What are Sub Broker Franchise Costs

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Introduction

A stock broker acts as an intermediary between their clients and the stock exchange. They help their clients with trade executions, teaching them how to open a demat account and offering related services. Now, some brokerage firms have programs that invite sub brokers to partner up with them and share their responsibilities. These programs usually compensate sub brokers through revenue sharing schemes. Let’s find out what are the costs of setting up a sub broker franchise, but before that we will discuss how to become a sub broker.  

Additional Read: What is sub broker

How to start a sub broker franchise?

1. Eligibility Criteria

Besides preferred market expertise and related skills, a sub broker, or an authorised person, needs to have a higher secondary education or equivalent at least. The educational requirements are kept minimal considering the fact that this role depends more on the individual’s knowledge and experience. 

2. Brokerage Firm

Selecting a brokerage firm that is compatible with the individual is key to a successful sub broking career. One needs to find out firms that offer sub broker or AP programs. Then they have to look for a firm that is reputed, that has built-in support systems, and offers a fruitful commission rate. 

3. Submit Application

Approaching a brokerage firm is straightforward. Most firms that offer such programs have dedicated personnel to handle communication in this regard. There will be guidance regarding the submission of documents and proofs to go with the application form. A form has to be filed with SEBI as a part of this process and the brokerage firm will help the sub broker with that.

4. Infrastructure Setup

After SEBI’s background check gets over, the sub broker can focus on setting up an office and sign an agreement with the brokerage firm. And in certain cases training programs are offered by the broker.

5. Acquire Clients

Setting up a sub broker franchise also involves client acquisition. The sub broker has to form their own clientele and for this they have to get into business development activities. Some sub brokers even engage in marketing campaigns on varying scales. 

Costs associated with sub broker franchise

Initial Setup Fees

To set up a sub broker franchise, brokerage firms usually charge an initial fee, which varies from case to case. The firm’s reputation and fame play a part in pushing this amount up or down. There would also be fees levied by SEBI and other regulatory authorities, in connection to obtaining licenses and approvals. 

For example, Bajaj Broking charges its authorised persons (sub brokers) a deposit of 2 lakh rupees during the initial setup. The cost would vary from firm to firm. 

Infrastructure and Office Setup

Setting up an office and paying for the equipment and other assets for the office cost quite a bit of money. A sub broker would need their own office to operate from, and a physical office is essential for meeting certain regulatory requirements as well. Whether an office space is rented or purchased and how much money goes into furniture and fixtures determine how much this process costs.

Operational Costs

Ongoing recurring expenses such as rent, utilities and paying salary for staff have to be taken care of by the sub broker. They also have to make sure tech expenses are also paid for. Based on the scale of operation, these expenses will vary on a case by case basis. 

Marketing and Promotion

In case the sub broker decides to spend money on marketing and spreading awareness about the franchise, it will also be part of the stock broking franchise costs. Advertising cost, cost of digital marketing campaigns and events will all come under this category. 

Business Development

Besides marketing expenditure, the sub broker will have to incur some cost to handle client acquisition and business development activities. This could add up to the cost of staff salary (in case business development is handled by experts) and might include other related expenses. 

Compliance and Regulatory Costs

Adhering to SEBI regulations and guidelines can also result in some expenditure depending on the circumstances. Certain legal consultations and paying for audit services fall under this head.

Risk Management

Costs associated with risk management activities also have to be considered. Market fluctuations, changes in regulations, and challenges that come with operations can be major risk factors that have to be handled carefully. Risk management strategies and related activities will be essential for the smooth-functioning of the franchise, and hence the cost has to be incurred by the sub broker. 

Additional Read: Roles And Functions Of Sub brokers

Conclusion

In summary, the sub broker franchise costs mostly include the initial setup cost, infrastructure cost, money spent in operations, business development, marketing, compliance, and risk management. There could be other costs as well, depending on how the particular franchise operates. Choosing the right brokerage firm can play a crucial role in controlling the initial set up cost. Considering the earning potential that comes with setting up and running a franchise, the costs are quite reasonable. However, one should spend cautiously in the beginning and invest more as and when the client base expands, thereby pushing up the revenue ceiling. 

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. Securities quoted are exemplary and not recommendatory.

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