by Michael Kitces
When the modern structure of financial services regulation was created in the early 1900s, broker-dealers and investment advisers were in substantively different businesses. Investment advisers (“investment counselors” at the time) supervised and managed investment accounts of clients, while broker-dealers and their “stockjobbers” (stockbrokers) were primarily involved in the capital formation and capital markets processes of facilitating the issuance of stocks and bonds and their subsequent trading (i.e., the literal securities-markets activities of brokering and dealing).
For which, accordingly, they had different business models (broker-dealers were paid by the transaction (i.e., commissions), while investment advisers were paid for advice), and also different standards of conduct (suitability for broker-dealer sales activity, and fiduciary for investment-adviser advice services).

But over the years, the evolution of the marketplace – and the evolution of technology – has driven multiple shifts in the services provided by broker-dealers.
In the 1970s, the de-regulation of fixed trading commissions for broker-dealers led to the rise of “discount” brokerage firms like Schwab and Ameritrade, leveraging their newfangled “computers” to drive the traditional human stockbroker out of business using technology and forcing broker-dealers to shift towards selling mutual funds instead (supported by the creation of the 12b-1 fee in 1980, allowing the broker to get paid ongoing servicing fees for the sale of those funds).
In the 1990s, the rise of the internet and the emergence of online brokerage firms started a shift away from broker-sold mutual funds, as consumers (rightly) began to ask “why should I pay a broker for a mutual fund that I can buy myself online without a commission?” (i.e., a no-load fund). Which in turn led the brokerage industry to the rise of wrap accounts, and a request the SEC to create an exemption for fee-based brokerage accounts in 1999 (also known as the “Merrill Lynch rule,” as the wirehouse was one of the leading proponents of the new exemption).