I totally agree with this, if SEBI limits brokerage sharing to Authorised Persons only, or for regular clients limit it to family members and a strict number of friends only, the brokerage sharing scam can be circumvented.
However, to circumvent course-selling scams, we’d require separate measures, let’s say make it mandatory for Finfluencers to inform people of Verified P&L and share theirs, also for brokers to provide it, and if they do not follow, take punitive actions.
EDIT: A notice like we have currently for derivatives trading. People can have bad confidence that they will win themselves, but it’s unlikely they’ll buy a course from someone who’s in loss himself. A notice on a cigarette packet may not work totally, but the Verified P&L one will definitely, unless people willfully wanna go broke .
The people who fall for it are to be blamed, not the finfluencer.
The reason a user follows someone who shares a profit screenshot is because of greed and not intellect. I have rarely seen someone asking the logic on why their guru gave them a tip. They just need the tip.
The actual issue is the lack of education in our 7th to 10th standard ie 12 to 15 year olds
Only 10 to 15% of new accounts are from any referral - partners & clients. So, ~90% of the business is direct only. Should this remaining 10% come from a structure where a % of brokerage is shared? I am not sure, but it is debatable.
The stock broking industry has a legacy of sub-brokers, remisiers, & referral businesses where a % of the brokerage was shared for all customers introduced. This is just not in Indian broking, but similar structures exist across the world in capital markets. This has what has gotten extended to many newer age businesses as well.
Should this continue in an online world like today, where the person referring isn’t providing continuous support? I’m not sure, and whatever stance you take is debatable. In any case, it looks like SEBI has a view on this, and I guess there will be regulations around this soon. We will have to wait and watch.
@nithin Nithin don’t you think damage has been already done and people who could’ve done something about this have been really slow to react on this… it’s like these YouTubers are minting money coz of grey area in the policy framework when it comes to sub- brokerage norms… they have zero accountability towards anyone but looting innocent folks out there … instead of giving money to these cheats why can’t we have reduced brokerage charges for loyal customers like us of zerodha just my 2 cents on this …there has to be some caveat when it comes to customers giving X amount of churning every day and with a particular longitivity with zerodha shouldn’t we get the benefits passed on instead of these cheats
The affiliate marketers do the job of marketing. If Zerodha stops its affiliate/partner program then those finfluencers will stop promoting Z and switch to someone else, some may even start negative news on Z. Zerodha has a standing now and may not need such promotions anymore, but back then every referral was valuable I suppose…
As I mentioned earlier, the broking industry has tens of thousands of people who rely on introducing customers as sub-brokers, APs, remisiers, etc., partnered with 200+ retail brokers for a living. Any regulation made for a few people who are misselling, overselling, etc., can hurt the livelihood of this entire industry and sector that depends on revenue from introducing customers to brokers. The solution for this isn’t as easy as you think if you think of the overall structure of the capital markets.
Again, as mentioned earlier, 90% of our business comes directly. When we started, the only way we could grow with our low pricing and no ad budget was through customer referrals. That is why we created the customer referral model back in 2010. Some customers got bigger and ended up becoming partners.
Also, having a variable brokerage structure would mean complicating our business model. One reason we have done well is because we have had the same offering for all the 1.3 crore customers from day one of our business 13 years back. In a low-cost, low-margin business, you need to keep the business simple.
Also, business doesn’t or can’t work that way. You can’t tell Pepsi/Coke; I won’t look at your advertisement, but give me Pepsi/Coke at a 90% discount as most of the money we pay for a Pepsi/Coke is for advertisement.
Everyone needs to understand that there is no easy money in the market or any walk of life. If you believe it, you will get lured into being sold into something that will do more harm than good. It could be courses, books, stock tips, business advisory, etc.
Guys, we must understand that it’s not possible for zerodha to take a stand on its own in this case, as that is not going to solve the bigger issue at hand.
If zerodha stops their referral program for such guys, they will very easily shift their business to other brokers. They are already doing this in a lot of cases, because those other brokers are offering them bigger percentage shares of brokerage, compared with zerodha, as they need to increase their business at any cost, whereas zerodha is in a very comfortable position these days and do not need to offer more to the referral guys. So many other brokers are really struggling to run the business well. Its not an easy business to be in.
