Broker-Dealer vs. Placement Agent: What’s the Difference?

In the world of private capital markets, the terms broker-dealer and placement agent often come up when discussing regulatory requirements and fundraising strategy. While the two are sometimes used interchangeably, they represent distinct roles with different regulatory obligations, scopes of service, and value propositions. Understanding the difference is especially important for fund managers, private companies, and sponsors navigating the capital raising process in 2025.

What Is a Broker-Dealer?

A broker-dealer is a firm licensed to buy and sell securities on behalf of clients (acting as a broker) or for their own accounts (acting as a dealer). Broker-dealers must be registered with the U.S. Securities and Exchange Commission (SEC) and be members of FINRA. These organizations impose regulatory oversights on licensing exams, audits, and disclosure requirements.

Broker-dealers responsibilities span a wide range of activities within the securities market. In capital raising scenarios, they often underwrite offerings, execute transactions, and help navigate regulatory filings. As a self-regulated organization, broker-dealers are required to have Written Supervisory Procedures (WSPs) that address how requirements by different regulators such as FinCEN, FINRA, and the SEC will be implemented in their daily operations. Those standards include, but are not limited to Anti-Money Laundering (AML) procedures, Know Your Customer (KYC) rules, and advertising regulations, which is why broker-dealers serve an important role in helping implement compliant processes and preserve the  integrity of financial transactions.

Broker-dealers generate revenue in several ways: through commissions on securities transactions, the spread between where they buy and sell securities, and fees for advisory or underwriting work. In some cases, they also provide infrastructure for other issuers or firms that wish to leverage their licensing and back-office systems without forming a broker-dealer themselves.

What Is a Placement Agent?

A placement agent is an intermediary hired by a fund sponsor, such as a private equity firm, hedge fund, or real estate fund, to help raise capital from investors. Their primary role is to introduce fund managers to institutional investors or high-net-worth individuals and assist with marketing and closing commitments. Their work is especially valuable for emerging managers or specialized funds that may not have a broad network of investor relationships. While placement agents are registered broker-dealers, their activities are more narrowly focused on fundraising, rather than trade execution or back office compliance support. Placement agents often work closely with fund sponsors to develop offering materials, set terms, identify appropriate investors, and manage the fundraising campaign. They are typically compensated through a success fee based on the amount of capital raised, which aligns their incentives with the sponsor’s capital raising efforts.

Key Differences at a Glance

	Broker-Dealer	Placement Agent
Primary Role	Facilitates back office compliance and regulatory oversight	Raises capital for investment funds
Registration	Must register with SEC and FINRA	Must be registered as or affiliated with a broker-dealer
Scope of Service	Transaction processing, underwriting, compliance oversight	Investor introductions, fundraising support
Compensation	Commissions, trading spreads, underwriting fees	Success fees (typically a percentage of funds raised)
Regulatory Standard	Regulated by FINRA and the SEC directly	Subject to SEC/FINRA via broker-dealer affiliation

Conclusion

While broker-dealers and placement agents both play critical roles in facilitating the capital raising process, they provide different types of services for the securities industry. Broker-dealers offer a broad array of services, including transaction execution, compliance, and infrastructure, making them essential partners for firms seeking to scale their capital raising efforts with regulatory confidence. Placement agents, on the other hand, are fundraising specialists who bring investor networks and marketing expertise to the table.

For fund managers and sponsors, knowing which intermediary to engage with, and when, is key to a successful capital raise. We’ve seen firms achieve success by engaging a managing broker-dealer to handle compliance requirements while building their own in-house team dedicated to raising capital for their offerings. This approach allows firms to maintain direct, hands-on relationships with their clients, while benefiting from the convenience and reduced stress of outsourcing key broker-dealer functions.