The short answer
The intermediary holds the money; the advisor finds the replacement; and the law keeps the two jobs apart. A qualified intermediary is defined by Reg. section 1.1031(k)-1(g)(4) as the person, not you and not a disqualified person, who receives your sale proceeds under a written exchange agreement; it needs no license and is regulated, where at all, by state exchange-facilitator statutes. A DST advisor is a registered representative of a FINRA member broker-dealer or a registered investment adviser, regulated by the securities laws, who recommends and places the replacement interest and never touches the exchange funds. The intermediary can be in any state; the advisor must be registered in yours. Any DST the advisor finds is an illiquid security that can lose its full value.
At a glance
| Intermediary defined | Holds proceeds under a written exchange agreement; acquires and transfers both properties; not you or a disqualified person |
|---|---|
| Intermediary licensing | None federally; bonds, escrow and insurance rules in a few states; a license only in Maine |
| Advisor defined | A registered broker-dealer representative or a registered investment adviser; a DST is a security |
| Advisor licensing | FINRA registration after the SIE and a Series 7 or 22, plus state registration through the Series 63 or 66 |
| Two-year agency bar | Your broker, agent, attorney or accountant within the two years before closing cannot be your intermediary |
| Order of engagement | Intermediary assigned into the sale contract before closing; advisor as early as the listing |
| Who pays whom | You pay the intermediary's fee; the offering pays the broker's compensation out of the equity you invest |
Two companies share one search term, and the tax regulations describe only one of them
Under Reg. section 1.1031(k)-1(g)(4)(iii) the intermediary is the person, other than you or a disqualified person, that takes your relinquished property and delivers the replacement under a written exchange agreement; paragraph (g)(4)(iv) lets it do that by assignment of contracts rather than by taking title, and paragraph (g)(6) requires the agreement to bar you from receiving, pledging or borrowing the money before the exchange period ends. That is the whole federal job description: hold, document, disburse.
Nothing in the regulation mentions finding, evaluating or recommending the replacement. That is the second business, and because the replacement in our work is usually a DST interest, which is a security, the second business is governed by the securities laws rather than the tax regulations: 15 U.S.C. section 78o for broker-dealers and 15 U.S.C. section 80b-3 for investment advisers. Is a DST a security and who can sell me one sets out why.
So the first question is which company you are looking for: if your sale is under contract and nobody has been assigned into it to receive the proceeds, you need an intermediary this week; if you are deciding what to buy, you need an advisor. Most sellers need both, and they are almost never the same firm.
What the intermediary does and does not do, and why it holds no license to do it
The intermediary signs the exchange agreement before closing, receives the buyer's funds at the closing table, holds them, and wires them to the seller of the replacement, or to a DST sponsor's escrow, on your instruction; it prepares the assignment notices and the identification form and keeps the exchange inside the 45- and 180-day windows. What it needs from you is on what the QI needs to open your exchange.
It does not give tax advice, as does a 1031 exchange company give tax advice explains, and it may not recommend a security unless separately registered. It holds no federal license: the protections that exist come from state statutes or from the terms you negotiate, as set out on are qualified intermediaries licensed or regulated, and the criteria for comparing candidates are on best 1031 exchange companies compared.
The regulation's independence test trips sellers who want one firm to do everything. Under paragraph (k)(2) anyone who acted as your employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two years ending on the transfer of the first relinquished property is a disqualified person. A DST broker who advised you on this sale is inside that definition, which is one reason the proceeds sit with an intermediary rather than with the broker.
What the advisor does, which registrations it must hold, and the standard it owes you
The advisor's work begins where the intermediary's stops: which structure fits the equity and debt you must replace, which sponsors and offerings are open, whether an allocation can be reserved before day 45, and how the subscription package reaches the intermediary for funding. The buyer's path is on how to buy a DST, and whether you can skip the advisor is on do you need a broker to buy a DST.
