Difference Between Stockbroker and Sub broker

Stockbroker and Sub broker are two separate stakeholders in the stockbroking space in India, however, both of the parties have different levels of responsibility areas and the corresponding revenue stakes. We will know the difference between the stockbroker and sub-broker in this review.

Question: Where do you go to if you have to invest in the stock market?

You surely cannot head straight to the exchange and place a buy order. In fact, only members registered with the exchange can do it. These trading members are called stock brokers.

Stockbrokers ensure that there is always liquidity in the market which makes them very important in the capital markets ecosystem. Without them, the link between the buyers and sellers would be broken. Given below is a breakdown of the term and its distinction from another important term: Sub-broker (are you aware of it? Click on the link if you are not).

What is a Stockbroker?

A stockbroker is an individual or a firm that executes buy and sell order of the shares on behalf of the investors. They have a clientele whom they cater to. They work for a commission known as brokerage fees, which is a percentage of the total amount of capital invested by the clients.

There are generally two types of brokers: Full-service brokers charging higher commission and diversified products, and Discount brokers who charge less commission comparatively.  

Recently, there are brokers who work on a hybrid model as well where they provide all the services of a full-service broker at flat rate brokerage rate.

What is Sub-broker?

From a hierarchical point of view, sub-broker works on behalf of the stockbrokers as an agent. They act as a link between the stockbrokers and the clients. A sub-broker after sourcing clients would be responsible for further research and client management as well.

Sub-brokers take a share of the brokerage which the stockbrokers receive.

There is a one-to-many mapping between a stockbroker and a sub-broker. Generally, a stockbroker has a presence across different parts of the country through its sub-broker partners which are multiple in multiple locations. All these sub-brokers acquire new clients for the stockbroker in their geographical location and thus, bring new business to the stockbroker.

Difference Between Stockbroker and Sub broker – Details

Although the underlying function between the two is the same, there are some finer differences between them and are important to note:

• A broker is a person or more commonly a firm that works independently whereas sub-broker works under a broker acting as an agent.
• A broker is a trading member of the exchange while the sub-broker is only mandated to be affiliated to the brokers, although they might need a certificate from the exchange to conduct their business.
• Although both the sub-broker and the broker need to obtain a SEBI registration, sub-broker also enters into a tri-party agreement between themselves, the brokers and the client.
• Only the stock brokers are allowed to charge brokerage to the clients directly. The Sub-brokers cannot do so. They only obtain a share of the brokerage from the brokers once the overall brokerage generated is calculated.

Stockbroker and Sub broker – Importance

As already discussed above, stockbrokers play a vital role in the capital market chain.

The sub-broker as well is equally important. They give brokers the opportunity to reach out to a higher number of potential customers. The stockbroker firms can encourage people with a good network of clients to be the partners as sub-brokers.

Investors can also reach out to the local sub-brokers, who can get them in touch with the brokers.

Stockbrokers – Advantages

A stockbroker when partnering with the right sub-broker can take advantage of the latter’s huge client base and thus grow their business. They can also charge the brokerage from the clients at their discretion. Further, the responsibility of client management and complete research can be delegated to the sub-brokers.

However, there is also a downside to this. Since the sub-broker takes much of the responsibility, they are entitled to earn a higher share of the commission leading to a small share of the pie for the brokers.

Sub Broker – Advantages

Sub-brokers will get a higher revenue share for getting the clients to invest and also doing the necessary research.

For this, they also get access to the broker firms’ marketing materials and trading tools. Apart from the initial deposit, there is comparatively little investment to begin with. Working with big brand names in the broker business also enable to get the advisory support which can be beneficial.

A possible disadvantage is the required time to source the clients, manage them and undertake complete research is quite high. This also might require significant manpower.

It is also necessary to partner with the right broker firm which gives a fair share of the commission and is a reputable brand name, especially since the sub-broker cannot charge the clients on their own.   

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Conclusion

Both brokers and sub-broker own an important place in the buying and selling of securities. They share commonalities as well but ultimately both of them provide unique services. As an investor, it is important to know the distinction between the two in order to take the right decision.

If you are looking to be a sub-broker or any other partner in the stockbroking space, let us assist you in taking the next steps forward: