7 tips on how to deal with your broker and sub-broker

A stockbroker can be an individual or an organisation who is licensed to participate in financial and securities markets on behest of their clients. A stockbroker acts as an agent who buys and sells stock and financial instruments on behalf of their clients and is paid a commission for their services.

Any individual, partnership firm or a limited liability company can register itself as a stockbroker with the SEBI, with the requirement being their promoters are over 21 years old, have relevant knowledge and experience in dealing in stocks, securities and financial instruments and should fulfil all conditions and eligibility criteria as laid down by SEBI. The eligibility criteria differ for proprietorship, partnership firms, limited liability partnership firms, corporations’ companies, and institutions, professional clearing members of PCM, Banks for currency derivative segment.

What is a sub-broker?

According to the NSE, a ‘Sub-Broker’ is not a Trading Member of a Stock Exchange but acts on behalf of a Trading Member as an agent or otherwise for assisting investors in dealing in securities through such Trading Members.

How to become a sub-broker

All Sub-brokers are required to register themselves with SEBI and obtain a Registration Certificate. As per guidelines laid down by SEBI, brokers are not permitted to deal with any unregistered sub-broker or a person who is acting a sub-broker unless and until they are registered with SEBI and have a valid Certificate of Registration. SEBI also states that is the responsibility of the member-brokers to ensure that none of their clients acts as a sub-broker unless they have a valid registration with SEBI as a sub-broker.

It is compulsory for all member-brokers to enter into a written agreement with all the sub-brokers associated with them. The agreement lays down the rights and responsibilities of member-brokers as well as sub-brokers.

How to deal with Brokers and Sub-brokers.

India is a vast untapped market for brokers and sub-brokers as less than 3% of India 1.2 billion plus population participates in the stock and financial markets and a vast majority of retail investors do not have knowledge of financial and stock market and rely on their brokers and sub-brokers while making investment decisions.

With the surplus availability of stock-brokers and sub-brokers, in India, it is essential for investors to choose their brokers and sub-broker wise as the investor need to trust their saving and investments in the hands of the broker and sub-broker, as a result of this investors should look into the following aspects before selecting a broker.

1. Pricing

Pricing is a crucial factor investor need to investigate before selecting their brokers and sub-brokers as high prices, and charges can affect an investor’s return on investment. Brokers and sub-brokers levy various charges such as account opening charges, brokerage charges, annual maintenance charges, initial deposit and margin money required and other hidden costs. Investors should gain clarity on all the mentioned charges and have these charges finalised and negotiated in writing to avoid any ambiguity in future.

2. Range of Trading Segments.

Different investors have a different purpose of investment, risk-taking appetite or might have the preference in investing in different instruments like equities, currency, commodities, IPOs, mutual funds, NCDs, FDs, futures and options, derivatives etc. Investors should narrow down the investments and products of their preference and accordingly compare options of investment and financial products available with the stockbrokers and accordingly select your stockbroker or sub-broker

3. Fund transfer process

Investors need to look into the process of fund transfer while selecting a stockbroker or a sub-broker to handle their investments. For examples, many bank stockbrokers such as HDFC Securities, ICICI Direct etc. offer 3-in-1 demat account services where investors are not required to transfer funds every time as their demat accounts are directly linked their bank accounts whereas in non-bank stockbrokers are needed to move money every time their trading account dries out.

Though these days most stockbrokers have online tie-ups for fund transfer for a hassle-free fund transfer transaction.

4. Reputation and track record of Stockbroker and Sub-broker.

It is crucial for investors to check the track record and reputation of the stockbroker and sub-broker. Many stockbrokers and sub-brokers have decades of experience and vast knowledge and have an immense reputation and trusted brand name in the market.

Since investors are needed to trust their hard-earned savings and investments in the hands of their brokers and sub-brokers, it is advised to select their brokers and sub-brokers by their reputation and track record.

5. Customer Service

Many brokers and sub-brokers provide various forms of customer service such as availability of customer service across multiple platforms such as phone, email, chatbots, social media etc., complete resolution of customer queries and issues in the lowest turnaround time, easy access to customer service platforms, structured escalation in an event of non-resolution of a problem etc.

Prospective investors can refer to online reviews on social media handles, speak to friends and family members using the services of a broker or sub-broker etc.

6. The expertise of research team of Broker and Sub-Broker

Many retail investors, especially small investors do not have enough knowledge and expertise on financial and security market and often rely on tips and advice of their brokers and sub-broker to take their investment decisions.

Good investment tips given by brokers and sub-brokers are based upon the expertise of their research team. A broker or sub-broker with a knowledgeable can design highly profitable investment plans for the client.

7. Performance of Trading Platforms

The performance of online trading platforms of a broker or sub-broker is one of the essential factors an investor needs to investigate before finalising a broker or sub-broker. Even though BSE and NSE based platforms are available to investors, many stockbrokers have their trading platforms with additional unique features which include good performance and high speeds of the platforms, real-time feeds, reliable order placements, secure online trading environment and interactive charting.

Conclusion

Many retail investors in India do not have in-depth knowledge of financial and securities market and often rely on the guidance and wisdom of their brokers and sub-brokers to make financial decisions. Hence it is essential for investors to select and handle their brokers and sub-brokers accordingly.