The popularity of equity investment is steadily growing in India. In the past few years, India’s equity market had outperformed many other asset classes and offered exciting profit opportunities to attract more investors to it. But the Indian stock market is vast, with many players working in a closed ecosystem. It can be challenging to understand, especially if you are a new investor. Authorized person vs. franchise is a significant difference to know when trying to partner with one. Both the models are almost similar in terms of brokerage, eligibility, and revenue sharing, but there are subtle technical differences that you must understand.
Who is an authorized person?
In India, individual traders cannot directly trade in the stock exchange. They need to do it through authorized persons, who are trained financial experts engaged by the broking houses. So, when you are trading, you are probably doing it through authorized persons.
Authorized persons are the acting agents of broking houses. They are not directly registered with the stock exchange but act as appointed authorities under the broker. Earlier, authorized persons were required to enroll themselves under SEBI, but as per new rules, it is no longer necessary. Under the new guidelines, authorized persons only now must migrate themselves as authorized person and register with a broking house.
How to become an authorized person?
It is not at all difficult. All you need to do is to register with a broking house. The government has made it easier for authorized persons to operate by uplifting registration protocols. If you are 10+2, you can start right away as an authorized person.
Authorized persons are paid a commission for each successful trading. As an authorized person, you have more control over your earning and can increase your income as much as you want.
What is a franchise?
A large broking house will allow authorized persons to operate under its brand name and license on fixed commercial terms; this is called the franchise model. Individuals, and small and medium business owners, can apply for a franchise with large broking houses.
A broking house that sells its franchise to others is called an authorized persons’ franchisee or franchisor. There are several big players in the market, and Angel One is one of them.
Difference between authorized person and franchise
Now let us understand what the primary differences between an authorized person and a franchise are.
- To become an authorized person, earlier, you had to register with SEBI. But to become a franchisee, you must register as an AP with any of the brokers.
- Authorised persons operate under their names. But a franchise gains mileage from the brand name of the broking house.
- A franchise trains its authorized persons on the intricacies of equity trading and assists them to leverage market potential with training and technical support.
- Each franchise has unique sets of requirements to onboard authorized persons like – having office space and infrastructure, qualification, certification, and more. But for an authorized person, there are no initial requirements as such.
- An authorized person usually gets a higher percentage of brokerage while dealing with stockbrokers. But a franchise operates under set commercial guidelines which determine its income. It depends upon factors like negotiation skills, experience, initial security deposit, and such.
- A franchise enjoys the advantages of working under a big brand. On the other hand, an authorized person needs to start from scratch and work hard to build trust within the clientele.
- As a franchise, you enjoy a lot of support from the company and can grow with it. You will receive assistance in terms of marketing drives and advertisements and grow with the training provided.
If you are keen to explore your opportunities in any of these roles, take a step forward with us.