Dealing is stock market has its share of complications. Starting from managing the accounts, to carry out the actual transaction, to paying all the charges and keeping all the statements for taxation purpose, it certainly can be very complicated. Large broking houses like ICICI, Kotak etc has taken advantage of technology in a big way to make life easier for the customers. Same is not the case of the local retail broker though.
The local retail broker comes in two avatars – one is where it acts as a sub-broker to an already established house like Motilal, ShareKhan etc. or one where it is a complete independent entity registered directly with the exchanges(BSE, NSE etc).
A sub-broker of an established house has a lot of advantages when it comes to ease of transaction a record keeping plus the added benefit of having a local person to contact in time of need. In comparison, the independent local broker only has lower brokerage to offer to attract clients. They normally do not look to have an expanded client base, rather they look to have a small collection of niche client base, whose transactions alone would suffice to generate enough brokerage for its survival. It works well for the clients also, as they get complete and dedicated service of the brokers.
If you are among the few super high net worth customers with very high volumes of trades almost on a daily basis, then you can save a lot of money on brokerages by going for an independent local broker. Many a times these independent brokers also act as front for money laundering and other tax-evasion purposes. Since they are closely held entity, the transparency is very low and the level of compliance adherence is also poor. We come across frequent news report were SEBI routinely bans these brokers due to unethical/ illegal transaction of some form or the other.
For small retail clients, it is better to go for the reputed and established brokers. The cost may be higher but the level of transparency and compliance is also higher. Also many a times, in case of fraud/ illegal activity, these companies are more willing to pay the losses and settle the claim with the clients to save their reputation.