Broker-Dealer vs Investment Adviser: What Each SEC Registration Lets a Firm Do in Nigeria
The SEC registers capital market operators by function. Here is what a broker-dealer, a sub-broker, an investment adviser and a fund manager may each do, why the distinction matters to you, and how to check the register.
A broker-dealer is a firm registered with the Securities and Exchange Commission (SEC) to buy and sell securities for clients and, as a dealer, for its own account, while an investment adviser is registered to give advice about securities and investment. They are separate registration categories under Nigeria's Investments and Securities Act, and a firm may hold one, both or neither. The distinction matters because it tells you what a firm is permitted to do with your money and your shares: only a broker-dealer that is also a trading licence holder of the NGX can execute your order on the Exchange, and only a registered adviser is permitted to hold itself out as advising you.
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Important disclaimer. This article is for educational purposes only. It is not financial advice and is not a recommendation to buy any specific share or investment product. Always do your own research and consider seeking independent financial advice before making any investment decision.
How the SEC Registers Capital Market Operators
The Investments and Securities Act requires anyone who deals in securities or provides services in relation to securities to register with the SEC before starting business. The Commission publishes a long list of categories, each with its own registration conditions such as minimum capital, a fidelity bond, sponsored individuals who have passed the relevant examinations and a compliance officer. The categories most relevant to an individual investor are set out below. Definitions and conditions are in the SEC Rules and can change, so the Commission's website is the reference.
Broker, Dealer and Broker-Dealer
A broker acts as an agent: it takes a client's order and executes it in the market for a commission. A dealer acts as a principal: it buys and sells securities for its own account. A broker-dealer is registered to do both. Most Nigerian stockbroking firms are registered as broker-dealers, and those that also hold an NGX trading licence are the firms whose orders reach the Exchange's order book. When you open a stockbroking account, obtain a CHN and receive contract notes, you are dealing with a broker-dealer.
- What it may do: open CSCS accounts for clients, receive orders, execute trades on the NGX, settle them through CSCS, issue contract notes and hold client money in a designated account for settlement.
- What it is accountable for: executing your instruction as given, on the terms disclosed, and keeping your shares in your name unless you have agreed to a nominee arrangement.
- What it does not have to be: an adviser. Executing an order is not advice, and a firm registered only as a broker-dealer is not registered to tell you what to buy.
Sub-Broker
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A sub-broker, corporate or individual, is registered to introduce clients and pass orders to a broker-dealer. It does not execute trades itself and does not hold a trading licence. Many investment apps and platforms that offer share dealing are registered in this category, or in a similar intermediary category, and route their clients' orders to a broker-dealer that does the execution. If you use such a platform, the contract note comes from the executing broker, and the SEC register shows which firm that is.
Investment Adviser
An investment adviser, corporate or individual, is registered to advise clients on securities and investments for a fee. The category exists so that advice is given by people the SEC has assessed, who are subject to its conduct rules and complaints process. An adviser is not permitted to execute trades or hold client assets unless it is also registered in a category that allows it. In practice some firms hold both broker-dealer and investment adviser registrations; when they do, the register shows each function separately.
Fund and Portfolio Manager
A fund manager or portfolio manager is registered to manage money on a discretionary basis, either in a collective scheme such as a mutual fund or ETF, or in a segregated portfolio for a client. The manager makes the buying and selling decisions within an agreed mandate; the client does not instruct each trade. This is the category behind most pooled products, and it is distinct from both broking and advice.
Why the Category Matters to You
- It sets what a firm may lawfully do. A firm registered only as a sub-broker that offers to manage your money, or a broker-dealer that offers to advise you, is acting outside its registration.
- It tells you where your shares will be. Shares bought through a broker-dealer settle into a CSCS account, in your name or a nominee's. Money placed with a fund manager buys units in a fund, not shares in your own name.
- It defines who is answerable. Complaints go to the registered firm first, then to the NGX for trading-licence holders and to the SEC for any registered operator.
- It determines what protections apply. The NGX Investors' Protection Fund covers losses caused by the insolvency, bankruptcy or negligence of a dealing member, not losses from a firm that was never registered.
A firm that describes itself as licensed but does not appear on the SEC register, or appears under a category that does not cover what it is offering, is the situation the register is there to expose.
How to Check the SEC Register
- Open the SEC's Find a Registered Operator page on sec.gov.ng. The Commission states that all operators must register before starting business, and the page is its public list.
- Search for the firm by name. Try the exact legal name from the firm's documents, not just the brand it trades under, because a platform's brand and its registered entity often differ.
- Read the category or function shown for the firm. A single firm may appear under several functions; check that the one you need is there.
- Check the status and details. The listing shows whether the registration is active, when it was registered, the fidelity bond position and the compliance officer.
- Cross-check with the NGX. For share dealing, the NGX publishes its list of trading licence holders. A stockbroker that executes on the Exchange appears on both lists.
- Ask the firm. A registered operator can tell you its SEC registration number and category without hesitation.
Shares Saver arranges purchases through SEC-registered stockbrokers that hold NGX trading licences, and the shares are registered in your own name. You can see who our broker partners are and check them on the register yourself.
See How It WorksSEC Registration Categories: FAQs
Is a stockbroker the same as a broker-dealer?
In everyday use, yes. The firm people call a stockbroker is registered with the SEC as a broker-dealer and, to trade on the Exchange, holds an NGX trading licence. An individual stockbroker within the firm is registered as a sponsored individual and is usually a member of the Chartered Institute of Stockbrokers.
Can my broker give me advice?
Only if the firm is also registered as an investment adviser or its registration otherwise permits advice. Many broking firms hold both registrations. If you are relying on a firm's advice, check the register for the adviser function.
What category is an investment app?
It varies. Some apps are themselves broker-dealers; others are sub-brokers or similar intermediaries that route orders to a broker-dealer; some are fund managers selling units in a fund. The app's terms and the SEC register together tell you which. A separate article on this site explains how to check whether a platform is registered.
Does SEC registration mean the SEC has approved the firm's products?
No. Registration means the firm met the conditions to operate in that category and is subject to SEC rules. It is not an endorsement of any product or of the firm's judgement, and the Commission says so on its own register page.
Important disclaimer. This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, or any recommendation to buy, sell, or hold any security. The value of investments can fall as well as rise. You should seek independent regulated financial advice before making any investment decision. Shares Saver does not provide financial advice.
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