The Financial Industry Regulatory Authority (FINRA) defines a broker-dealer as “a person or company that is in the business of buying and selling securities—stocks, bonds, mutual funds and other certain investment products—on behalf its customers (broker), for its own account (dealer), or both. Individuals who work for broker-dealers—the sales personnel whom most people call brokers—are technically known as registered representatives.”
Those who work for broker-dealers are required to be members of FINRA, take certain exams, otherwise known as the Series 7 Exam, in order to get a license to conduct certain activities and be license by the state securities regulator. Broker-dealers must be registered with the SEC and be members of FINRA.
Broker-dealers act as a middleman. In terms of real estate crowdfunding, they bring the deal to a platform like Loquidity. Beyond finding the deal, the broker-dealer often funnels investors to the sites. On the plus side, they typically have a lot of deals and investors lined up. On the downside, broker-dealers tend to charge a hefty fee—often between 2% to 15% percent, or more. With a broker-dealer, you are paying for their services as a registered broker.
The relationship between crowdfunding platforms and broker-dealers has been a hot topic since the passing of the JOBS Act of 2012. Is it necessary for a real estate crowdfunding platform to partner with a broker-dealer?
In short, no. Many real estate crowdfunding platforms partner with broker-dealers, but some do not need to, like Loquidity. Crowdfunding portals like us take the middleman out of the equation, bridging the gap between sponsors and investors without a broker. Thus, reducing the fees and creating more opportunities for sponsors. We do not however, conduct any broker-dealer activities or perform any broker-dealer services.
On the other hand, the real estate crowdfunding platforms that partner with broker-dealers have a discounted fee—but not nearly as low as those without the broker-dealer aspect. It is important to note that the platforms like Loquidity that are not registered broker-dealers clearly state that they are not broker-dealers and do not give investment advice.