Types of Sub-Broker Models

Understanding Sub-Broker Business

Sub-broking, a business model with enormous potential for success, has drawn a lot of interest, particularly from younger individuals. The foundation of a sub-broker business model is bridging the gap between scarce resources and market expansion. A sub-broker in the share market leverages the resources offered by the broker, such as strategies, investment quantities, and other miscellaneous facilities, to assist clients in acquiring greater returns on their investments.

Although not a direct member of the stock exchange, a sub-broker works under the supervision and guidance of a broker who is registered with both the stock market and SEBI. A sub-broker functions as an intermediary between a stockbroker and a trader or client. In essence, the sub-broker represents the broker by bringing in and keeping clients, and as their experience, clientele, and business expand, their business trading franchise offers them even more rewards.

Sub-broker brokerages have evolved from being secondary market stock businesses to offering a wide range of services across multiple financial segments. Sub-brokers are required to assist their clients on a wide range of investments, including mutual funds, stocks, commodities, and currency.

Sub-Broker Business Model

The foundation of a sub-broker business model can be categorised into four components. These are:

Registration with SEBI & Broker Agreement

Obtaining a registration certificate from SEBI and signing a contract with a stockbroker are prerequisites for becoming a sub-broker.

Acquiring and Retaining Clients

Introducing new customers to the broker and assisting them with stock investments is the primary responsibility of a sub-broker. To get prospective investors to open an account with your broker, you must market your offerings.

Brokerage Generation

You receive a commission as a sub-broker from the broking that results from the transactions of your clients. You and the broker split the brokerage according to the predetermined ratio.

Facilities and Services Offered

You can take advantage of a number of services and resources provided by the broker as a sub-broker, including trading platforms, training and development and back-office support.

Sub-Broker Model Types

There are three main types of sub-broker model. They are explained in detail in the following sections.

Sub-broker or Authorised Person Model

An Authorised Person (AP) is the most well-known business model in the stock broking sector. All well-known stock brokers offer it. To be eligible to work with any stockbrokers as an AP, you need to meet the following requirements

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• The person wishing to be granted authorisation must be an Indian citizen.
• He has to be at least tenth qualified.
• He shouldn’t have any criminal history.

Anyone who meets the requirements can be an AP, whether they are an individual, limited liability partnership, or private limited corporation. In this model, revenue sharing ranges from 50% to 75%.

An AP also has a few essential duties. These are:

Acquiring Clients

First things first, an AP needs to get a new client after starting the firm. The person must then assist the client in opening a Demat account in accordance with the sub-broker code. To get new customers when starting out in business, you have to rely on telemarketing, networking, and digital marketing strategies. You must perform this daily in order to manage your business without interruptions. For example, you can produce consistent money for one to two years if you have 100 to 150 active clients.

Activation of Clients

Activating the client is the next step. You have to get your consumers ready to trade and invest in this step. You have to assist your clients in beginning their trading adventure to make money. In actuality, only 30% to 40% t of traders operate independently; the remaining 60% to 70% of consumers require instruction in trading and investing.

They then transfer money and begin trading. In any case, the AP receives the required training from the stockbroker. Additionally, clients can attend training classes held by stock brokers to learn trading.

Client Service

Servicing is another duty of an authorised individual. At this point, the person is in charge of answering the questions or concerns of the clients. You must give your clients consistent service in your capacity as an AP. When providing customer service, two to three crucial questions are asked. Issues pertaining to trading come first, then issues related to transactions, and finally, trading calls. A happy client is likely to recommend your services to their own circle, thereby leading to more clients.

Remisier or Stockbroker Partner Model

This remisier model was first presented to the stock broking industry by Zerodha. Following Zerodha’s lead, the other stock brokers have included this strategy in their portfolios. In this approach, the partner or remisier role is minimal. Among the duties are:

• The remisier is alone in charge of acquiring new clients.
• The other items, such as client activation and service, are handled by the stockbroker.
• Thus, in this approach, your revenue share is minimal.

The eligibility criteria are the same for this model as the AP model. Since you are only allowed to obtain clients, your costs are minimal. Converting to a sub-broker or AP model is possible with certain stockbrokers. All you have to do is invest more money and complete a few more paperwork. Due to this choice, most people begin with the partner model, and as soon as the business experiences growth, they shift to the Authorised Person Model. This significantly enhances earning potential. The revenue sharing in this model ranges from 10% to 50%.

Stock Broking Master Franchise Model

This model is only meant for small-scale brokers. The eligibility criteria are also similar to the AP model. With this approach, you will have total authority over the business in your assigned area. You won’t have any sub-brokers working for you. You may, however, designate partners or permitted individuals and divide the profits with them. Since you have total control over the assigned territory, the master franchise model requires a more considerable initial investment. Significant revenue sharing is also involved, ranging from 70% to 90%.

Process of Becoming a Sub-Broker

To become a sub-broker, you have to follow a few steps. These are:

• Apply for the role of business partner with any trading member.
• Go to the online application portal.
• Fill in all details accurately.
• Submit all necessary paperwork required for registration. This includes a PAN card and Aadhar Card, among other documents.
• The stockbroker firm will give you a call if you are selected for the role. In compliance with their policies and procedures, they will assist you further with the application process.

Conclusion

Establishing a successful sub-broker business requires a thorough understanding of the different sub-broker franchise categories. You can choose the Authorised Person or Sub-Broker Model, the Remisier Model or the Master Franchise Model. As explained in this article, each model has its benefits, revenue share, responsibilities, and requisitions. The AP or sub-broker model is the most availed one for maximum earning scope.

Select the model that you believe you can succeed in by considering your investment scope, understanding and risk-handling abilities. You can also achieve success in the sector by keeping up with the most recent developments in the stock market, obtaining the necessary guidance and support from your stockbroker, and utilising their experience.