How To Become A Sub Broker? Roles, Responsibilities and Benefits

Retail participation in the Indian stock markets has steadily increased for decades, especially in the post-Covid era. This surge in demand has also led to a rise in the number of brokers and sub-brokers nationwide. While the term 'broker' is quite common in financial markets, 'sub-broking/sub-broker' may be less familiar to some. So, what is sub broking, and how can you become a sub broker? Here are the answers to these questions and more in this blog to refine your knowledge about financial markets.  

Who is a Sub Broker?

A sub-broker (also known as an Authorised Person) acts as a crucial intermediary between the stockbroker and clients within the dynamic securities market. Unlike a full-fledged broker, a sub-broker does not have direct access to the stock exchange; rather, they work under the supervision of a registered stockbroker and help clients with various functions like account management, trade execution, offering customer support and more. 

Sub-brokers play a crucial role in expanding the reach of stockbrokers, especially in regions where the broker may not have a direct presence. They earn commissions for their services based on the clients' trades. 

Roles and Responsibilities of a Sub Broker

A sub-broker in stock market is an essential part of the entire process. The roles and responsibilities of the sub broker are-. 

• Client Acquisition and Relationship Management

Sub-brokers are responsible for acquiring new clients for their main broker and maintaining strong relationships with existing clients. This involves understanding the financial goals of the clients, their risk tolerance, and investment preferences to provide personalised service.

• Trade Execution and Order Processing

One of the primary responsibilities of a sub-broker is to execute trades on behalf of clients. They receive orders from clients, transmit them to the main broker or exchange, and ensure the timely execution of transactions while adhering to regulatory guidelines.

• Providing Investment Advice

Sub-brokers offer investment advice and recommendations to clients based on market research and analysis. They educate clients about various financial products, market trends, and potential investment risks to help them make informed decisions.

• Account Management and Documentation

The sub broker is also responsible for maintaining accurate client records, managing client accounts, and ensuring regulatory compliance with the prevalent laws. They are also in charge of efficiently handling documentation related to account opening, transactions, and client communication.

• Customer Support and Query Resolution

Prompt and effective customer service are the key ingredients for building trust and retaining clients. Sub-brokers provide ongoing client support by addressing queries, resolving issues related to trading platforms or transactions, and offering assistance during market fluctuations. 

• Revenue Generation and Reporting

Sub-brokers earn commissions on the trades executed by their clients. They are responsible for tracking and reporting their financial transactions, earning commissions, and maintaining transparency in financial dealings with clients and the main broker.

Benefits of Becoming a Sub Broker

• Becoming a sub-broker requires minimal capital compared to starting a full-fledged brokerage firm, making it accessible for individuals with limited funds.

• Sub-brokers earn commissions on the trades executed by their clients, providing a steady income stream based on the volume of transactions.

• Many main brokers offer training programs and ongoing support to sub-brokers, helping them enhance their knowledge of financial markets and improve client service.

• A sub-broker can leverage the main broker's established brand and network to acquire clients, especially in regions where the broker has a strong presence.

• Sub-brokers operate under the regulatory framework of the main broker, reducing the administrative burden of maintaining compliance independently.

• Sub-broking offers flexibility in work hours and location, allowing individuals to manage their time effectively and potentially work from home or other convenient locations.

• Successful sub-brokers can expand their client base, increase their earning potential, and potentially transition to becoming full-fledged brokers or financial advisors in the future.

Sub Broker Business Model

The sub-broker business model involves partnering with a main broker to provide trading and investment services to clients. The sub-broker is the link between the broker and the client, and their primary role is to bring in new clients, facilitate their trades, and help them in their investment journey. 

The starting point of the sub-broker model is selecting a broker to partner with. The main broker has a direct link or authorisation from the SEBI and is responsible for providing the necessary infrastructure, support, and compliance oversight.

The sub broker must enter into an agreement with the main broker highlighting the terms of their partnership, including commission structures, roles, responsibilities, and compliance requirements.

SEBI requires the sub broker to meet the required eligibility criteria like having the educational qualification (minimum 10+2) and necessary experience along with obtaining the mandatory NISM-Series-X-A: Investment Adviser (Level 1) Certification. 

Following this, the sub broker must undergo the training provided by the main broker to understand market operations, trading platforms, and compliance requirements. The sub broker will also have to set up a dedicated office space equipped with computers, internet connectivity, and trading terminals and use the main broker’s trading platforms and software to carry out their responsibilities, such as executing trades and managing client accounts.

They can acquire clients through marketing strategies like word-of-mouth, online marketing strategies, etc., and assist them in opening trading and demat accounts, ensuring KYC compliance. The commission earned is shared with the main broker, and they are required to adhere to regulatory requirements like maintaining accurate records, regularly reporting to the main broker, and more. 

Step By Step Guide to Become a Sub Broker

Now that we have seen the role and benefits of becoming a sub broker, the next question is how to become a sub broker. Here is a detailed breakdown of the process.

• Select the right sub-broker franchise model - The first step is to research various sub-broker franchise models from different stockbroking houses and select the model that aligns with individual goals.

• Meet the eligibility criteria - Sub brokers should review the eligibility criteria set by the chosen stockbroking house and ensure adherence to them along with any additional SEBI requirements.

• Submit necessary documents and processing fee - After ensuring the fulfilment of eligibility requirements, they have to prepare the necessary documents like the application form, KYC documents (address proof, identity proof), agreement with the main broker, etc. and submit the same to the broker who will forward them to the stock exchange along with the required fees. 

• Verification of documents - These documents are then verified for accuracy and validity and upon finding any discrepancies they will have to be resubmitted along with the revised application form. 

• Payment of SEBI registration fees - The main broker will have to pay the applicable SEBI registration fees on behalf of the sub-broker upon receiving the approval for the submitted application. 

• Receipt of Registration Certificate - After paying the above fees, the sub-broker will receive a SEBI Registration Certificate and their unique registration number, which authorises them to operate as a sub-broker.

Difference Between Sub Broker And Stock Broker

Some key differences between a broker and sub broker are - 

Conclusion

The concept of sub-broker may not be as common with the average investors, but they are an essential link, especially in less penetrated markets. Sub-brokers contribute to market expansion, increased trading volumes and enhanced investor outreach by bridging the gap between stockbroking houses and clients. Registration with SEBI and adherence to necessary compliance requirements ensure transparency and accountability in operations, protect investors’ interests, and foster trust in the financial markets.