In financial circles, broker-dealers wield considerable influence. They’re empowered to make transaction decisions for their clients and own interests. This dual functionality helps them fuel cash flow in the securities market.
Broker-dealers are of particular importance to financial advisors. They provide insight into market trends and offer investment products to generate income. Finding a qualified broker-dealer with the right balance of expertise and ethics can be tricky.
There are a few guidelines for financial advisors looking for the perfect broker-dealer. Here are some to consider:
Learn the Role of a Broker-Dealer
Broker-dealers are vital contributors to the investment marketplace. They’re empowered to give clients sound advice and become the bridge between investment opportunities and your clients. At the same time, they sell products and services for their (or their company’s) benefit and prosperity.
Broker-dealers come in two general types: those who design and sell their own products (“wirehouses”) and those who sell the products of others. They can work independently, as part of a small “boutique” firm or a large corporation.
Some products broker-dealers offer include traditional commodities like stocks, mutual funds, ETFs, options, and derivatives. They can provide research, analysis, and suggestions for income generation and retirement savings in an advisory capacity.
Understand Regulatory Requirements
At first glance, it may seem that broker-dealers pose problems involving conflict of interest. Rest assured, though, that the industry is closely monitored and regulated.
All broker-dealers in the U.S. are subject to oversight from the Financial Industry Regulatory Authority (FINRA), certifying that broker-dealers keep their clients’ protection uppermost. They also ensure that broker-dealers maintain transparency and openness, giving all clients full disclosure about their work.
Listen to Peer Recommendations
The financial advisor community knows which broker-dealers work effectively. Talk to your peers about the partners they’ve successfully collaborated with. It’s always best to speak directly with those in your network about the broker-dealers they use most faithfully rather than rely on anonymous online reviews and recommendations.
Think About the Broker-Dealer Services You Need
Although every broker-dealer is certified, they differ in areas of expertise. Some specialize in common stocks, while others have deep knowledge of alternative investments. Some have qualifications in asset management, retirement planning, and compliance services.
Consider what kind of investment products and services you need the most. Even larger broker-dealers who offer excellent ranges of services, like Charles Schwab or Vanguard, may not be as well-suited for your needs as a smaller, local firm. As part of your due diligence, be specific about what you need from a broker-dealer.
Take Notice of Current Technology
A financial advisor has a singular focus on the future of their business and their clients. And the right broker-dealer will have the most current and valuable tools for helping advisors chart their way forward.
Technology dominates the financial industry like never before. Broker-dealers must have a firm command over the digital tools guiding their decisions. Although the “relationship” angle should come first when you’re considering a broker-dealer’s services, the technology they use should also be a primary focus.
Ask the Right Questions
Broker-dealers have responsibilities that require awareness in many areas. Along with sharing knowledge about the marketplace in general, they need to be fluent in the products they sell. They also need to be mindful of regulatory issues, especially in a sector that’s so competitive.
When talking to a prospective broker-dealer, ask questions that get to the heart of their business principles, practices, and attitudes about ethics. These four questions are good starting points:
- What is your regulatory and compliance philosophy?
- What technology do you use for business?
- What products and investment options do you offer?
- What extra broker-dealer services do you provide?
Ask these questions upfront. A professional broker-dealer will have thoughtful, articulate, and honest answers to all of them.
Which Broker-Dealer Is Right for You?
Investing is a complex business, no matter how successful one might be. Financial advisors must find the right partners to work with—and a qualified broker-dealer is one of the most essential pieces to get right. Learn more about what a broker-dealer can offer you and which will help you guide your decisions most effectively.
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