Understanding the Differences Between Broker and Sub-Broker
- 5 min read
Entering the world of stock market investment, investors need the help of a stockbroker to execute trades. In addition to brokers, investors also learn about the function of sub-brokers. Although these terms look similar, there are numerous differences between broker and sub-broker.
Knowing their roles and functions helps you understand how they are different from each other. This blog briefly discusses what brokers and sub-brokers are, providing a comparison of sub-broker vs broker.
Who is a Broker?
A broker or stockbroker is a firm or an individual who executes buy and sell orders on behalf of investors. Brokers charge a percentage of the users’ total fund value as a commission. By completing these transactions, brokers act as a connection between the stock exchanges and investors.
Primarily, there are two types of stockbrokers in the market: full-service stockbrokers and discount stockbrokers. Full-service stockbrokers provide numerous services and investment opportunities to their customers. A discount broker, on the other hand, does not share advice or market research. It charges lower fees compared to full-service brokers.
Who is a Sub-Broker?
A sub-broker is an authorised person who works as an intermediary between a client and a broker. A stockbroker entrusts a sub-broker to find potential customers and manage their accounts. In addition, these sub-brokers take the responsibility of managing clients and do additional research.
A stockbroker can be present in different regions of the country with the help of sub-brokers. Sub-brokers get a percentage of the brokerage fees paid to the stockbroker for their services. Investors with limited knowledge of investments take the help of sub-brokers to invest in securities.
Broker vs Sub-Broker: Understanding the Key Differences
Both brokers and sub-brokers play a critical role in the stock market, but in a different manner. See the pointers below to understand the key differences between broker and sub-broker in share market based on numerous parameters:
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Function
While a sub-broker acts as an interface between main stockbrokers and their clients, a broker works on its own. Stockbrokers manage client portfolios, provide investment recommendations, and play an effective role in making all transactions comply with regulatory standards. Sub-brokers are responsible for client interaction and providing support.
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Resources
Being an established firm, a broker has a lot of resources. They used to share these resources with their franchises and sub-brokers. These resources help sub-brokers provide better services to their clients.
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Regulatory Aspect
The regulatory aspect is one of the major distinctions between a broker and a sub-broker. Brokers need a license from the SEBI to trade, offer financial advice, and manage the accounts of clients. However, sub-brokers do not get a direct license from the SEBI for trade execution. They work under a broker’s license and do not have the regulatory responsibility of a broker.
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Revenue Model
Brokers earn fees for their services, while sub-brokers earn a percentage of the brokerage fees as a commission. Since brokers manage large volumes of trade and client assets, they earn a bit more than sub-brokers. Sub-brokers earn less than brokers on each transaction. However, sub-brokers can make a higher income by creating a large client base.
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Client Relationship
Brokers have a direct relationship with their clients as they offer investment advice, and execute trades on their behalf. They are responsible for aligning the investment of clients with their goals. On the other hand, sub-brokers help clients understand the markets, provide basic investment advice, and facilitate trading account opening.
Final Thoughts
Understanding the differences between broker and sub-broker is important for investors willing to make an entry into the stock market. A broker works independently while sub-brokers work as agents for brokers. Only stockbrokers can charge fees from clients directly, while sub-brokers receive a percentage of the brokerage fees as a commission.
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Frequently Asked Questions
1. Do sub-brokers and brokers offer the same services?
While brokers and sub-brokers offer many of the same tasks, sub-brokers do not have direct access to the stock exchange. Brokers execute trades, manage portfolios, and ensure compliance with the regulations, while sub-brokers focus more on client acquisition and providing support.
2. How do brokers and sub-brokers earn money for their services?
Brokers earn money by offering brokerage services, while sub-brokers earn a percentage of the brokerage fees as commission.
3. Can sub-brokers handle client funds?
Sub-brokers can handle client funds either directly or indirectly and help them open trading accounts.
4. What are the licenses or certifications needed for brokers and sub-brokers?
Brokers need a registered ID from the SEBI, National Stock Exchange (NSE), and Bombay Stock Exchange (BSE). On the other hand, sub-brokers need an authorised certificate number from the NSE.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
