Broker Check
What's a Broker-Dealer?

What's a Broker-Dealer?

November 01, 2022
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Broker-dealers handle your money and can impact your financial future. We are amazed how often people do not ask and do not care about who is dealing with their money. At Zephyrus Financial Services, we believe it’s important to understand the relationship between a financial advisor and a broker-dealer.  By asking the right questions when meeting with a financial advisor, an investor can help avoid heartache and headaches.

 

Financial Advisor v. Broker-Dealer

A financial advisor is the representative you speak to or meet with that makes recommendations and carries Series 66 or 65 & 63 registrations. Only someone carrying these registrations can call themselves a financial advisor. Financial advisors provide advice for a fee and carry a fiduciary responsibility for the advice they give. They do not hold or execute trades themselves. Most financial advisors refer to their broker-dealer as their “back office,” and that is a pretty accurate term for the services provided by most broker-dealers.

 

A broker-dealer is the entity that holds the advisor’s registrations and oversees the financial advisor. The term broker-dealer is a combination of a broker, a company or individual that can execute buy and sell orders for investments on behalf of a client, and a dealer, a company or individual that can execute buy and sell orders within its own accounts. There are also companies and individuals out there that are only one or the other.

 

What to Look for in a Broker-Dealer

Know Your Broker-Dealer’s Name

Most clients may not speak to the broker-dealer and may not even know the name of the broker-dealer their financial advisor uses. But broker-dealers have reputations just like financial advisors.

 

A client should conduct due diligence. I highly recommend going to BrokerCheck and doing a search on your financial advisor to see their broker-dealer (also referred to as a firm). Use the “FIRM” tab to search the broker-dealer. You might be very surprised by what you find. If an advisor or firm has been in trouble, that is referred to as a “disclosure.” Any individual or firm that is regulated by FINRA can be found on that site. If they are regulated by the SEC, you can also research them on the SEC site.

 

Know How Your Money is Handled

Broker-dealers are extremely important in the day-to-day details. Since they oversee the advisors, they have some control over the products and services a financial advisor can offer. Some physically deal with holding money and securities while others do not. If they do, it is called self-clearing. If they do not, a third party is involved, which brings another dimension to dealing with problems.

 

Know What’s Happening Behind the Scenes

Everyone should know who they are dealing with and who is behind the scenes. We would want to know about the broker dealer our financial advisor works for or why our financial advisor switched brokers.  It is always a good idea to know who is holding your money and investments and where.

 

A financial advisor may use several third-party companies to hold and handle your money and investments. Then they combine all the information into one statement sent to a client to make it appear that their money is held in one location. Oftentimes, a client may not even know how many third parties are handling their money.

 

Zephyrus Financial Services’ Broker-Dealer

We are often asked, who is “Cetera Investment Services,” and why is that name on my statements? We want our clients to know the name of our broker-dealer so they can do their own due diligence. At Zephyrus Financial Services, we want our clients to know all parties involved in their business.

 

As an Independent Financial Advisory firm, we have a contract with Cetera to be our broker-dealer. This contract is ongoing until terminated by either party. We pay them to hold accounts for us, monitor our licenses, conduct audits, provide trading services, hold securities and provide us with full operational support. We are very fortunate to have Cetera Investment Services located so close to us. They have a very good reputation within the industry and provide us with what we need to conduct business.

 

Cetera Investment Services is just one branch of Cetera Financial Group. This branch focuses on banks and credit unions as well as specialized branch offices like ours. We work with Cetera Investment Services for many reasons. It is located in St. Cloud, MN about 40 miles away. We can drive there if there is an issue. They are a full-service broker-dealer, offering full trading and operational support. The support they provide is why we can operate with such a small staff.

 

They are self-clearing, so there are no third parties involved with our clients’ money or investments unless we choose to use a third party, which we clearly disclose to clients. They are very conservative in what they allow us to use and how they operate. They also provide us and our clients with award-winning software. Most of the employees have worked there for a long time, so we know them by name.

 

Like most things in life, the broker-dealer doesn’t come up until there is an issue. And when there is an issue, it’s often a big one since it involves your money.  Do your due diligence, and learn who’s handling your money. To learn more about our relationship with Cetera Investment Services or to start planning your financial future, set up an appointment at zephyrusfs.com. Stay connected with all the latest financial news and follow up on Facebook and LinkedIn.