Global Securities Markets: Navigating the World's Exchanges and OTC Markets

BROKERS, BANKS, AND ADVISORS

Once known as a customer's man, a broker intermediates between his customer and the market. Typically, a broker is a licensed professional employed by an investment firm. The investment firm will provide him with an order management system, access to exchanges, and books and records functionality (such as the issuance of confirmations of transactions to the broker's customers and the publication of periodic statements to the broker's customers of their holdings and transactions). In a classic investment firm model, the firm would provide investment banking7 services for the issuers of securities and distribute those securities through the brokers. The investment firm would give the brokers research about the issue being distributed as well as research on other stocks from which the brokers could select suitable investments for their customers. Brokers are paid a commission on a per-transaction basis.

In some jurisdictions, brokers are distinguished from investment advisors. Investment advisors provide investment advice for a set fee. In the United States, advisors are held to a slightly higher standard of care with their customers than brokers. For example, where brokers must recommend suitable transactions and must not act unjustly or inequitably, advisors are held to a fiduciary standard, meaning they must always put the customers’ interests ahead of their own.

Banks and bank officers (whether trust officers or private bankers) may recommend securities ...