Scramble for broking franchisees gathers pace

Renuka Mehta and her husband run Yash Securities, a franchisee of Motilal Oswal Securities (MOSL) in a Mumbai suburb. Before they met MOSL, they were distributors of FMCG products. That was four years ago. The boom in the stock markets, alongwith the minimal investment required to take up a broking franchise, attracted them to broking.

The Mehtas, who have about 900 clients on Wednesday, say they get queries from other brokers almost every week, who offer them free trading accounts or more leverage to shift to another broker. Stiff sales targets and dropping volumes in equity broking is pushing such firms to offer sops to existing franchisees as distribution of products (mutual funds, insurance and portfolio management services) become new revenue generators.

To take up a broking franchise, all that is needed is a space of around 500 sq ft and up to Rs 20 lakh in deposit. Recently, MOSL launched MOSL Exclusive, a product that they plan to offer only through their franchisees. The Mumbai-based broking house currently has 100 company outlets and 1,400 franchisee outlets, which they want to take to more than 2,000 in the next 5 years.

“We get enquiries from different people — FMCG dealer, exporter, property broking, kiranas — all who want to take up a broking franchise. Broking remains a fairly under-penetrated area. People would like to set up and consolidate a business during a market downturn,” said Manish Shah, associate director-business strategy and product development, MOSL.

Interestingly, this model has helped MOSL penetrate states other than Maharashtra and Gujarat. For instance, MOSL has 170 franchisees in Bihar and Jharkhand. Of every 100 enquiries that MOSL gets for franchise opportunities, 70 come from people who have not been in the financial services industry, added Shah.

Even Karvy Stock Broking plans to selectively offer PMS products through its franchisee network. “We are particular about choosing people with the right credentials to take up a franchise,” said Vikas Agrawal, head of alternate channel network, Karvy Stock Broking.

Of the total number of franchisee enquiries that Karvy gets, 80 per cent are from people with a financial services background. However, an indicator of how important franchises are becoming to the business of broking is the fact that Karvy began its expansion plan for franchisees after the market crash of January 21.

UTI Securities, after it was rebranded Standard Chartered-STCI Capital Markets, has created a separate franchisee division and has appointed a co-ordinator for it. “We expect franchisees to do better on their own. So we are not including that business into what is generated by the company outlets,” said PR Somasundaram, MD, Standard Chartered-STCI Capital Markets.

Despite this, the drop in market volumes has not left broker franchisees unscathed. After the market crash of January 21, there was bad blood between brokers and their franchisees and sub-brokers because brokers refused to share the losses sustained by the franchisees.

Brokers shut down several franchisees for non-compliance or improper risk management at that time. For instance: Kotak Securities closed down 70 franchisees in the first quarter of FY09, according to an analyst presentation.