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.
Let’s start with the legal definition of an agent:
In many cases, customers can interact with a broker-dealer without ever speaking to an agent - especially with modern digital platforms. For example, think about young investors with Robinhood accounts. Many customers may never have a human-to-human interaction. In those situations, the customer is working directly with the broker-dealer, with no agent involved.
That said, agents are still an important part of the industry. Technology can’t cover every situation, and many investors prefer working with a person 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.
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 some issuer employees may also be registered as agents. Here’s the legal definition of an issuer:
Issuers are organizations that raise capital (money) by selling securities tied to their organizations. For example:
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 wouldn’t make much sense for AirBnB to build an entire finance department solely to sell 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, some issuers do have their own employees sell their securities. When those employees represent (work for) the issuer in securities transactions, 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 engaging investors in those sales efforts would be required to register as an agent.
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