Question

When an investment adviser sells securities directly to a client (i.e., principal trade), the firm must provide disclosure and obtain the client's consent before completing the transaction.

so the when the IA acts as a BD for a client who is buying securities, but not selling??

Answer 1

When an investment adviser acts as a BD for a client buying securities but not selling, the same level of disclosure and client consent is not required. The adviser is acting as an intermediary and must still act in the best interest of the client.

Step-by-step explanation:

When an investment adviser acts as a broker-dealer (BD) for a client who is buying securities but not selling, the same level of disclosure and client consent is not required. This is because the adviser is not engaging in a principal trade, where they are selling securities directly to the client.

As a BD, the investment adviser is acting as an intermediary between the client and the seller of the securities. They facilitate the purchase on behalf of the client but do not have the same level of obligations as when they are selling securities directly to the client.

However, even in these cases, the investment adviser must still act in the best interest of the client and provide suitable recommendations, ensuring that the investment aligns with the client's objectives and risk tolerance.