“Do I have to be your sub-broker?” asked Rajendra (a senior mutual fund distributor from Mumbai). I wasn’t surprised by this question as it is a very common question that me and my colleagues get. The best part is that many mutual fund distributors confuse this word with something else.

To clarify, I asked him, “What do you mean by a sub-broker?”

Rajendra seemed to be taken aback by this question. I guess he was expecting an answer but instead got a different unexpected question. I could sense that he took a few moments (almost 30+ seconds) to think of something. He then said, “I mean are you like NJ and Prudent?”

I told him, “Now this is a completely different question. Which one do you want me to answer first.” Now he was even more confused and a bit agitated at me. So, we decided to tackle his first question first even though he was not sure what I really meant. But then we had a very interesting conversation, a portion of which I have captured in today’s post. However, there is one request that I wish to make. Read this post with an open and curious mind. Just to share, this post is one that I have written, rewritten, and rewritten as the main point that I wanted to meaningfully communicate has many layers and nuances.

Let’s begin with the definition and explanation of a sub-broker (with emphasis on the underlined words).

“A sub-broker, also known as an authorized person (a person or entity), is an agent of a stockbroker. The stockbroker is registered with a stock exchange. The stockbroker authorizes and appoints the sub-broker to perform trading services on the stockbroker’s behalf. A sub-broker typically acts on behalf of a broker and assists investors in dealing with stocks.”

The costs, compliance, and other requirements to become a stockbroker are prohibitive. Therefore, many individuals and firms prefer to become sub-brokers. The best part is that there is no shame in becoming one. And this sub-broker model has been a formidable growth driver for many stockbrokers. There are thousands of sub-brokers around the country. A key thing to understand is that the product offered in stock broking is very simple (buying and selling stocks). The revenue model is dependent on the volume of stocks purchased/sold and the services rendered. Thus, the sub broking model and the language is unique to the stockbroking industry.

The mutual fund distribution business on the other hand is completely different. The services offered by a mutual fund distributor are different (even though there are sub-brokers and brokers who are distributing mutual funds). The value proposition of a distributor is also different from that of sub-brokers or brokers. Because if it’s not, you are in real trouble. As much as I like to explain here, I believe you know how the value proposition of a mutual fund distributor and sub-broker/stockbroker are different. A point to observe here is that even NJ and Prudent Corporate don’t use the word sub-broker. They say, “Become a Mutual Fund Distributor.” No one says become a mutual fund sub-broker.

But let’s look at an interesting thing. The cost of getting an ARN as an individual is just Rs.1500 +GST. Do you see the point I am making? The investment required to become a distributor is close to nothing (unlike what is required to become a sub-broker with a stockbroker). Therefore, investment wise, there is no difference between a mutual fund distributor simply holding his/her ARN and a sub-broker working with a stockbroker. But building a world class distribution firm is a different ball game. There is a solid investment required in people, client experience, processes, technology, etc.

Let’s now turn our attention to the U.S. ecosystem (in just a paragraph). Even the largest wealth firms which assist thousands of families and manage assets exceeding $10 billion, partner with RIA Custodians and platforms such as Charles Schwab, Fidelity, Pershing, among others. Goldman Sachs has also ventured into this domain to collaborate with some of the largest independent firms. Clients of these firms are required to open a brokerage account with one of these custodians. The assets, once under custody, are managed through these same platforms by these independent wealth firms. This is a very common practice. This is how wealth firms leverage and collaborate to deliver personalized services (at scale) to their clients.

In India, however, there is the concept of an ARN (AMFI Registration Number), a unique identifier (like a roll number) in the AMFI system for mutual fund distributors. The ARN initiative, launched by the Association of Mutual Funds in India, aims to involve those who sell or market mutual funds, ensuring they meet the highest standards of knowledge and ethics. A registered ARN helps in tracking the transactions conducted by distributors. This, in turn, helps safeguard investor interests and maintain the standards of mutual fund investments.

Having an individual ARN though gets many firm owners in our industry to mistakenly believe that collaborating with Happyness Factory or other platforms is the equivalent of becoming a sub-broker. This confusion can cloud the true potential of such partnerships. Rajendra’s initial question stemmed from this very mix-up. But as our conversation unfolded, the real potential of what could be achieved through collaboration became clear. It wasn’t about being under someone; it was about building alongside them. It was about supported independence. It was about Happyness Factory helping Rajendra building the firm of his dreams.

The essence of building a world-class business in the mutual fund arena doesn’t lie in the titles we hold but, in the value, we offer to our clients. It’s about crafting a service that stands out, that speaks to the needs of the investors and creates a lasting impact. Working with Happyness Factory is about leveraging their resources, technology, and expertise to amplify your own strengths. It’s about asking, “How can this partnership elevate my business to deliver exceptional client experiences and outcomes?”

Furthermore, the question of building the firm of the future requires a vision that transcends the conventional distributor model. It’s about integrating innovative practices, embracing advanced technology, and adhering to the highest standards of ethics and knowledge. With Happyness Factory, the question becomes, “How can we collaborate to innovate, grow, and lead in the mutual fund market?” It’s about understanding that the future of wealth is collaborative, client-cantered, and technology-driven. Rajendra, and many like him (you), stand on the cusp of this evolution, ready to redefine the future of this industry not as sub-brokers but as architects of the next generation of investment firms.

The question you need to ask is, “Are you ready to build the future of this industry?”

If you are, we are waiting for you.