The Difference: Brokers, Market-Makers and Advisers

                  

There’s a general ignorance among many members of Congress and most folks on the subject of brokers, market- makers and advisers.

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When a financial company creates a form of security and places it up for sale, it is technically a market-maker, not an adviser and, therefore, has no fiduciary responsibility. Neither is it a broker, unless it sells the security to the public.

                       

In past SEC admonitions, brokers have had no fiduciary responsibility. They do have to sell what is deemed ”suitable” for the customer. A broker cannot sell risky securities, for example, to widows and orphans without the latters’ express knowledge. They can sell suitable risks to sophisticated investors.

                       

Market- makers can also deal with seasoned institutions who know risks and frequently sell short, in the hope markets fall; often with both positions at the same time, as a hedge.

                       

Advisers, on the other hand, generally give advice and suggestions only. They are not market-makers, nor are they brokers.

                       

Something for politicians and media to learn. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)