The emergence and rapid development of the stock market have opened up a multitude of opportunities for investors to profit. This growth has fostered an industry that caters to this demand, resulting in a wide array of services offered in the investment sector. Technological advancements have digitised many processes, leading to the proliferation of online discount brokers, essentially apps that enable stock market trading with minimal human intervention. However, before this digital transformation, brokers had to actively seek and acquire customers, leading to the creation of sub brokers. This article will delve into the concept of sub brokers, providing a comprehensive explanation of what they are, sub broker franchises, how to become a sub broker, and the various benefits of being a sub broker.
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What Is a Sub Broker?
You’ve likely encountered the term “broker” but may not be familiar with the concept of a sub-broker. A sub broker essentially performs the same function as a broker, acting as an intermediary between two parties. However, while a stock broker serves as the intermediary between an investor and the stock exchange, a sub broker acts as the intermediary between the stock broker and the investor. In other words, a sub broker’s role involves mediating between the broker and the client. Since sub brokers typically work for a stock broker, their responsibilities include attracting clients to the brokerage firm and assisting clients with investment decisions and securities transactions. In return, sub brokers receive a commission based on their transaction volume. Essentially, the more they transact, the more they stand to earn.
Also Read: Authorised Person vs Sub Broker
Difference Between Sub Broker and Stock Broker
To understand what a stock broker is, it’s helpful to compare brokers and sub brokers. As mentioned earlier, a sub broker works for or under a broker, but several key distinctions set them apart.
One significant difference is that while brokers are registered as trading members of the stock exchange, sub brokers are not. However, this doesn’t mean that sub brokers lack certification from the stock exchange; they still need a Certification of Registration from SEBI (Securities and Exchange Board of India) to conduct their business.
Another notable contrast between brokers and sub brokers is their compensation structure. Brokers primarily earn income through brokerage fees charged to their clients, whereas sub brokers receive commissions. According to the law, only brokers registered as trading members of the stock exchange can charge brokerage fees, and sub brokers are not permitted to do so. Essentially, the broker earns a brokerage fee for every transaction their client makes, and the sub broker receives a percentage of this fee as their commission.
Benefits of Being a Sub Broker
Being a sub broker or part of a sub broker franchise comes with several advantages.
1. Knowledge Enhancement: Working under a broker provides sub brokers with valuable insights into the stock market, which they can leverage to enhance their market knowledge and personal trades. While they cannot operate as brokers, sub brokers can still engage in private trading with any broker using their own funds. This self-sustaining cycle not only enables sub brokers to better serve their clients but also empowers them to grow their investments.
2. Diversified Services: Some brokerage firms allow their sub broker franchisees to offer clients additional services beyond investment advice and strategies. These services may include mutual fund distribution and loan options, expanding the range of offerings and potential revenue streams for sub brokers.
3. Low Initial Investment: Becoming a sub broker typically requires a relatively low initial investment. Franchisers often cover a significant portion of the expenses, making it accessible for individuals with a modest capital outlay, such as 10,000 rupees or more, to embark on their journey as sub brokers.
4. Growing Demand: The demand for brokers is increasing, providing more opportunities for sub-brokers.
5. Fewer Requirements: You can perform similar tasks to brokers without needing as many licences.
6. Partnerships: You can partner with trusted brands like IIFL Securities for guidance.
Also Read: Discount Broker vs Full-Service Broker: Which One Should You Choose?
Wrapping-Up
In conclusion, brokers and sub-brokers play a vital role in India’s economy by supporting financial markets and SMEs. To become one, you need education, training, and licensing. It’s a rewarding but challenging profession, so consider seeking help from a Demat app that provides financial advice if you want to become a sub-broker.
