Securities Essentials

Broker-dealers are FINRA-member investment banking firms that engage in transactions on their own accounts as well as for clients. Their primary source of revenue comes from transaction fees, such as commissions and load fees. Each BD operates under a unique FINRA membership agreement that outlines its specific lines of business. Some BDs offer a wide range of investment products, including stocks, bonds, mutual funds, and options, while others may be more limited or focus on proprietary trading of the firm’s own capital. There are three types of broker-dealer firms: carrying firms, fully disclosed firms, and prime brokers.

A custodian is a person who manages a minor's account, as specified under the Uniform Transfers to Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA). The term "custodian" can also refer to a firm that holds assets in qualified retirement accounts, such as IRAs or 401(k)s.

Executors are custodians tasked with managing estates.

Facilitators assist clients in executing transactions in the secondary markets.

Fiduciaries are individuals responsible for managing financial assets on behalf of another person, known as the beneficiary. They have both a legal and moral obligation to act in the best interest of the beneficiary, prioritizing the beneficiary's needs over their own. Fiduciaries include custodians, trustees, and investment advisors.

Guardians are court-appointed custodians who take care of minors or incapacitated adults.

An investment advisor is any individual or entity that provides investment advice as a regular part of their business for compensation. Such advisors must register with the SEC under the Investment Advisors Act of 1940 and are always considered fiduciaries. Investment bankers who offer advice for a fee must also register and pass either the Series 65 or Series 66 exam after completing the Series 7.

This term is not applicable to secondary market transactions. Accredited Investors represent a category of more sophisticated retail investors who have met the qualifications to engage in primary market transactions. By demonstrating a requisite level of knowledge and/or financial resilience, these Accredited Investors are permitted to acquire securities through Regulation A and Regulation D private placements directly from the issuer.

Specialty retail investor characterized by rapid trades in and out of positions, closing most positions out by the end of each trading day.

Institutional investors consist of mutual funds, pension funds, banks, insurance company general accounts, and other large investors.

Private individuals buy and sell securities in the secondary markets, investing their own money to accomplish personal objectives.

A trustee is a fiduciary responsible for overseeing a trust.