Policy Insight, Volume 3, Issue 1, February 2009

Broker-Dealers and Investment Advisers in the United States: Business Practices and Investor Understanding

by Farrukh Suvankulov, Angela A. Hung

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The U.S. financial services industry has become increasingly complex in recent decades, as financial firms have launched products and services that have significantly blurred the traditional distinctions between broker-dealers and investment advisers. As a result, it has become challenging for consumers to distinguish between the two types of financial professionals and to evaluate the quality of the advice they are being given. This complexity also hinders the ability of regulators to design and implement effective policies. To gain a clearer understanding of these issues, Broker-Dealers and Investment Advisers in the United States: Business Practices and Investor Understanding examines the current business practices of broker-dealers and investment advisers, drawing on an analysis of such firms' operations from 2001 to 2006. The authors also consider whether investors understand the differences between broker-dealers and investment advisers, presenting the results of a survey and set of focus groups that explored this issue.

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