A sub-broker business model is quite simple to understand. Without much of an investment in infrastructure and marketing, a sub-broker gets to start their own business. Although they are obliged by the broking firm’s terms and conditions.
So the share market business model of the sub-broker goes like this:
“A stockbroker provides the brand and infrastructure to the sub-broker in exchange for the brokerage.”
This can be beneficial for someone zealous enough to set up their own business in the field of finance but doesn’t have enough capital to invest.
Thus a stockbroker provides the sub-broker franchise model in which the person acts as an extended branch of the broker and performs various duties towards stock exchanges, the stockbroker and the clients.
As said earlier, sub-brokers earn by performing various tasks which include performing duties for:
- Sub broker responsibilities towards Stock Exchange
After becoming a verified sub-broker the key task towards the stock exchange is to provide investing tips and advice to the clients and thus maximize the deals in the particular geographical area.
- Sub broker responsibilities towards Stockbroker
Since the sub-broker gets to use the brand name of the broking firm, there are certain responsibilities of the partner towards the stockbroker as well. A few of them are as mentioned below:
- Business Development, sourcing new clients for the broker to boost the customer base.
- Document verification, tracking right submission of documents as the entire process holds the integrity of the capital market.
- Also providing the right and updated data of the trade transactions made by the clients to the broker is an important function to perform.
- Sub broker responsibilities towards Client
- Considering client needs and providing customized reports and tips that helps them in making their trading and investment decisions. Additionally, they work closely with the clients and help them maximize the profits overall.
- Provide clients with proper fundamental and technical analysis to help them pick the right stocks and build a neat portfolio.
Also, a popping question here is how much money do they earn?
A sub-broker is the direct employee of the broker and earns through the commission model.
As per the tasks involved in roles and responsibilities of the sub-broker, this commission varies from as low as 50% to the highest of 80%.
Although, this commission is also given in three categories,
- Percentage based
- Lump-sum based
- Hybrid commission model
So, let’s say with one of the clients having a turnover value of ₹1,00,000 you will be able to earn different amounts based on the commission model as shown in the table below:
In a percentage-based model, the sub-broker earns commission in percentages as per the agreement between the broker and the sub-broker on the overall turnover value of the client.
Say for example, if the agreement is set at 0.15% brokerage of the turnover value. Then in case, the client is associated with XYZ broker house. He purchases 2000 shares at ₹500 each.
The total turnover value is (2000*500)= ₹1000000
As a result, the sub-broker earning would be ;
0.15% of ₹100000o
= ₹ 1500
Lump-Sum Commission Model
While in the case of the lump-sum commission model, a predefined figure is fixed that the sub-broker would get as a brokerage. This amount is set by the sub-broker.
For example, if the fixed brokerage is set at ₹1500, then even if the turnover value turns out to be ₹50k or 500k, the partner would get ₹1500 fixed brokerage.
Hybrid Commission Model
When it comes to hybrid models. It is basically the combination of the two- percentage and lump-sum model in which upto a limit, a fixed price is defined and when the turnover value exceeds, the sub-broker gets a certain percentage of the turnover value.
Let’s understand this with the help of an example;
If the turnover value of the client from the above example is ₹1000000. And say, brokerage upto ₹300000 is fixed at ₹400 and then for the remaining ₹700000 it is defined at 0.15% of turnover value.
0.15% of ₹700000
At last, total brokerage earned by the sub-broker partner would be:
And, what benefits do you think sub-brokers have in this business?
Sub broker business has been in limelight in recent years for this franchise model has come up with a few specific set of benefits:
- Brand recognition is the primary advantage for the sub-broker to set up their own trading business under the bands like Angel One, Sharekhan and many more.
- Sub brokers do not have to invest in infrastructure to work, it is provided by the broker house.
- Technically advanced business tools are provided to track and manage the business efficiently.
- Sub brokers are provided with the latest research reports of the stock which helps them in providing investment advice to the clients.
- They get high returns with minimum investments.
Finally, if you are looking to set up your finance business with minimum capital business then this franchise model can be your choice.
And yet one must be careful enough to pick the right stockbroker from the pool available in the Indian Capital Market. Furthermore, this will depend on various factors such as the investment capital, financial goals, etc.
Thus do your homework and make a wise choice.
Till then Happy investing!