The Difference between a Sub- broker and a Stock Broker

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You may be aware that it is something of a challenge to conduct transactions on the stock market without any external help. Several investors employ the aid of brokers (stockbrokers) to do this. Apart from brokers, you may have heard of sub-brokers. They can also effectively help you to conduct transactions. Brokers may help you with a gamut of things like recommendations for investment as well as suggestions for gainful returns and this will boost your financial portfolio.  
Brokers have enough expertise to navigate the trading and investing world. However, sub-brokers may also portray expertise. So, what is the difference between a broker and a sub-broker? Surely there must be some differences as they may function in different ways and conduct different operations. The first thing to do in finding out how a broker is different from a sub-broker is to clearly define what the two distinct terms mean.  

A Stockbroker – The Basics 

You could say that a stockbroker is a crucial component of the ecosystem that makes up capital markets. In the simplest terms, a stockbroker is a company or an individual that conducts trading activity – executes purchase and sale orders – for investors on the investors’ behalf. Stockbrokers may have a wide customer base. They charge a brokerage fee which is typically a percent of the whole value of funds that are invested by investors. The brokerage fee that is charged may be called a “commission”. 

Now that you know what it means to be a stockbroker, you are halfway to knowing the difference between a broker and a sub-broker. Essentially, there are two main kinds of brokers. Full-service brokers offer investors a wide range of investment products and related services. They also charge higher in terms of commissions. The other kind of brokers, discount brokers, charge lower fees and may not offer many of the services that full-service brokers do. Yet another category of brokers has emerged in recent times – hybrid brokers. These are brokers that provide investors with a combination of services of a full-service broker and a discount broker but charge a flat and fixed fee. Here, whatever services investors may opt for, the fee is predetermined and has to be paid. It is not a percentage of any funds in an investor’s account. 

A Sub-broker Explained 

The Securities and Exchange Board of India eliminated the category of “sub-broker” in 2018, and now, the sub-broker, for all purposes, is called an authorised person. However, in this article, the term will be used interchangeably as it so often is. Hierarchically, the sub-broker is technically an agent of the stockbroker. You could say that the sub-broker serves as an intermediary between a client and a stockbroker. Consequently, a sub-broker may be responsible for sourcing clients, any extra research undertaken, and the management of clients. The sub-broker receives a percent of the stockbroker’s fee as a commission for services rendered. Here lies the key broker and sub-broker difference, in terms of the work done and fee received.  

While comparing a stockbroker and a sub-broker, you could say that a single stockbroker has a presence in different parts of the country via their partners, the sub-brokers. They could be called “agents” that bring in new business to the stockbroker by the acquisition of new clients in their region. 

The Difference between a Stockbroker and a Sub-broker 

The functions of both a stockbroker and a sub-broker may overlap, but there are some distinct points of difference based on the parameters mentioned below: 

  • Meaning: A stockbroker could be an individual or a firm that works independently, but a sub-broker or an authorised person acts as an agent under the stockbroker. The sub-broker requires a certification from an exchange to work in the capacity of a sub-broker. They also need to be registered with the Security and Exchange Board of India.
  • Agreement: The sub-broker must sign an agreement with the client and the broker they are working with.
  • Charges and Fees: The stockbroker is permitted to directly charge clients for brokerage and to collect fees. Sub-brokers are not permitted to do this. Once the entire amount of the brokerage fees is calculated, sub-brokers earn a part of this as a commission. This is decided by the stockbroker.
  • Benefits and Roles: The roles of stockbrokers and sub-brokers bring benefits to both. Stockbrokers may benefit from the large client base created by the sub-broker. This is an opportunity to expand the broker’s business. They are also able to charge high brokerage fees to clients which result in high commissions for the sub-broker. In turn, sub-brokers are paid high commissions if they yield lucrative business for the stockbroker after doing some due diligence research. Sub-brokers have access to all the marketing materials of the stockbroker and can use these to attract new clients. Furthermore, sub-brokers get the necessary support they need in the industry by working with a reputed stockbroker, and this can be a boon to further their career.

Concluding Lines 

The difference between a broker and a sub-broker must be clear to you by now. Although brokers may be more important than sub-brokers, you should know that sub-brokers have equal importance, While brokers play a pivotal role in the capital markets, and are a relevant part of the supply chain comprising exchanges, companies, sellers, buyers, and other stakeholders, sub-brokers are integral too. They provide brokers with all the important information they need. They also potentially link clients to brokers and manage and maintain the business after a client base is created. 

In general, both brokers and their agents, sub-brokers, have to have a wide network of contacts to generate business and source new clients. They also have to gain an edge over the competition and maintain a client base. Sub-brokers may have more connections to clients at the ground level and report progress to brokers regularly. Brokers may benefit from joining hands with an appropriate broker that already has a large client base. Either way, both can have a fruitful business relationship that can last for years to come.

* Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only*

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