How do Sub Brokers Make Money?
Becoming a sub broker can be a lucrative business opportunity, but have you ever wondered how sub brokers generate earnings? If you do not know how and are interested in understanding how you can earn as a sub broker, then here is an article that will cover all the details you need to know.
The article will talk about the sub brokership partnership model, revenue sharing models, rights and responsibilities of sub brokers, and a lot more.
Sub Brokership Partnership Model
Before getting into sub broker earnings, you need to understand how this partnership model works. So, a brokerage house needs to spread its business across the city/country. Stockbrokers, thus, for extending their business, offer partnership opportunities to people who are experienced in the market and the work profile.
sub brokership is a commission-based partnership model where the sub broker is entitled to receive a fixed or variable commission on the revenue he has generated for the brokerage house he is associated with. They acquire clients to generate revenue for the brokerage house, and the revenue generated is shared with them by the broker as per the revenue sharing model.
How Revenue is Shared with Sub Brokers?
As mentioned in the last paragraph, brokerage houses share a portion of revenue with the sub broker as per the revenue-sharing model. Let’s see how this model is built. The brokerage house may offer a percentage-based commission model, which will be variable according to the amount of revenue generated by the sub broker.
Then the revenue sharing model can also be a fixed lump-sum commission model where a lump-sum amount is offered to the sub broker, and then there is a mix of both models, which is a hybrid commission model.
Under the percentage model, there is a fixed percentage that will be decided before the commencement of the partnership agreement between broker and sub broker and accordingly, the commission will be disbursed. Suppose the agreed commission percentage is 40%-60%. This means the brokerage house will keep 40% of the revenue while 60% of the revenue generated by the sub broker will be given to him.
Let’s say, the aggregate revenue generated by your clientele for June is Rs. 200000. Then the commission you will receive for the month is Rs. 200000 *60% = Rs. 120000.
In the lump-sum commission model, a fixed amount says Rs. 50000 will be given commission irrespective of the revenue you generate for the brokerage house.
The hybrid model brings both the above-mentioned models together. It works like up to a certain amount of revenue, you get a percentage-based commission and above that a fixed amount or vice versa.
Let’s take the above example only but here the brokerage house offers a hybrid commission model of 50% revenue share above Rs. 500000 revenue generated in a month. The fixed commission is Rs. 50000 (say).
So, whether you generate revenue of Rs. 5 lakh or not, you are going to receive Rs. 50000 as the lump-sum commission. However, if you generate revenue of more than Rs. 5 lakh, then you can get 50% of the exceeding amount along with the Rs. 50000 for that month.
How do sub brokers Earn?
As you can see in the above paragraph, the sub brokers get a commission based on agreed revenue-sharing models. So, sub brokers earn through commissions, and the commission can be earned where they generate revenue.
Here revenue refers to the brokerage amount clients pay to the main broker for availing the trading and Demat services. The sub broker gets new clients and also retains the clients acquired in the past and offers them multiple services they want, for which the clients pay brokerage to the main broker. Then the main broker shares the commission with the sub broker as per the agreed terms and conditions.
Rights and Responsibilities of sub brokers
So, now you know how you can earn as a sub broker. However, to generate the revenue you need to earn the commission, and that can be done by fulfilling the responsibilities you have as a sub broker.
- As a sub broker, you need to not only acquire clients, which is the first step of your business but to offer them all the products and services the broker is providing. You need to understand what products and services the client is looking for.
- As a sub broker, you also need to offer them research and advisory services as well as trading assistance and support.
- When you acquire clients, you help them complete their KYC and other documentation to open an account with the brokerage house.
- You have to track all the trading details of your clients for your benefit and commission calculation as well as offer help to the client if they need it.
As a sub broker, you always have to be on your toes to acquire, retain and handle clients. The more clients you bring to the brokerage house, the more brokerage they pay to the brokerage house, and the more commission you can earn.