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.
Hi @nithin I’m facing alot of issues from your MF app Coin. Since you guys are planning to have your own AMC launch soon, I thought I shared with you the feedback as a regular consumer of the app.
Such a disaster experience it has been through the Coin App:
Transacted SIP (0/9999) in Nippon India Smallcap Fund is not updating even after 10 days of SIP deduction it is still showing as 0 completed
Mutual fund folio/schemes vanishing overnight all of a sudden without giving any intimation to us regarding non-business day of mutual fund house or any issue from BSE master fetching
My customised SIP changin to AMC SIP even though if there’s a mandat from mutual fund AMC house, but still why there’s no intimation or information passed on to consumer or the customer of COIN or Kite in these cases
You guys claim to work towards betterment of retail clients, is it really true or am I the only one started facing a lot of issues pertaining Kite and Coin app lately
Why cant we make it compulsory for people who have more than X amount of affiliate links to showcase their lifetime pnl across all their accounts on different platforms ? Or for affiliate links we can make it a compulsion
Instead of link, I think we should a option to search the user in our console and then click on the user and check his PnL. This will avoid any manipulation. The trader should have a option to accept and share it. Though this limits to only those who have login to zerodha but I believe the number of user vol is high. Any one selling a referral should not have a issue if he is genuine
