Here’s an uncomfortable truth: most people signing a sub broker franchise agreement barely read past the first page.
They’re excited about the business opportunity, they trust the brand, and the paperwork feels like a formality standing between them and getting started.
But this agreement is exactly where the real terms of your business live — how much commission you’ll actually keep, how long you’re locked in, what happens to your security deposit if things don’t work out, and how easily (or painfully) you can exit if the partnership isn’t working.
In this guide, we’ll break down what a typical sub broker franchise agreement covers, in plain language, so you know exactly what to look for before you sign anything.
Note: This article is meant to help you understand common terms found in sub broker franchise agreements. It isn’t legal advice — always have a lawyer review your specific agreement before signing.
What is a Sub Broker Franchise Agreement?
A sub broker franchise agreement (technically your Authorised Person agreement) is the legal contract between you and your parent stockbroker.
It’s filed with the stock exchange and governs the entire relationship — your rights, responsibilities, earnings, and the conditions under which either party can end the partnership.
Unlike a casual business handshake, this is a binding legal document, which means every clause matters, even the ones written in dense legal language that are easy to skim past.
Revenue Sharing Terms: The Clause Everyone Cares About Most
This is usually the section people focus on — and rightly so, since it directly determines your income. Here’s what to look for:
- Commission percentage: Most agreements specify your share of the brokerage generated by your clients, commonly ranging from 50% to 70% depending on the broker and business volume.
- Calculation basis: Check whether commission is calculated on gross brokerage or net brokerage (after certain deductions), since this can meaningfully affect your actual payout.
- Payout frequency: Typically monthly, but confirm the exact payout cycle and whether there’s a minimum threshold before payouts are processed.
- Slab-based structures: Some brokers offer tiered commission structures where your percentage share increases as your client base or trading volume crosses certain thresholds — worth clarifying upfront since it directly rewards growth.
- Additional product commissions: If you plan to cross-sell mutual funds, insurance, or other products through the same setup, check whether these are covered under a separate agreement with different revenue-sharing terms.
Security Deposit & Investment Clauses
Most sub broker franchise agreements require an upfront security deposit or investment, which usually covers registration, infrastructure setup, and acts as a good-faith commitment. Key things to clarify:
- Refundable vs non-refundable portions: Some brokers clearly separate a refundable security deposit from non-refundable setup or registration charges — make sure this distinction is spelled out.
- Conditions for forfeiture: Understand exactly what circumstances (early termination, policy violations, non-performance) could lead to your deposit being forfeited.
- Additional infrastructure costs: Confirm whether office setup, terminal charges, or software costs are included in the stated investment or billed separately.
Lock-In Period Explained
A lock-in period is the minimum duration you’re contractually committed to the partnership before you can exit without penalty. This is one of the most overlooked clauses, and it matters a lot if your circumstances change.
- Lock-in periods commonly range from 6 months to 2 years, depending on the broker.
- Exiting before the lock-in period ends may result in forfeiture of your security deposit, or additional penalty charges as specified in the agreement.
- Some agreements have a shorter lock-in for the base partnership but a longer one tied specifically to deposit refund eligibility — read both carefully, since they can differ.
Similar Articles
Termination & Exit Clauses
This section protects you if the partnership doesn’t work out — and it deserves as much attention as the revenue-sharing terms. Look for clarity on:
- Notice period: How much advance notice either party must give before ending the agreement (commonly 30 to 90 days).
- Grounds for termination: Whether the broker can terminate you for reasons like non-performance, compliance violations, or client complaints, and what process is followed before termination.
- Client ownership after exit: A critical clause — does the client relationship stay with the broker, or can you carry your client base if you move to a different broker? Most agreements state that clients remain with the broker, not the individual Authorised Person.
- Pending commission settlement: How and when any commission earned but not yet paid out will be settled after termination.
- Deposit refund timeline: The specific window within which your refundable deposit (if applicable) will be returned after exit.
Non-Compete & Client Ownership Clauses
Many agreements include a non-compete clause that restricts you from onboarding the same clients with a competing broker for a specified period after exit—commonly 6 months to 1 year.
Since clients are typically considered the broker’s asset (not yours), this clause can meaningfully limit your flexibility if you decide to switch brands later.
Understand this fully before signing, especially if you’re building a long-term financial services business rather than a one-broker relationship.
Red Flags to Watch For Before Signing
- Vague or missing details on how commission is calculated (gross vs net brokerage)
- No clear timeline mentioned for security deposit refunds
- Excessively long lock-in periods with steep exit penalties
- No defined dispute resolution process in case of disagreements
- Unclear ownership of client relationships if you exit or switch brokers
- Verbal promises about income or support that aren’t reflected anywhere in the written agreement
If any of these show up in your agreement, it’s worth raising them directly with the broker’s franchise team — and getting clarifications in writing — before signing.
Key Agreement Terms at a Glance
| Clause | What It Typically Covers | Why It Matters |
| Revenue Sharing | Commission %, calculation basis, payout frequency | Directly determines your monthly income |
| Security Deposit | Refundable vs non-refundable amounts | Affects your capital recovery if you exit |
| Lock-In Period | Minimum commitment duration | Impacts your flexibility to exit early |
| Termination Notice | Advance notice required from either party | Protects you from abrupt discontinuation |
| Client Ownership | Who retains client relationships post-exit | Affects your ability to build a portable client base |
| Non-Compete | Restrictions after exiting the partnership | Limits your options if you plan to switch brokers |
| Deposit Refund Timeline | Window for refund after termination | Affects how quickly you recover your capital |
Frequently Asked Questions
Can I negotiate the commission percentage in a sub broker franchise agreement?
In many cases, yes — especially if you can demonstrate a strong existing client base or business plan. It’s worth discussing this directly with the broker’s franchise development team before signing.
What happens to my clients if I decide to switch brokers?
In most agreements, clients are considered the broker’s asset, not yours, meaning they typically remain with the original broker even if you move to a different partnership.
Is the security deposit for a sub broker franchise always refundable?
Not always in full — many agreements separate a refundable security component from non-refundable registration or setup charges. Always check this distinction before signing.
What should I do if I disagree with a clause in the agreement?
Raise it directly with the broker’s franchise or legal team before signing, and get any clarifications or changes documented in writing. Having a lawyer review the agreement beforehand is strongly recommended.