Do Investors Understand the Difference Between Investment Advisers and Broker-Dealers?
In theory, financial professionals are relatively distinct: A broker conducts transactions in securities on behalf of others; a dealer buys and sells securities for his or her own accounts; and an investment adviser provides advice to others about securities. But since the 1990s, market demands have introduced new products and services, and firms have taken many different forms, blurring these traditional distinctions. The U.S. Securities and Exchange Commission (SEC) is charged with regulating the industry, but before embarking on reform, it needs to understand the industry’s complexities. To assist in meeting this goal, the SEC asked RAND to help answer two questions: What are the current business practices of broker-dealers and investment advisers, and do investors understand the differences between broker-dealers and investment advisers? To address the first question, RAND researchers analyzed regulatory filings in separate databases representing more than 10,000 investment advisor
