An investor opens a wealth management account with a firm offering both brokerage execution services and fee-based portfolio management. Which of the following statements correctly distinguish the legal roles, regulatory standards, and compensation structures of Investment Advisers from Broker-Dealers? (Select ALL that apply.)
- Investment advisers owe a fiduciary duty to act in their clients' best interests at all times, whereas broker-dealers making retail recommendations are governed by Regulation Best Interest.Answer
- BA broker-dealer acting in a principal capacity executes trades by matching buyers and sellers as a broker and earns a commission.
- Investment advisers are primarily in the business of providing securities advice for compensation, whereas broker-dealers are in the business of effecting securities transactions for others or for their own account.Answer
- DInvestment advisers are required to maintain membership with FINRA as their primary self-regulatory organization, while broker-dealers register exclusively with state administrators.
Answer
The correct statements accurately identify that investment advisers owe a fiduciary duty and earn compensation for advice, while broker-dealers effect trades and are governed by Regulation Best Interest when recommending securities to retail customers.
The correct statements distinguish the statutory definitions, duties, and regulatory oversight of investment advisers and broker-dealers. Investment advisers provide management or advice for fee-based compensation under a legal fiduciary standard. Broker-dealers facilitate securities transactions for commissions or markups and follow Regulation Best Interest when dealing with retail customers.
Step-by-Step Solution
Key Concept
Distinction between Investment Adviser and Broker-Dealer roles, compensation structures, standard of care, and SRO oversight.