A dealer is a person engaged in the business of buying and selling securities for its own account, through a broker or otherwise; a broker-dealer firm performs one or both roles.

How does a broker-dealer register?

The SEC's Guide to Broker-Dealer Registration says broker-dealers register by filing an application on Form BD, and that before it begins doing business, a broker-dealer must become a member of a self-regulatory organization (SRO). For most firms that is FINRA. The same Form BD is used to register with the states, and most broker-dealers must also be members of the Securities Investor Protection Corporation (SIPC).

The dealer definition leaves out a person who buys and sells securities for its own account, but not as part of a regular business.

The firm's advisors are registered with FINRA through the firm and supervised under FINRA Rule 3110. When a broker-dealer recommends a securities transaction or investment strategy to a retail customer, the SEC's Regulation Best Interest applies. It has four parts: disclosure, care, conflict of interest and compliance obligations.

Are wirehouse, regional and independent different kinds of broker-dealer?

Not in the rules. Labels such as wirehouse, regional, independent and insurance-affiliated describe how a broker-dealer is owned and whether its advisors are employees or independent contractors. Each is a broker-dealer registered on Form BD.

Many broker-dealers are also registered as investment advisers or have an affiliated RIA, so one firm family can hold both registrations. Supervisory offices inside a broker-dealer are OSJs.

Where it shows up in our data

Advisor Channel Flow sorts firms into business-model channels, including wirehouse, national broker-dealer, regional broker-dealer and independent broker-dealer. Those channels are Continuum's classification, not regulatory categories. Broker-dealer advisors appear in our counts only when they are also registered as investment adviser representatives (IARs). Firm Churn compares each firm's competitive departures with its starting roster.

Sources

  1. Rule textSecurities Exchange Act of 1934, Sections 3(a)(4) and 3(a)(5) U.S. Government Publishing Office
  2. Rule textGuide to Broker-Dealer Registration SEC
  3. Rule textRegulation Best Interest: The Broker-Dealer Standard of Conduct (2019 final rule) SEC
  4. Rule textFINRA Rule 3110 (Supervision) FINRA
  5. Public recordBrokerCheck FINRA
  6. Continuum dataAdvisor Channel Flow by Business Model Continuum

Editorial standard: Continuum publishes education for financial advisors. It is general information, not legal, tax, or compliance advice.