Difference Between Stock Broking Franchise And An Authorised Person

According to the definitions of SEBI (Securities and Exchange Board of India), authorised person or AP refers to any person - individual, partnership firm, LLP or body corporate - who is appointed by a stockbroker as an agent for the broker. The authorised persons help in establishing a connection between the trader and the stock exchange. The responsibilities of authorised persons include purchasing, selling and dealing with securities, and assisting both the stockbrokers and the investors.
Authorised persons help the investors in various ways, which is not only limited to dealing with securities but also includes guiding the investors towards good and profitable investments by giving them advice and by offering after-sales services.
As mentioned earlier, these authorised persons act as agents of the stockbrokers. This means they are not directly registered with the stock exchange and they must work under different stockbrokers and help expand their business network.

Now that we have an understanding regarding the definition and functions of authorised persons, we can move forward to the next discussion regarding the franchise model.When a stockbroker house has grown into a large institution, it may allow the authorised persons to remain active under the brand name and license of the booking house. This is decided on strict and fixed commercial terms. This is termed as the franchise model and the booking house which sells its franchise are called the franchisorAnyone can apply for a franchise with a large scale booking house, which includes individuals as well as small and medium scale businesses.
The services offered by the franchise of a large scale broking house is usually the same as the services offered by the main company itself. These include fulfilling trading activities, providing the clients with strong financial advice, providing information regarding securities and so on.
So keeping in mind the basic information regarding franchise and authorised persons, let us look into the main differences between the two.

There are a few key points which separates the two kind of stock broking agents. These are

• Registration process - Initially, in order to operate as an authorised person, the individual had to register himself with SEBI. Contrary to this, in order to become a franchise, the individuals or small to medium scale business owners must register themselves as authorised persons under the stock broking house. However, it is not required for APs anymore to register with SEBI.
• Operating process - The authorised persons are agents for the stockbroker and act under their own names. On the other hand, a franchise must carry the name of the brand ie. the broking house and work under their license.
• Interconnection - A franchise may appoint its own authorised persons whom it trains and assists in order to boost business growth. A franchise provides its authorised persons with required knowledge and technical support as well.
• Prerequisites - Becoming an authorised person under a broking house is relatively easier compared to becoming a franchise. A franchise needs to house its authorised persons for which it needs fulfil a few requirement criteria such as owning an office space and necessary infrastructure, technical know-how, qualifications, certification etc. An authorised person only requires to have completed his 10+2 and can start operating if he possesses the necessary skills.
• Income - There is a stark difference between the income of an authorised person and a franchise. An authorised person tends to earn a higher percentage of the brokerage as he helps fulfil a trade. However, the income of a franchise is decided through fixed financial terms, and there are several factors which come into play. These factors includeinitial security deposits,negotiation skills, work experience, etc.
• Reliability - As a franchise operates under the name of an established brand ie. a large broking house, it happens to be more reliable to clients than authorised persons. Authorised persons do not enjoy such benefits and must work from the start in order to earn credibility.
• Support - As a franchise operates under the name and the licence of a large broking company, the broking companies make sure that the franchise is working at its highest possible capacity. The large broking houses provide significant assistance to their franchises in various different ways. This is a benefit associated with a franchise which an authorised person cannot typically avail.
• Associated risks - As an individual authorised person has to work on his own, the AP jobs are jobs which have high risk factors. Contrary to this, a franchise encounters low risk factors given the fact that they work under the name of a big brand which helps them operate easily and they also enjoy assistance from the brand itself.

Because trading in the stock market comes with high levels of market risk, it is important for traders or investors to know their broker before they jump into the flow and invest their money. The qualities and experience of the agent or the franchise is extremely useful in case an investor is looking for advice regarding good and profitable options for investments.
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