This blog is all about Benefits of Sub Broker Business & various Challenges faced by Sub brokers in India.
Sub-brokers bridge the gap between the stock brokerage houses and their clients and, to some extent for, the stock exchanges.
Without sub-brokers, the entire stock market operations can pause, and thus sub brokers enjoy many benefits due to their pivotal role in the industry.
That said, there are many challenges that they also have to face to be in the business. So, the article will entail the sub-broker’s benefits and challenges in the industry and running the business.
Benefits of Sub Broker Business in India
Sub-broker gets different advantages from the main brokerage house and the industry for running their business.
Entrepreneurship
Entrepreneurship is one of the major benefits of Sub Broker business. Sub Brokership is not a job where you have to report to any boss over your head.
It is a form of business where you are investing in the sub-brokership business, and you have the right to run your own business according to your strategies.
However, you must also adhere to the rules and regulations of SEBI and the main brokerage house.
Great Earning Potential
2nd Pros of Sub Broker Business is its Amazing Earning Potential. Sub-brokers earn mainly through commission.
This works like you bought a client to the main brokerage house, helped him open an account, and started trading.
Now in a month, If 100 clients are trading securities worth Rs.20 Crores. So, if the brokerage house charges 0.05% brokerage, then the brokerage the client is paying for that month is Rs.1 lakh.
Now the broker shares 70% commission or revenue with the sub-broker as per agreement between the two.
Thus, the sub-broker will get 70% of Rs.1 Lakh which is Rs.70,000. Usually, the revenue sharing ratio varies between 50% and 70% for the sub-brokers.
Low Initial Investment
To become a sub-broker of most stock brokerage houses, you only need to invest a little capital.
There is a fixed security deposit which most of the brokerage houses charge, or just the registration fee with the SEBI. The franchise fee is lower than other franchise businesses.
Even the infrastructure cost is reasonable, and you can also make it according to your preferences, given you have all the mandatory requirements for trading and assisting your clients.
Low Investment requirement is a another major benefits of Sub broker in India.
Training and Support
Sub-brokers and their employees get full-fledged training for client acquisition, client servicing, trading, dealing, and much more.
Apart from the training, the main broker renders multiple support to the sub-brokers so that they can run their business smoothly.
Marketing Support
The main brokerage house offer extended marketing support to the sub-brokers to popularise their business.
This helps the sub-brokers to gain popularity in the market and thus grow and expand easily.
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Exceptional Technology Support
Sub-brokers get technological support from the main broker for client acquisition, client pitching, trading desk, and more.
Nowadays, trading and investments are all done online with the help of technology, the sub-brokers get full support for the same.
Different Offers to attract Clients
Many offers are provided to sub brokers to attract more & more clients. This is a major advantage of sub broker business.
Sub-brokers get different offers from their stock broker. These are only sometimes available, making these offers unique, special, and thus attractive.
Some amazing offers provided are attractive brokerage related offers like Zero brokerage for 1st month., then free subscription of moneycontrol premium & livemint premium etc.
Minimal Eligibility Criteria
Last but not the least, eligibility criteria of sub brokers are not very tough, it is very accommodative & anyone can become a sub broker.
This is a very important pros of sub brokers in India. For becoming a sub-broker, you don’t need to fulfill any tough, rigid criteria.
There are simple eligibility criteria like education of at least 10+2, basic knowledge of the stock market and investment, good communication skills, and SEBI registration.
Challenges faced by Sub Brokers in India
While the sub-broker’s work seems to be lucrative, it also has certain challenges to it.
Low Financial Literacy
First Challenge of Sub Brokership is the level of financial literacy. This needs to be higher in India, adversely affecting the sub-brokers career prospects.
Since only 8% of the population in the country is now investing in the stock market, the penetration level is low.
However, this also shows the potential for the sub-brokers to explore, provided the financial literacy level goes up, and people come out of their long habit of investing in only traditional asset classes.
Inactivation of Accounts
The next challenge that the sub brokers face is the inactivation of accounts. While the number of people opening accounts is fair but out of them, only 40% start trading and investing on their own.
The rest must be made aware of how to trade or possess the skills and understanding of the market required. This hampers the business of the sub-brokers a lot.
Their hard work and effort behind finding the client, pitching, and account opening go in vain when the client needs to use the account and trade.
Hassles of Client Servicing
Another big issue that sub brokers face is client servicing.
Since they are the intermediary between clients and the main brokerage house, if the latter doesn’t offer the right services or if their quality of services and products dip, then the sub-brokers have to face the heat from the clients.
Even if the sub-brokers want to offer better services, the sub-brokers become helpless if the main broker doesn’t.
Check out these amazing Sub Broker Franchise Businesses
Excessive Competition
There are hundreds of stock brokers and then lakhs of sub-brokers; thus, the level of competition amongst the sub-brokers is cut-throat.
There are a hundred sub-brokers of each of the stock brokers. Thus, there is internal competition only, and then there are other sub-brokers of other brokerage houses.
Here, if a sub-broker needs to survive, they always have to be on their toes. This is another major challenge of Sub Broker Business.
Infrastructure Cost
Sub-brokers of most brokerage houses must set up their own office and have multiple trading terminals, employees, dealers, terminal operators, and other staff members.
The infrastructure expense of the sub-brokers is high, and also they need to put a lot of effort into running the office smoothly.
Benefits of Sub Broker Business & Challenges of Sub Brokers in India – Conclusion
So, if you are considering becoming a sub-broker, weigh the pros and cons.
You cannot just opt for it because of the lucrative commission or the exceptional support offered; also, keep going with it due to the effort you need to put in.
You need to compare both pros and cons and then take a call.
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