A representative must be registered under FINRA Rule 1210, which takes effect only after the Securities Industry Essentials exam and a representative exam, the Series 7 for all securities products or the Series 22 for direct participation programs; state registration runs through the Series 63 or the Series 66, which also qualifies the person as an investment adviser representative. How to check a DST broker walks through the BrokerCheck report.
The standard is Regulation Best Interest for a broker-dealer recommendation, which requires the firm to act in your best interest and to disclose its capacity, fees and conflicts in writing, and a fiduciary duty for a registered adviser. Neither standard reaches the intermediary, and neither makes a DST interest liquid or protects the equity.
Near me is the wrong filter for one of them and the right one for the other
An intermediary can sit in any state; can my qualified intermediary be in a different state explains why the property's state, not the firm's, decides which facilitator statute applies. What matters is the account structure, not the office.
An advisor must be registered in the state where you are solicited, which is why state registration appears on BrokerCheck and why why choose us states that we are licensed in all 50 states. Proximity is a convenience; registration in your state is the requirement. Our 1031 exchange advisor page describes how we work with sellers in every state, and our DST broker page the placement role.
Fees follow the roles. You pay the intermediary's fee, covered on who pays the QI fee; the broker's compensation is paid by the offering out of the equity you invest and disclosed in the memorandum, as set out on advisor fees and conflicts for DSTs; an adviser charging on assets bills you directly.
The order of engagement, and what our proposal process asks of you before any offering is named
The intermediary must be in the sale contract before closing, so if your buyer is signed, that call comes first. The advisor's work is faster when it starts earlier: our process begins with a conversation about your goals, tax exposure and preferences, and a proposal needs five facts from it: your closing date, the loan being paid off, your adjusted basis, the two states, and the income you need. What a proposal contains and the questions we ask on a first call describe both ends.
Step two of our process connects you directly with sponsors offering real, available properties aligned with your timeline; step three reserves equity and coordinates identification with your intermediary. Your intermediary, not us, holds the money.
Hypothetical sequence, round figures: a $1,500,000 sale under contract to close in 30 days with a $500,000 loan. Week one, the intermediary is assigned into the contract; week two, the first call fixes the five facts and the $500,000 debt figure; week three, the proposal arrives with structures that cover the debt and the income target; closing day, proceeds go to the intermediary; day 40, identification; day 60, funding. Have your CPA confirm the equity and debt figures before identification is sent, because they decide whether the exchange is complete.
Related questions
Can one company be both my intermediary and my DST advisor?
Legally only if the intermediary is not your agent under the two-year test and the firm is separately registered to sell securities, and even then the party holding your money would be the party choosing where it goes. We treat the two roles as belonging to two firms, and we are the second kind.
Which one do I call first?
If your sale is under contract, the intermediary, because it must be assigned into the contract before closing. If you are still listing, the advisor, so the replacement search starts before the 45-day clock.
Does the intermediary check the DST for me?
No. It holds and disburses funds on your instruction and gives no investment or tax advice. Due diligence on the trust is the advisor's and your CPA's work; how we review a DST describes ours.
Does the advisor need to be in my state?
Registered in your state, yes; located there, no. BrokerCheck lists each state registration, and a representative soliciting you without one is outside the rules.
Is Breakwater Exchange a 1031 exchange company?
In the search term's second sense, yes: we are a DST broker and 1031 exchange advisor operating within a FINRA member broker-dealer framework. We are not a qualified intermediary; your intermediary holds the proceeds.
Sources
Checked against these publications on October 8, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- 26 CFR section 1.1031(k)-1, deferred exchanges: qualified intermediary (g)(4), limitation on rights (g)(6), disqualified persons (k)
- 15 U.S.C. section 78o, registration and regulation of brokers and dealers
- 15 U.S.C. section 80b-3, registration of investment advisers
- FINRA Rule 1210, Registration Requirements
- FINRA, Series 7, Series 22, Series 63 and Series 66 qualification exam pages
- 17 CFR 240.15l-1, Regulation Best Interest
- Rev. Rul. 2004-86 (IRS), DST interests exchanged through a qualified intermediary
- Maine Revised Statutes, Title 10, section 1396, exchange facilitator license