Broker-Dealer – Definition

While the term “investment adviser” from Chapter 1 is fairly self-explanatory, the term “broker-dealer” is often much more confusing for test takers. Take a look at the definition from the Uniform Securities Act and see if the picture comes any more into focus.

“Broker-dealer” means any person engaged in the business of effecting transactions in securities for the account of others or for [the person’s] own account.

That’s a pretty straightforward definition compared to the lengthy definitions of investment adviser and investment adviser representatives, is it not? But, it still doesn’t tell you exactly what a broker or dealer is, does it?

The easiest way to understand these two terms is to start with the heart of the definition above. Brokers and dealers help people effect transactions in securities (buy or sell stocks, bonds, etc.). That means they actually are involved in the mechanics of money and securities changing hands on behalf of their customers.

The difference between operating as a broker or a dealer comes