Agents

We learned about broker-dealers in the previous section, which are financial institutions that help their customers buy and sell securities. Agents are natural persons (human beings) that work for broker-dealers. Additionally, agents can work for issuers. Let’s first start with the legal definition of an agent:

It’s possible for customers to solely interact with their broker-dealer without agents being involved, especially in the modern digital world. For example, think about all the young investors with Robinhood accounts. How often does their average customer speak directly with live Robinhood agents? A large percentage of their customers will never have a human-to-human interaction, which is quickly becoming the norm in the industry. In those cases, customers are working directly with their broker-dealer with no agent involved.

That doesn’t mean there’s not a need for agents; even with all the technology we’re privy to today, seemingly endless unique situations occur daily that require the human touch. Additionally, many investors prefer to engage with other humans while performing securities transactions. If you were to call a broker-dealer for help with a stock trade, you’ll be connected with one of their registered agents.

By virtue of taking the Series 63 exam, you’re likely to be registered as an agent in your career. Common roles and responsibilities of agents include general brokerage customer service, transaction support (e.g. explaining what a limit or stop order is), transaction processing (e.g. submitting a stock trade for a customer), relationship management (e.g. point of contact for a broker-dealer’s most profitable clients), back office support (e.g. managing customer files), and supervision of other agents (e.g. acting as a manager for a team of agents).

Agents are most commonly associated with broker-dealers, but employees of some issuers may also be registered as agents. Let’s look at the legal definition of an issuer:

Issuers are organizations that raise capital (money) in return for selling securities tied to their organizations. Let’s look at some examples:

• McDonald’s is the issuer of McDonald’s common stock (MCD)
• Fidelity is the issuer of the Fidelity Total Bond Fund (FTBFX)
• The US Government (technically the US Department of Treasury) is the issuer of Treasury bonds

Most of the time, issuers “farm out” the responsibility of selling their own securities. For example, Airbnb hired Morgan Stanley and Goldman Sachs as co-lead underwriters for their initial public offering (IPO) in December 2020. As a hospitality-based business, it wouldn’t make much sense for Airbnb to build up an entire finance department solely dedicated to selling their securities. Not only would it be a significant cost, but what would happen to the department after the IPO? If the company didn’t plan on selling another security for some time, the department would likely be shut down, resulting in massive losses for the company. That’s why nearly every issuer, sometimes even including financial institutions, hires a third party to sell their securities.

Regardless, there are some instances where issuers have their own employees sell their securities. These employees are required to register as agents when representing (working for) their employer (the issuer). In a parallel universe, let’s assume Airbnb tasked a department with the responsibility of selling its stock to the public. Every employee engaging investors would be required to register as an agent.