Introduction

Establishing a sub-broker, or an Authorised Person (AP) as defined by the Securities and Exchange Board of India (SEBI), is an excellent way of earning money while utilising your interests in the stock market. A sub-broker is the liaison between clients and stockbroking firms, completing trades and paying a commission fee. However, many costs are associated with establishing a sub-broker franchise; you must consider nearby costs like an initial investment or ongoing fees. This article will break down the costs of starting a sub-broker business in India to provide a guideline for aspiring entrepreneurs entering this profession.

Initial Investment

To start a sub-broker franchise, you must invest money up front. The costs will impact the variant depending on which brokerage firm the AP relates to. One of the first costs is a "Security Deposit". This refundable, interest-free deposit is associated with many brokers and market makers; it may vary among brokers. For example, some reputed firms may require about ₹ 2 lakh security deposit. Some firms in the extreme may require as little as ₹ 50,000, and some may go up to ₹ 3 lakh, depending on the brokerage firm's brand and size. Typically, the deposit variable covers liability and shows that you are a serious participant to potential franchisers.

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Another significant expense is the registration cost, which includes costs for signing up with the brokerage firm and the costs associated with regulatory registrations. Registration costs are generally between ₹15,000 and ₹20,000, including a SEBI or stock exchange registration. Also, sub-brokers have different qualifications and certifications or must pass exams like NISM modules. Each module costs approximately ₹1,500 to ₹3,000 per module. These qualifications are mandatory, must be completed for regulatory compliance with the SEBI, and include knowledge of the markets as a sub-broker.

The costs associated with infrastructure are also a significant part of the initial investment. The costs associated with setting up an office (rented or owned) include office furniture, office computers, internet connectivity and workstation costs. These costs can vary depending on the market and whether the office is a prime location; the range can be from ₹50,000 for a small set-up to over ₹2 lakh for a furnished office in a prime metropolitan location. If you are starting small, consider renting a small office and purchasing low-cost used office furniture to keep costs down.

Ongoing Operational Expenses

Once the franchise is operational, sub-brokers must contend with ongoing costs to keep the business running. Office costs typically include rent and utilities (electricity, internet) and general maintenance of the space; these can range from ₹10,000 to ₹ 50,000 per month, depending on the size of the office and the location. Usually, a few employees (e.g., relationship managers or support employees) are hired in addition to the owner, depending on the volume of business; employee salaries will vary depending on their experience and market rates based on the area.

While brokers need clients to operate, they must also recruit clients to start a business. Client recruitment usually requires marketing based on some distance: marketing could entail a digital lead generation campaign (say, an SEO campaign), local advertising (e.g., through newspapers, radio, etc.), or running an event, in effect, to attract some clients.

Sub-brokers are subject to (and must comply with) any regulations issued by SEBI; some impose a fee regularly (e.g., quarterly), which can include an audit or renewal fee, among others.

Earning Potential: Balancing Costs with Revenue

The initial costs of establishing a sub-broker franchise may seem risky in the face of the revenue potential. Sub-brokers are compensated for their clients' trading through commissions (usually a share of the firm's commission). For instance, some firms will even offer a 65% commission, higher than the industry average of 50-55%. However, for some high-profile brokers, you'll see compensation even higher than 65%, typically 75% to 90%, depending on the terms of your agreement.

It is essential to build a sufficient client base to become profitable, depending on your success with many active traders and the commissions they generate, especially in equity and derivatives markets/trading. However, they should also be mindful of the data in SEBI's 2023 study that revealed 90% of traders in futures and options (F&O) lose money; this could decrease trading volumes and diminish earnings.

Choosing the Right Brokerage Partner

Choosing a quality brokerage firm is critical in keeping costs down and maximising your returns. Although many brokerage firms are currently launching sub-brokers, those more established companies may offer training, marketing support, and robust trading platforms to reduce the burden on a rookie sub-broker. For example, work with a brokerage firm that supports marketing spend and offers other promotional and advertising stops (ranging from the order of thousands to a few hundred dollars). You may be able to minimise your initial start-up costs while building justifiable credibility to attract clients over time. Before committing, you should consider talking to and researching several brokers and comparing their deposit structure, commission rates, and support.

Conclusion

Initiating a sub-broker franchise business in India involves initial costs and operational costs in the form of upfront payments (Security deposits, registration, infrastructure, expenses like salary, etc). The investment will range from ₹1 lakh to ₹5 lakh and beyond based on the extent of your business. While that is a substantial investment, the commission structure makes the business reasonable enough. Under the guidance of a reputable brokerage, with good money management and a network of clients, starting as a sub-broker is a feasible undertaking. Therefore, for a more vigorous exploration of costs, visit brokerage websites or consult with those who work in the industry to view your options and make an informed decision.

Related Blogs - Understanding Sub-Broker (Authorised person) franchisees and their functions | Roles and Responsibilities of a Sub-Broker | How to know if the Broker or Sub-Broker is registered?