An investor is comparing the regulatory definitions, duties, and compensation structures of investment advisers and broker-dealers. Which of the following statements accurately describe the regulatory characteristics of an investment adviser under securities regulations? Select all that apply.
- Investment advisers owe a legal fiduciary duty to their clients, requiring them to act in the client's best interest at all times.Answer
- BInvestment advisers are compensated primarily through transaction-based commissions and inventory markups on each executed trade.
- Investment advisers typically charge fee-based compensation, such as a percentage of client assets under management (AUM) or a flat fee.Answer
- DInvestment advisers are mandated to join FINRA as their primary self-regulatory organization (SRO) to provide investment advice.
Answer
Investment advisers owe a fiduciary duty to their clients and are compensated via fee-based structures (such as a percentage of assets under management), whereas broker-dealers earn commissions/markups and are subject to FINRA SRO oversight.
The correct statements correctly identify the key features of investment advisers: they operate under a strict fiduciary standard to put client interests first and are compensated through fee-based arrangements (such as a percentage of assets under management or flat/hourly fees).
Step-by-Step Solution
Key Concept
Distinction between Broker-Dealers and Investment Advisers
Estimated Time:45s