We learned about broker-dealers in the previous section. Broker-dealers are financial institutions that help customers buy and sell securities. Agents are natural persons (human beings) who work for broker-dealers. Agents can also work for issuers. Here’s the legal definition of an agent:
In today’s digital investing world, customers can sometimes interact with a broker-dealer without ever speaking to an agent. For example, many investors with Robinhood accounts place trades without talking to a live representative. In those situations, the customer is working directly with the broker-dealer, with no agent involved.
Even so, agents are still an important part of the industry. Technology can handle many routine transactions, but real-world investing creates plenty of situations that require a person to step in. Many investors also prefer to work with a human when placing trades or asking questions. If you call a broker-dealer for help with a stock trade, you’ll typically be connected with one of its 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. To see why, it helps to define what an issuer is:
Issuers are organizations that raise capital (money) by selling securities tied to their organizations. Examples include:
Most of the time, issuers “farm out” the responsibility of selling their 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 typically wouldn’t make sense for Airbnb to build and maintain a full department dedicated only to selling its securities. That would be expensive, and after the IPO the company might not need that department for a long time. If the company didn’t plan to sell another security for some time, the department could be shut down, creating major costs and disruption. That’s why nearly every issuer, sometimes even including financial institutions, hires a third party to sell its securities.
Still, there are situations where issuers have their own employees sell their securities. When those employees represent (work for) the issuer in selling its securities, they must register as agents. For example, imagine Airbnb created an internal department responsible for selling its stock to the public. In that case, every employee who engaged with investors to sell the stock would need to be registered as an agent.
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