What Is Sub-broker And Benefits Of Being A Sub-broker?
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.
A sub-broker 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.
Understanding Sub-Brokers
In India, almost all the broking houses have shifted towards an online trading process where you can open a Demat account in a matter of minutes, similar to signing up on a website. However, the digital shift is new, and a majority of investors still prefer to have a physical person whom they can consult for submitting their KYC documents and ultimately opening a Demat account. Furthermore, once the Demat account is opened, the sub-broker assists the clients in making informed investment decisions and bringing transparency to every transaction.
For the online stock brokers, the sub-broker acts as a bridge between clients and their platform as the online brokerage firm can not directly approach clients to open a Demat account physically. Thus, sub-brokers ensure that they work on behalf of such online brokers and find new customers for them and assist them in investing activities.
Once they onboard a new client on the online platform, the sub-brokers are entitled to a predetermined commission on the transactions done by the clients or the sub-brokers on their behalf. The higher the monetary value of such transactions, the higher the sub-brokers earn. However, one thing you should understand within the segment of what is a sub-broker is that a sub-broker is not the trading member of the stock exchange but is licensed to act on behalf of a trading member who has a valid Demat account.
What is Sub-broker: Difference Between Sub Broker and Stock Broker
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Trading Member:
Stock brokers are listed as trading members on the stock exchange, while sub-brokers are not listed as licensed trading members. This does not mean that sub-brokers do not have any certification from the stock exchange. To fulfil the definition of what is sub-broker under SEBI’s guidelines, they are required to have a Certification of Registration from SEBI to conduct their business as a sub-broker. Brokerage Fee:
Another key difference between a stock broker and a sub-broker under the segment of what is sub-broker is that while stock brokers are paid in brokerage fees, sub-brokers are paid in commission. As per law, only brokers who are registered as trading members of the stock exchange are allowed to charge brokerage fees. As sub-brokers are not listed as trading members, they can not charge a brokerage. In other words, the stock brokers make a brokerage fee on every transaction their client makes. Of the brokerage fee, the sub-broker gets a percentage of the brokerage fee, which is called commission.
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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:Â
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:Â
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 a sub-broker?
Anyone who understands what is a sub-broker in a share market knows that the role comes with tremendous money-making opportunities. However, some factors are required to be fulfilled on a candidate’s part to become a sub-broker. These are:
The person should have completed secondary studies (10+2) as per SEBI’s regulations. However, the higher the studies, the better chances of a successful sub-broking business.
Must have basic knowledge of the financial markets, such as the Demat account, trading account, the stocks’ buying and selling process etc along with knowledge about financial transactions.
Must have technical knowledge of how to operate computers and basic software such as Excel. Furthermore, the technical knowledge of managing online trading platforms is mandatory.
Good communication skills are an added trait as people skills are required to onboard clients and add them to the online brokerage business.
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.
FAQ
Ans: Sub-brokers act as a link between a customer and the online brokerage firm to ensure the brokerage firm onboard new clients. They also assist the customers in making informed investing decisions and making financial transactions.
Ans: Yes, the sub-brokers can trade for themselves using their own Demat accounts and capital. However, they can not trade in personal capacity using the funds of their clients.
Ans: Yes, being a sub-broker is a good professional opportunity as the sub-broker earns a commission on every transaction carried out by their clients. There is no limitation on the commission a sub-broker can earn.