Difference between a Broker and an Authorised Person
Many people, when they refer to a broker, mean authorised person. It's a common and understandable mistake since authorised persons do pretty much the same thing as brokers. They buy shares on behalf of their clients on the stock exchanges in exchange for a fee.
The reason why there are brokers and authorised persons is that only brokers can trade on the stock exchanges. So, any time you want to buy or sell a stock, you must do it through a broker. Since the supply of brokers is somewhat limited, authorised persons do most of the work of investing people's money in the stock markets.
So, what's the difference between a broker and an authorised person? Brokers are members of stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Only these brokers can trade on the exchanges.
Brokers usually operate large brokerage houses and enlist authorised person or franchisees to do the work of acquiring clients and helping them carry out transactions on the stock exchange. The brokers provide the brand name, infrastructure, technical, and marketing support to the authorised person. For example, Angel One provides facilities like digital marketing, business dashboard, business consultancy, client servicing support, and so on to its authorised persons.
Another difference between a broker and an authorised person is how they earn money. The latter works on commission which is a percentage of the brokerage charged by brokers to carry out transactions on the stock exchange. Generally, brokers are generous with the commissions since the stockbrokers do most of the hard work of acquiring clients and persuading them to purchase shares.
Of course, shares are not the only products that are offered by brokers and authorised person. For example, Angel One offers stocks, mutual funds, commodity trading, and derivatives like futures and options. As these markets grow in size, and the potential from making profits from them grows, the proportion will only increase.
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Advantages of being a stockbroker
- Only stockbrokers can trade on the stock exchanges, so this gives them a monopoly over share transactions.
- Stockbrokers are independent entities not answerable to anyone, except to exchange and regulatory bodies like the Securities & Exchange Board of India (SEBI). There is no direct involvement by SEBI unless there is a legal violation.
- Brokers can fix brokerage charges for their clients.
- Most brokerage houses have trained personnel and IT infrastructure that enables them to take full advantage of stock market movements.
- Brokers can appoint authorised person at their discretion. The larger the number, the higher the potential profits.
Advantages of being an authorised person
- An authorised person does not need to become a member of the exchange and meet minimum net worth requirements and pay a fee.
- While authorised persons are answerable to the brokers, the latter does not generally interfere in their functioning. On the contrary, broking houses like Angel One are supportive of authorised person and offer infrastructure and support for client acquisition, developing the business, and so on.
- Authorised persons do not have to invest large sums building an infrastructure and a brand from scratch. All they need is the initial refundable deposit and the expenses involved in setting up an office and hiring staff, among other requirements.
- Since entry barriers are low, virtually anyone can become an authorised person. All it takes is some knowledge of stocks and financial markets, and drive.
To conclude, the difference between a broker and an authorised person does not matter to an ordinary investor. All that matters is that the entity he or she is dealing with is reliable, offers sound advice, and carries out transactions quickly and efficiently. Of course, the brand of the broker, or who the authorised person is working under matters. A brand like Angel One, for example, will inspire confidence among investors.