Why PMS use full time broker?

It is my observation that each and every PMS in India has tie up with Full time broker and not with any discount broker. Why is it so? Is there any trust issue?

My guestimate is as follows:-

  1. As PMS deal with sizable turnover, the full brokerage firm offer them facilities equal too or slightly more than the discount brokerage.
  2. I am told that with discount brokerage, the funds need to be transferred to the brokers acocunt and therefter you can do buy/sell, whereas in case of full brokerage, the PMS might be linked to a bank account where the surplus funds will be parked and thereby earning interest for the PMS on float money.

These are the two thoughts which came to my mind. This is guess work and I am sure others who are experts will shed light on this.

Hello Neha. Thank you for your reply. But I am not fully convince with your reply. Discount broker founded in 2010. Now it has been more than 10 years. If all the PMS and mutual funds are still stick with the Full Time Broker then there must be a trust issue that’s what I think. Like selecting bank between HDFC and New Comer. DO you think they are doubtful about their business model?

Full-Time Broker can offer the time and attention to the PMS client as opposed to a discount broker who doesn’t have a full-sized customer support team.

What’s the trust issue you are talking about?

Reputation could also be one of the issue. For example, If a HNI wish to invest in a PMS. When the HNI meets the PMS managment and ask them them who the related broker are, it would be kind of queer to say that they deal with a discount broker until and unless they are reputed. (some of the minimum investment treshold for PMS is 25 lacks and above.

Also agree with @jashjacob has said it is more of full service being provided to them.

All said and done, Karvy Stock Broking had a reputation and it was closed down. This was not a discount broker.

I am not against the discount broker. I am using services of discount broker from last 3 years. I am not supporter of full time broker. Don’t misunderstood my opinion. The trust issue I was talking is if you want to open a bank account in HDFC or reputed, financially stable co operative bank, which bank you will choose? I am thinking on similar lines. That full time broker has some proven track record of 20, 25 years.

@neha1101 I think you mentioned a valid reason. I also think it is about brand and reputation. Otherwise who wants to pay such heavy brokerage?

Just so you know, PMS clients don’t pay the same brokerage as the retail client.

They can negotiate and bring down the prices. As a retailer - You will not know what is the pricing offered to PMS clients.

I do, I do not mind paying commission for service provided. I do not like discount broker for the sole reason that my money is moved to their account and thereafter I can buy/sell shares.

I am not comfortable with this arrangement, I want a broker to do what a broker is supposed to do i.e provide me a platform to buy and sell equity in a open transparent manner and nothing else. My money remains with my bank and as and when I do a transaction, the equivalent amount is debited. I can use my banking account as any other account. I have a relationship manager and call on him any time (supposedly) with issues. There are additional facilities (which I do not use) such as trading over phone, they provide research report etc.

I know for sure, just like Sun rises in the east and sets in the west, there is no free lunch in this world. So if a discount broker is offering you free service then there must be someway that they must be making money not only to sustain operations but to be profitable. They did not start the business for charitable purposes. There must be some charges somewhere or it could be like Newspapers, the paper cost miniscule but the publisher make money out of advertisement. So there must be something, which I do not know how these brokers make money.

When Gamestop short squeeze happened, there was lot of writeup on Robbinhood. It was then I realised how Robbinhood was making money by offering free brokerage to clients (if possible google this and read the article. it is mind boggling)

Transfer of money to a broker to enable me to buy/sell shares is a NO. Hence I prefer to pay commission and do the transactions. The shares which I have bought are in the depository and my money is in my bank account. Broker exposure is when the transaction is being done - T + 2 or 3 max.

These are my personal views only. Each one to their own.

(There is a saying in Malayalam, when you can buy an Elephant, do not try to bargain, buying a chain for the Elephant)

Two stock brokers expelled - Moneylife reports.


For your information as to how Robinhood makes money.

As per my knowledge it is not trust but the services offered. I can put it like discount brokers are like self servicing restaurants, you come, pay and go fetch your food by yourself, based on rush you may get place to sit and if not eat standing and once done you need to go to wash basis to clean your hands and leave unlike in service restaurants, where you will be pampered and everything is bought to your desk. I can say it is same quality of food and tastes better only difference is services you get. There will be no RM, one brokerage plan for all, just one support system for all, no detailed/ research reports are provided( not sure if those research reports are any good) etc. Hope you got it what I am trying to say.

Also PMS requirement is just 50 lakhs and it is big but not like a super big amount these days, we ourselves have many clients who trade by themselves with much more than 50 lakhs.

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