In the world of stockbroking, people think the sub-broker and franchise sub-broking are the same or there is confusion about it. While both options offer a path into the financial services industry, they differ in their structure and operational aspects. Understanding these distinctions is crucial for selecting the most suitable business model for one’s venture.
Sub-Brokers: Independent Intermediaries
Sub-brokers operate as independent entities, acting as intermediaries between stockbrokers and their clientele. They acquire a license from a registered stockbroker, enabling them to solicit and service clients under the stockbroker’s brand name. Sub-brokers typically retain a higher percentage of the revenue generated from client transactions, enjoying greater autonomy in managing their operations.
Compliance requirements:
- Sub-brokers must be registered with the stockbroker they are working for.
- Sub-brokers must undergo training and certification in securities market operations.
- Sub-brokers must comply with all SEBI regulations and guidelines applicable to stockbrokers
Differential powers:
- Sub-brokers cannot directly execute trades on behalf of clients.
- Sub-brokers cannot open or close demat accounts for clients.
- Sub-brokers cannot handle client funds or securities.
- Sub-brokers cannot provide investment advice to clients.
Know: The Importance of Sub Brokers in India
Franchise Broker Firms: Partnering with Established Brands
Franchise broker firms, on the other hand, establish a partnership with a well-established stockbroker, gaining access to their brand reputation, trading platform, and client base. In exchange for this support, franchisees pay a franchise fee and agree to adhere to the stockbroker’s guidelines and procedures. The revenue-sharing ratio between franchisees and the stockbroker is typically determined by factors such as the franchisee’s location, client volume, and overall performance.
Compliance requirements:
- Franchise brokers must be registered with SEBI.
- Franchise brokers must undergo training and certification in securities market operations.
- Franchise brokers must comply with all SEBI regulations and guidelines applicable to stockbrokers.
- Franchise brokers must comply with the terms and conditions of their franchise agreement with the stockbroker.
Differential powers:
- Franchise brokers can directly execute trades on behalf of clients.
- Franchise brokers can open or close demat accounts for clients.
- Franchise brokers can handle client funds or securities.
- Franchise brokers can provide investment advice to clients.
Business Model Perspective
Here are a few fundamental differences between a sub-broker and franchise business model:
| Feature | Sub-Brokers | Franchise Broker Firms |
| Brand Name | Independent | Stockbroker’s brand |
| Registration | Required as ‘Authorized Person’ | Required as ‘Authorized Person’ |
| Training | Minimal or no training required | Training provided by the stockbroker |
| Revenue Sharing Ratio | Higher percentage | Depends on various factors |
| Experience | Less or no experience required | Specific experience requirements may apply |
| Support | Limited support from stockbroker | Extensive support from stockbroker |
| Risk Involved | Higher risk due to independent nature | Lower risk due to partnership with a stockbroker |
A stock broking franchise is a way to distribute financial products and services locally through a network of franchisees. These franchisees help clients by providing information on various financial segments, including equity, commodities, futures, and options.
To become a franchise holder, individuals must pass a certification exam for registration. In a franchise system, there are two key roles: the franchisor, who lends their company name and business, and the franchisee, who pays a royalty as a revenue share from the brokerage. The franchisee also typically pays an initial security deposit to gain the right to operate under the stockbroking house’s name and system.
A sub-broker, on the other hand, is an agent who assists investors but is not a trading member of a stock market exchange. Their role is to execute securities trades on behalf of customers. The sub-broker agreement involves three parties: the stockbroker, the sub-broker, and the client.
To operate in this industry, individuals must clear a certification exam and register with SEBI (Securities and Exchange Board of India) while adhering to the established rules and regulations.
