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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 regarding securities. Broker-dealers and investment advisers are subject to different regulatory structures. But trends in the financial services market since the early 1990s have blurred the boundaries between them. Regulatory reform requires a clearer understanding of the industry's complexities. The U.S. Securities and Exchange Commission asked RAND to conduct this study to examine the professionals' current business practices and whether investors understand differences between and relationships among them. The report describes a heterogeneous industry, with firms taking many different forms and offering a multitude of services and products and with investors failing to distinguish broker-dealers and investment advisers along regulatory lines. Despite this, investors express high levels of satisfaction with the services they receive from their own financial service providers. This satisfaction was much more frequently reported to arise from the personal attention the investor receives than from the actual financial returns arising from this relationship.
In theory, financial professionals are relatively distinct: A broker-dealer conducts transactions in securities on behalf of itself and others; and an investment adviser provides advice to others regarding securities. Different laws regulate each type of professional, but boundaries have blurred. This report examines current business practices and investor understanding of each type.
This PDF document was made available as a public service of the RAND Corporation. In recent years, the evolution of the financial service industry has blurred traditional distinctions between broker-dealers and investment advisers and made it difficult to design appropriate regulatory schemes for their professional services. To better understand the industry's dynamics and its effects on individual investors, the U.S. Securities and Exchange Commission (SEC) commissioned RAND to conduct a study of broker-dealers and investment advisers from two perspectives: first, examine investment advisers' and broker-dealers' practices in marketing and providing financial products and services to individual investors; and second, evaluate investors' understanding of the differences between investment advisers' and brokerdealers' financial products and services, duties, and obligations.
Retail investors seek guidance from broker-dealers and investment advisers (BD&IA) to manage their invest. and to meet their own and their families¿ financial goals. BD&IA are regulated extensively, but the regulatory regimes differ, and BD&IA are subject to different standards under fed. law when providing invest. advice (IA) about securities. This report evaluated: (1) The effectiveness of existing legal standards of care for providing personalized IA and recommend. about securities to retail customers; and (2) Whether there are legal gaps in regulatory standards in the protection of retail customers relating to providing personalized IA about securities to retail customers that should be addressed by statute. This is print on demand report.