Introduction:
In the Indian financial landscape, authorised persons and franchises are two key players. As an investor, it's crucial for you to understand the differences between them to make an informed choice. What are these? This blog helps you understand them better. Let's start.
Who is an authorised person?
An authorised person is an individual or entity authorised by a brokerage house to act on its behalf in facilitating trades. In other words, an authorised person is like an agent of the brokerage firm.
Authorised persons play a pivotal role in extending the reach of brokerage firms by providing trading services to customers on the broker's behalf. While earlier, they required registering themselves with the capital market regulator SEBI, it’s no longer necessary. You must register with a brokerage firm to start as an authorised person.
What is a franchise?
When brokerage firms permit authorised persons to operate under their brand name, it's called a franchise. If you are an individual or small business owner, you can apply for a franchise-based business model with a reputable and large brokerage firm. The brokerage firm selling its franchise is called the franchisor.
Differences between authorised persons and franchise
Now that you know the meaning of authorised persons and franchise let’s see the differences between them. The table below captures the key differences between them in various aspects:
|
Aspect
|
Authorised person |
Franchise |
| Ownership |
Act as independently operated entities. |
Controlled and owned by the parent brokerage firm. |
| Brand identity |
Can have their brand name and identity. |
Operates under the brand identity of the parent company. |
| Client relationships |
May maintain direct relationships with clients. |
Serves clients on the behalf of parent brokerage firm. |
| Operational structure |
Generally, it has a flexible operational approach. |
Needs to follow operational standards set by the parent company. |
| Support and assistance |
Offer personalised support and assistance to clients. |
Receive infrastructure support and training from the parent company. |
| Exit plan |
Generally, it has more freedom in its exit strategy. |
Exit terms could be more stringent. One needs to follow the guidelines and terms set by the franchisor. |
| Functional independence |
Generally, it’s more independent in their choice of how they want to interact with clients. |
Needs to follow the defined protocols set by the franchisor. |
What should you choose?
Choosing an authorised person or a franchise depends on various factors. These include individual preferences, investment goals, and comfort levels. Here are some factors you need to consider:
-
Personalised service vs. established brand
If you want personalised service and direct interaction, choosing authorised persons might be more suitable as they are known for offering tailored assistance and support, catering to your specific needs.
On the other hand, if you prioritise the established brand reputation and infrastructure support provided by a larger brokerage firm, opting for a franchise could be preferable. Franchises operating under the brand identity of a reputed brokerage company offer a sense of reliability and credibility.
Analyse the costs and fees associated with both options. These include brokerage charges, account maintenance fees, transaction fees, and any other relevant expenses. Make sure you understand the fee structure and consider how it aligns with your investment budget and objectives.
-
Track record and reputation
Before deciding, conduct thorough research on the track record, reputation, and credibility of the authorised person or franchise you are considering. Read reviews, client testimonials, and any regulatory actions or complaints, if any. Also, assess factors such as experience, expertise, customer service quality, and technological capabilities to gauge their suitability as your trading intermediary.
-
Risk management and compliance
Assessing the risk management practices and compliance standards followed by the intermediary you choose is vital. Ensure they prioritise transparency, ethical conduct, and adherence to regulatory requirements to safeguard your investments.
You need to evaluate each option based on the abovementioned factors and choose the intermediary that best matches with your investment goals and financial strategy. Ensure to conduct due diligence and approach a professional advisor if needed to make an informed decision.
Summing it up
Whether you choose to work with an authorised person or a franchise, evaluate their credibility, reputation, and support offered to ensure a seamless trading experience.
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