8.9.1 Definition of Broker-Dealer
While the term “investment adviser” 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.
Before we go any further, let’s stop and address the definition of “person” as it applies to broker-dealers. The USA defines a person as “an individual, a corporation, a partnership, an association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.” As is the case with investment advisers, it is important to understand what is meant by the word “person.” In reality, broker-dealers are rarely persons in the living, breathing sense of the word. Instead, they are almost always the firm or business that employs actual living, breathing people to effect securities transactions. Those people, as we will soon learn, are called agents.
So what about the rest of the definition of broker-dealer? One thing that you might notice about it is that it does not specify exactly what a broker dealer is, does it?
The easiest way to understand the term broker-dealer 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.
While the words broker and dealer are often combined, each a