Distinguishing between authorised persons and franchises is crucial in the stock market realm. Authorised persons, acting as brokers or financial advisors, execute trades on behalf of others. Franchises, on the other hand, offer investment services under established brands. Investors navigating financial markets must understand these roles. Both authorised persons and franchises can be valuable partners for brokerages, underscoring the importance of distinguishing between them. Read on to know more.
Table of Contents
Authorised Person: Quick Summary
An authorised person, also referred to as a sub-broker, operates as an intermediary in the financial industry, managing trades and providing advisory services on behalf of a registered stockbroker or brokerage firm.
- It’s important to note that while an authorised person or sub-broker often works independently under the main broker’s authorisation, there are differences between sub-brokers and franchises in terms of ownership structure.These people or organisations are authorised legally and certified to carry out client buy and sell orders for securities like stocks and bonds.
- A common example of an authorised person is a licensed broker, financial advisor, or registered investment professional who has received extensive training and meets regulatory requirements.
- They act as a bridge between investors and the stock market, offering useful knowledge, market analysis, and expertise to support customers in making wise investment choices.
- For the protection and best interests of their clients, authorised individuals have to stick to strong ethical and legal requirements.
- People frequently need to pass entrance tests and obtain licenses from regulatory authorities, primarily the Securities and Exchange Board of India (SEBI), to become authorised participants in the stock market.
- To provide their clients with appropriate advice, these experts must stay current on market developments, financial laws, and investment techniques.
- Authorised individuals receive commissions or fees for their services, and their knowledge is priceless for investors trying to understand the intricacies of the stock market and construct diverse portfolios that are suited to their financial objectives and risk tolerance.
Franchise: Quick Summary
In the context of the stock market, a franchise often refers to a reputable financial services company or institution that gives other organisations the ability to act as authorised agents under its brand and regulatory framework.
- These franchises are frequently sizable, respected businesses with a lengthy track record of achievement and a significant influence in the financial sector.
- Smaller brokerage businesses or financial advice firms can benefit from the established brand awareness, infrastructure, and compliance procedures of the franchisor by becoming a franchisee of such an institution.
- Stock market franchises are essential for extending the reach of financial services and making capital markets more accessible to a wider variety of investors. They are in charge of making sure that their franchisees follow stringent regulatory requirements and uphold the high standards ascribed to the brand. This may entail giving access to proprietary research and trading technology as well as training and compliance supervision.
- In essence, stock market franchise agreements enable a symbiotic relationship in which franchisees profit from the franchisor’s name recognition and level of support while the franchisor increases its market share and revenue through the franchisee network. This business model encourages healthy competition among financial service providers while improving market liquidity and accessibility for investors.
Authorised Person vs Franchise: Key Differences
License Standard
- Authorised Person: Authorised people often run their firms as sole proprietors or independent contractors.
- Franchise: In a franchise, the franchisee follows the franchisor’s established business model while operating under its ownership and supervision.
Brand Originality
- Authorised Person: Frequently develop their distinct brand identities and reputations by relying on their specialised knowledge and marketing.
- Franchise: By utilising the franchisor’s well-established brand identification and awareness, franchisees gain from its marketing initiatives.
Functional Independence
- Authorised Person: Authorised persons have more freedom in deciding what services to offer, how much to charge, and how to engage with customers.
- Franchise: Franchisees’ freedom is constrained by the standardised procedures and rules established by the franchisor.
Interactions with Clients
- Authorised Person: Authorised individuals rely on interpersonal trust and chemistry to develop and preserve direct client relationships.
- Franchise: By leveraging the franchisor’s brand and marketing efforts, franchisees may gain access to an existing clientele.
Obedience and Commitment
- Authorised Person: Although they are subject to regulatory scrutiny, authorised persons are in charge of ensuring that financial regulations are followed.
- Franchise: The franchisor, which frequently offers direction and support in achieving regulatory standards, shares compliance duties with franchises.
Fees and Income
- Authorised Person: Revenue is the main source of income for authorised persons, who may also receive commissions, fees, or a share of the assets they manage.
- Franchise: The profitability of the franchisor is impacted by the royalties or recurring fees that franchisees frequently pay.
Training and Help
- Authorised Person: Authorised persons may be required to independently acquire their training and support, which may lead to variances in knowledge.
- Franchise: To ensure consistency in service quality, the franchisor offers franchisees formal training and continuous assistance.
Exit Plan
- Authorised Person: They have more freedom in choosing their exit strategy, which could include selling their business or handing off their clients to another advisor.
- Franchise: The process of leaving a franchise might be impacted by the need to adhere to the terms and conditions established by the franchisor.
Conclusion
Authorised persons and franchises have different but complementary functions in the financial sector. An authorised person who frequently works alone adds a personal touch to customer interactions by providing specialised financial advice and services. Franchises, on the other hand, offer the security of a well-known brand, extensive assistance, and simplified regulatory compliance. Individual preferences, risk tolerance, and corporate goals all factor into which option is best. Franchises profit from brand familiarity and organised support, whereas authorised individuals thrive on independence and an entrepreneurial spirit. Both are essential in this dynamic industry for increasing access to financial markets, guaranteeing regulatory compliance, and meeting the various demands of investors.
