The emergence and rapid development of the stock market have created numerous opportunities in the industry for investors to make money. Owing to these numerous profit-making opportunities, the Indian stock market is witnessing unprecedented demand derived from the opening of record-breaking Demat accounts.
From Stock exchanges to brokers, technological advancements have enabled certain processes to be completely digitised. The most innovative process is the digitisation of the trading platforms and the included system. For example, there exists a plethora of discount brokers online that are essentially apps that enable you to trade in the stock market through them, with little to no human intervention.
However, the need for physical assistance is still required for investors who prefer having an expert to assist them in transactions and for online brokers to find new customers. The role, known as sub-broker, has become pivotal in the spectrum of trading today. This article will break down the concept of sub-brokers alongside an in-depth explanation of what is sub broker, sub broker franchise, how one can become a sub-broker and its various benefits.
What Is a Sub Broker?
You have probably heard of a broker, but are probably unaware of what is a sub-broker in the share market. If you are, here is the answer to what is a sub-broker (Also known as Authorised Person).
A sub-broker (Authorised Person) is a person that functions similar to a broker but works as the middle man between two parties; the customer and the main broker. While a stock broker is a middle man between an investor and the stock exchange, a sub-broker is the middle man between the stockbroker and the investor.
The job of a sub-broker is to mediate between the broker and client and assist the client in various activities such as financial transactions and paperwork. Since the sub-broker works for a stock broker, in most cases, their job includes bringing clients to the brokerage firm. Additionally, the sub-broker assists clients with investing and dealing with securities. In return for the services rendered by the sub-brokers to the brokers, they receive a certain commission from the transaction done by the clients.
Now that you have understood what is a sub-broker, you can move on to understanding the concept in detail.
Roles and Responsibilities of Authorised Partners
Sub-brokers (now known as authorised partners) play a pivotal part in equities markets, acting as delegated representatives approved by lead brokers to facilitate trades on their behalf. Here is a breakdown of their principal obligations and roles:
- The primary broker sanctions authorised partners to function on their behalf. They must abide by the regulations and rules established by the lead broker and regulatory bodies.
- With appropriate registration from SEBI, they can offer various customer services, including investment recommendations, portfolio management, and research reports. They also assist clients with adhering to compliance requirements and documentation.
- They earn payment from transactions completed by customers in return for the functions they carry out for brokers. The commission received varies depending on trade size and complexity.
- They must conform to the standards established by regulatory authorities. They ensure clients comprehend the risks involved in securities investing. Compliance is essential to maintain licences.
- They help expand the reach of lead brokers by attracting new clients and retaining present ones through high-quality service. Their relationships and local knowledge play a key role in business development.
Difference Between Sub Broker and Stock Broker
Benefits of Being a Sub-Broker
Knowing what is sub-broker is the first step towards joining a field that can allow you numerous professional opportunities. The role of a sub-broker brings numerous growth opportunities as the money-making potential is unlimited. The sub-broker works with the biggest online brokers and becomes a link between the clients and the brokerage firm. As almost all the clients onboarded by the sub-brokers make investment transactions, it is a guaranteed fact that sub-brokers earn a good commission on the transactions. Here are the benefits of being a sub-broker along with the advantages of a sub-broker.
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Financial Knowledge:
One of the biggest benefits of being a sub-broker or being part of a sub-broker franchise is the financial knowledge you gain. Working under a broker provides sub-brokers with key information about the stock market that they can use to further their market knowledge and personal trades. While they cannot function as brokers, they can still trade personally with any broker with their own funds. This self-sufficient cycle not only enables sub-brokers to cater to their clients better but also lets them fuel their investments as well.
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Added Services:
Another benefit of being a sub-broker is that the brokerage firm you work with might also enable you to provide customers with services beyond just investment tips and strategy. For example, some brokers allow their sub-broker franchisees to offer clients mutual fund distribution and loan options as well. Because of these added services, the sub-broker gets opportunities to earn a commission and grow the sub-broker franchise.
