Should I become a sub-broker? And if yes, how to proceed?

Firstly, the entity "Sub-brokers" is getting phased out, exchanges don't register sub-brokers anymore. The new term is called "Authorized Person (AP)". Sub-broker used to be a separate registered entity with SEBI, whereas an AP is registered only with the exchange. What this means is that if an AP does any misdeed, unlike with sub-brokers SEBI can hold the main brokerage also responsible. 

So if today, you want to go partner with a broker, you will be called an Authorized person, and not sub-broker. 

Coming back to your questions,

  1. As an AP or sub-broker, marketing skills are more important than CFA/CA and all of that. But yes, a basic understanding of the market is required.
  2. In today’s environment with brokers like us (Zerodha) around, it is very tough to make money by associating with traditional brokers. I guess the important thing to do when you plan to associate with one is to first open an account and see for yourself if you are happy as a client trading with that firm. Only if you are happy as a client, will you be able to introduce more people to it. Apart from brokerage, I guess technology – platforms and reporting tools, integrity in terms of reports, how soon fund withdrawals happen, whether they comply with all exchange regulations, do they credit stocks to demat when it has to, and all the other initiatives that the firms runs should be considered.
  3. Like I said, as an AP, your marketing skills will be what is put to test. So, I don’t think u need to wait until you have learnt currency/commodity.
  4. Unless you are associating yourself with a broker who is working on staying ahead in terms of technology, the future is quite bleak for sub-brokers/AP.
  5. Friends and Family will open accounts, but if my guess is right they most likely won’t be active traders and hence there won’t be any yields on this account. This is probably the single most important question you need to answer before starting off. Traditional methods of using newspaper inserts/pamphlets or setting up stalls etc don’t really work anymore. What will get you new business is directly related to the product that you are trying to pitch and ur marketing skills. So comes back to the ur question 4, which broker are you associating with. At Zerodha we have atleast 4 AP’s who earn more than Rs 3lks per month from us just by running interesting market related websites, capturing and providing qualified leads to our sales team.
  6. It depends on how you are going to acquire clients, if the traditional way, yeah an office would be required. But if you are doing it the online way, u can do it sitting from your house.
  7. It is quite a simple business being an AP. The brokerage firm that you associate with will anyway take care of all the operational headaches, so you will be good to go from day one.
  8. The best way would be through the route of being an AP/Sub-broker as you will understand the nitty gritties of this business. The other route would be by working with a brokerage firm as an employee.

The question you need to answer is, if eventually you want to become a brokerage firm, what will you do that will be your USP (unique selling proposition). In terms of pricing/brokerage charges, there has already been quite a bit of disruption and don’t see how it can go lower from here. So disruption has to be in terms of technology and unless there is a plan on that it doesn’t make sense to be another brokerage firm. 

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