Broker-Dealers vs. Investment Advisers
A broker-dealer effects securities transactions — as broker (agent) for customers or dealer (principal) for its own account — and is paid by commissions and markups; an investment adviser is paid fees for giving investment advice.
Expect a vignette describing how a firm gets paid or where it registers, then asking which label fits. Beyond compensation, the hinge is registration venue: broker-dealers register with the SEC (Securities Exchange Act of 1934) and almost always must join FINRA, while investment advisers split by size — those with roughly $100 million or more in assets register with the SEC, and smaller “mid-sized” advisers register with the states (coordinated through NASAA). Another tested wrinkle: a broker-dealer can give advice without registering as an adviser if that advice is “solely incidental” to brokerage and carries no special compensation.
The classic trap confuses a market maker — a dealer acting as principal, earning the bid-ask spread — with an adviser. A market maker is a type of broker-dealer, never an adviser. Don’t confuse either firm with FINRA or the SEC, which regulate market participants rather than transact for customers. Many firms, of course, register as both broker-dealer and adviser.
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