Authorised Person Vs Franchise: What’s the Difference?

The stock market is a place where you can learn and earn both at the same time. There are various methods of earning; some earn through investing, whereas some earn through offering stockbroking services to their clients. 

In today’s blog post, we will give you an overview of authorised persons and franchisees, along with their key differences.

What is an Authorised Person?

An authorised person can be an individual or a registered entity that is registered with a stockbroker. They act as a mediator between the broker and a client. They work under the regulatory guidelines issued by the Securities and Exchange Board of India and stock exchanges like NSE and BSE. Their primary objective is to acquire clients and provide them with trading facilities. The broker charges brokerage, and the AP receives a revenue share of the brokerage.

Key Features of an Authorised Person

The key features of an authorised person are as follows:

1. Limited Capital: Working as an authorised person requires less capital than other options for becoming a broker.
2. No Membership: Authorised persons are not direct members of the stock exchange, such as NSE and BSE.
3. Responsibility: Authorised persons need to follow exchange and SEBI code of conduct, maintain records, KYC and operational norms

What is a Franchise in Stock Broking?

A franchisee is a business model in which a registered stockbroker allows an individual or an entity to operate a broking business under its brand name and offer trading services to clients. Basically, they partnered with a brokerage firm, used its brand, trading platform, investment calls, and back office, and built their own client base. They get the brokerage share as revenue. 

Key Features of Franchise

The key features of a franchise are as follows:

1. Operates as a Brand: the Franchisee operates as an SEBI-registered stockbroker. It operates under the stockbroker brand name and provides instant credibility.
2. Revenue Sharing: They have a higher revenue sharing model potential than the authorised person if they onboard large and active clients.
3. Technology Upgradation: A franchise holder gets access to high-quality and efficient trading platforms and research tools for stock selection. 

Difference Between an Authorised Person and a Franchise

The key difference between an authorised person and a franchise is as follows:

Particular	Authorised Person	Franchise
Meaning	They are appointed by a broker to acquire clients and give services.	They act as a partner of a stockbroker and operate as a broker’s brand.
Register	Authorised persons are registered with the stock exchange.	They operate under the broker with more responsibility.
Capital	Low capital is required to work as an authorised person.	Operating as a franchise requires a higher investment, which includes office, staff, etc.
Backoffice Operations	Authorised persons have limited control over the back-office operations. They are primarily handled by the broker.	They get more management control and operational independence.
Risk	It carries lower financial and operational risk.	Franchise holders have a higher financial risk and operational risk.
Staff Requirement	Limited or no staff is required.	They sometimes need to hire a staff member to operate smoothly.
Compliance	Compliances are required to be maintained by an authorised person but less than brokers.	Higher compliance is needed to be managed as a franchisee.
Suitability	They are suitable for individual or small entities.	Franchises are suitable for experienced business owners or individuals.

Authorised Person or Franchise: Which One is Better?

The choice between an authorised person and a franchise depends on the investment capacity, goal, experience, etc. Which one suited you best is mentioned below:

1. Authorised Person

If you have limited capital and are looking to enter the business of stock broking, then you can opt for the authorised person model. APs are required to spend a low upfront cost and infrastructure cost. Because of low operational cost, it carries a lower risk. Hence, they are suitable for beginners and individuals entering the world of stock broking.

2. Franchise

If you can invest higher capital and have the bandwidth to spend on infrastructure, staff, etc., then only you can consider opting for the franchise model. As in a franchise, you are required to open a dedicated office for the smooth operation of work related to client acquisition and servicing them. Franchise holders aim for a higher revenue-sharing. They are suitable for experienced individuals and businessmen who want to scale and build a structured brokerage business.

Conclusion

On a concluding note, both authorised persons and franchise holders play different roles in the stock broking industry. Both offer a different set of opportunities to individuals and entities to enter into the broking industry and earn revenue. An authorised person can start a business with lower capital and work under the guidance of a stockbroker. Whereas a franchise holder is required to invest higher capital and follow higher compliance. However, it is advisable to assess your financial capability along with your risk-taking ability to start a stock broking business.

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