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Low Investment Amount:
Once you know what is sub-broker, you understand that you do not need a high capital amount to get started. One of the major benefits of being a sub-broker is that you do not require a high investment amount, as your franchiser takes care of a majority of the expenses. Sub-brokers only require a small investment amount, say 10,000 rupees or above to begin their quest as a sub-broker. Irrespective of the initial investment amount, there is no limitation on the commission a sub-broker can earn based on the client’s transactions.
What Do You Need To Become An Authorised Partner?
To become an authorised partner, several requirements and steps must be followed. Here’s a concise list of what you need:
- Educational Qualifications: A minimum 10+2 degree is compulsory to become an authorised partner. A bachelor’s degree in finance, commerce, or a related field is often preferred. Understanding market dynamics, financial instruments, and trading strategies is also crucial.
- Registration with SEBI: Register as an authorised partner with the Securities and Exchange Board of India (SEBI). Adhere to all SEBI regulations and guidelines for authorised partners.
- Partnership with a Stock Broker: Collaborate with a licensed stock broker to operate under their umbrella. Sign a partnership agreement detailing the terms of your relationship and commission structure.
- Financial Requirements: Maintain a minimum net worth specified by SEBI or the partnering stock broker. Prepare for initial investments in infrastructure and marketing to attract clients.
- Infrastructure Setup: Establish a physical office or a digital presence to operate and serve clients. Gain access to the trading platform the stock broker provides for executing trades.
- Licensing and Certifications: Obtain the National Institute of Securities Markets (NISM) certification, such as the NISM-Series-X-A: Investment Advisor Certification Examination.
- Compliance and Reporting: Regularly follow compliance requirements set by SEBI and the stockbroker. Maintain proper records and report transactions as required.
- Client Acquisition Strategy: Develop strategies to attract and retain clients, such as networking, online marketing, and educational seminars.
Conclusion
The role of a sub-broker is the result of an increase in demand for brokers as people generate excess amounts of funds and income that they wish to invest. While being a broker requires extensive permissions and certifications, being a sub-broker allows you to carry out similar functions, short of being listed as a trading member of the stock market. Now that you know in detail what is sub-broker, you can consider partnering with reputed organisations like IIFL securities to smooth your process for the same and make use of their existing expertise.
FAQs on What is a Sub-broker
Q.1: What Is An Authorised Partner? What Are The Benefits Of Being An Authorised Partner?
Ans: An authorised partner is a representative of a broker. A broker is a member of the stock exchange. An authorised partner can interact with customers as an authorised representative of the broker. There are many benefits of being an authorised partner. An authorised partner recruits new customers on behalf of the broker. They earn a commission from the broker for the new customers that it gets for the broker. The authorised partner also earns a commission from the broker on trades done by customers they have recruited. The authorised partner also gets the research & advisory support of the broker. The authorised partner can enjoy the brand name of a top broker such as IIFL Securities.
Q.2: What Is The Difference Between An Authorised Partner And A Franchisee?
Ans: An authorised partner needs to be registered with SEBI, as per the requirement of Section 12 (1) of the SEBI Act, 1992. An authorised partner can take the franchise of a broker. A franchisee may not necessarily be an authorised partner. A franchisee may have the franchise only for selling other financial products such as mutual funds, insurance products, etc. So, a franchisee doesn’t need to be registered with SEBI. But if an authorised partner who deals in securities takes a broker’s franchise, then the partner should be registered with SEBI.
Q.3: What Is The Difference Between A Sub Broker And Authorised Person?
Ans: As per current SEBI regulations, there is no difference in the role of sub-brokers and Authorised Persons. In fact, sub-brokers are now called authorised partners. APs do not have to be registered with SEBI. The broker or authorised partner appointing an AP should only get the AP registered with relevant stock exchanges.
Authorised partners are allowed to trade in the cash market segment only on behalf of the clients. An AP can trade in cash, derivatives, and currency derivatives segments on behalf of the clients. However, APs cannot handle the money of the clients directly.
Q.4: What is the qualification for being an authorised partner?
Ans: Completing 10+2 education is compulsory to become an authorised partner. Knowledge about financial markets is necessary. A bachelor’s degree in a finance-related field can be advantageous.
Q.5: Who appoints an authorised partner?
Ans: Authorised partners are appointed by main brokers to help clients on their behalf. Authorised partners must follow the regulations fixed by the main broker and the exchange authorities.
