Sub Broker Commission Structure Explained | Motilal Oswal

Sub Broker Commission Structure Explained




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The definition, or the correct explanation, of the word “broker”, is an individual who purchases and sells stocks and other assets for investors”. In return for this service that a broker performs, they command a fee/charge, which is called a “brokerage fee”. There are a number of brokerages in India, and these entities are officially permitted to transact in the asset markets on behalf of clients, the investors. They hold authorized licences and are listed by the exchanges themselves. However, brokerages use the services of “authorized persons”, or sub brokers to perform a number of tasks within the bounds of their own brokerages. A sub broker franchise is not uncommon in India. 

Sub brokers and How they Earn

Brokerages appoint sub-brokers to perform certain tasks, and sub-brokers earn commissions from these. Clients pay brokerages a fee for certain transactions, and the commission for sub brokers comes from this. Although certain services are free at brokerages like if you wish to open a demat account, others are charged to clients/investors. The commissions earned by sub-brokers are the main sources of income for these individuals. The sub-broker can become an extension of any brokerage and have a sub-broker franchise status. In this way, the sub broker gets to use the brokerage’s brand and can concentrate on attracting clientele. The more clients there are for a brokerage, the more a sub broker can potentially earn. 

Earnings of a Sub broker

Sub broker commission is the earning for a sub broker. Therefore, any sub broker is motivated to obtain more clients for any main brokerage and perform a host of services for a fee. In a sense, sub brokers are the middle people between brokers and investors, whether an upcoming IPO must be subscribed to or any other task like choosing the right stocks for an investor’s portfolio. Two variables dictate the amount that the sub broker will earn:

  1. An amount, as a percentage, which is shared through the broker
  2. The number of investors/clients that sub brokers manage to attract

Consequently, the sub broker’s income is dependent on their abilities. 

Sub Broker Commission Structure

The income that a sub-broker earns may vary depending on the brokerage that the sub broker is attached to. The way that most earning structures for sub brokers work is in terms of a percentage earned, which is charged by brokers to clients. Thus, the more clients the sub broker attracts, the more they can earn. Large and established brokerages may offer a large percentage of sub-broker commission to a sub-broker, recognizing that they do all the leg work and bring a large number of prospective investors to the brokerage for business. For instance, a percent-oriented model of any brokerage would go like this:

If an investor purchases 10 stocks worth Rs. 1,000, with each stock priced at Rs. 100, the value of this transaction would be Rs. 1,000. If the brokerage charges 0.5% as a brokerage fee, then a percentage of this goes toward the sub-broker commission. 

Other good brokerages offer a different model of commission, apart from the percent earned through a transaction. They offer sub brokers 10% of the total revenue earned by the brokerage via clients that have been generated by sub-brokers.  

A Great Business

Becoming a sub broker is a great business model, and if you wish to become one, the perfect way to start is by choosing a proficient and established brokerage. If you are an investor, you may find a sub broker helpful if you wish to open a demat account or require help with subscribing to an upcoming IPO. 

Related Articles: How To Choose The Right Sub Broker Franchise In India | 10 Qualities A Sub Broker Must Have To Become Successful | Difference Between Sub Broker Franchise And An Authorised Person | How to Start & Grow Your Sub Broker Franchise in India

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