Pepsi/Coke example is also spot on. Most of their expenses are for advertisements only and yet they have to do this expense every year. Running these businesses makes it necessary, to do such expenses and regular customers shouldn’t expect a lower price, just because they are regular customer.
If someone really wants to lower their zerodha brokerage cost, then instead of fighting the current model, they should look for the ways in which they can use the current model itself to reduce their costs. For example, there are many guys who give back a portion of their referral income to the clients who subscribed through them, which thereby reduces the cost of trade from Rs20 to lower amount accordingly. It is a win win for all.
I have simply shared the idea for those guys who think paying Rs 20 per trade is too much for them “because of their respective trading style etc.”. I myself do not do any such referral business and I am not going to name any specific guys in this regards.
Inflation is higher and prices of almost everything are higher compared to a decade.
Cost of brokerage is still at 20 or even less. With growing compliance and employee costs and other business costs like tech etc, I would argue for a higher rates in the future when rest of the industry will not be able to scale the business.
Just purely thinking from a business point of view. 20 or less seems like a fair deal at present.
The first and most important thing to remember about trading is that making money from trading is extremely hard. In the long run, less than 1% make returns above a bank FD. If anyone including influencers claims that they can help you get rich quick, they are mis-selling.
The reason why shady people who sell courses, stock tips, unauthorized portfolio management services, and useless financial products exist is because people believe making money from trading is easy, the crux of the problem.
This mis-selling is nothing new, it has existed in various forms throughout human history and the markets. But today, the internet has increased the audience for those wanting to earn a quick buck by mis-selling. Also in the physical world, there is usually no proof when someone mis-sells, but in the online world, it leaves a trail that can blow up like now.
The latest SEBI consultation paper on this is probably in the right direction. That is, disallow any registered intermediary with SEBI to associate in any way with anyone who is acting like an advisor or analyst without being registered. This can potentially put an end to anyone mis-selling that it is easy to make money trading the markets.
Should there be a brokerage revenue-sharing deal with APs, referrers, etc.?
The broking industry has thousands of people who rely on introducing customers by being APs, partners, etc., for a living. This is how our markets grew and how the industry has operated from the start. Their contribution has dipped as the world has moved online, but they still matter in smaller cities and towns.
Regulations made for a few people who are mis-selling, can hurt the livelihood of this entire industry and sector that depends on revenue from introducing customers to brokers. The solution to this isn’t as easy if you think of the overall structure of the capital markets.
Also, as I mentioned earlier, the majority of our referral customers are from individual customers and partners who are not the Finfluencer types.
Today, we don’t track any individual customer’s profitability; ideally, we don’t want to get into this. If someone is making any P&L claims, I don’t think we can get into the business of validating such claims, This is why we launched the verified P&L feature.
If someone is trading at Zerodha and showing a certain P&L screenshot or video, you can ask for a verified P&L link updated to the latest date. There is no way to manipulate this. Everything else that is a screenshot or video of P&L can be tampered with at Zerodha and any other broker, and hence can’t be trusted. By the way, screenshots of income tax returns can also be tampered with
I think the right way to address this problem is what has been suggested in the new SEBI consultation paper. If someone acts like an advisor or analyst (RIA, RA) without being registered with SEBI and is earning indirectly, try finding ways to plug that payout.
So no registered intermediaries can have any financial dealings. Without these explicit regulations, any broker creating their own rules around this has a large risk of backfiring, given the power of all the finfluencers today.
Link to the SEBI consultation paper. I think everyone who has a view on this should comment. The last date is September 15th 2023.
There has been a news floating in the market that even Zerodha verified PnL can also be tampered? Whats your take on this ?
If yes , then proactively you need to address this issue.
Verified P&L link cannot be tampered with. When you click on that link, what you see as P&L is from our side. But of course, if someone shares a screenshot or video claiming to be the P&L of their verified P&L link, that can be tampered with.
A few say that a person can be trading with two accounts, generate profit from one and generate loss from another. Show the P&L of the profitable one. Such a strategy might work for shorter duration intervals, but it is almost impossible to game it for the longer duration P&L. It is hard to make profit and loss in respective accounts continuously.
Dear nitin if you can also please clear if trading in F&O can be done using corporate structure or not. Many good traders i know are trading in F&O using pvt ltd. Whether any nbfc license or any other license is required for trading in F&o through corporate structure.
.
