Discount brokerages explore diversification, innovative ideas to expand client base

Even as brokerage firms undercut each other in the race to get the most clients, they are diversifying into other financial services or innovating to boost revenue.

SAS Online, a Delhi-based deep discount broker, is creating a robo-advisory service it calls Wealthforce. Simply put, a robo-advisory is an automated financial planner, an algorithm that combines your savings capacity and investment goals to create possible investment options that you can choose from.

The most common advice will be a choice of mutual funds, split between equity and fixed income. It can also include suggestions on investing directly in stocks, fixed deposits, insurance, pension plans and gold. As a distributor of these products, it earns a commission on every sale it makes.

Shrey Jain, CEO, SAS Online, said, “We’re planning to enable more SIPs (systematic investment plans) through Wealthforce and advise clients on target-based investing, so they can tailor their investments to meet a particular goal. We will also use the IFA network (independent financial advisors) to gain more clients for the main brokerage business. IFAs who refer their clients to us will get a share of the brokerage we earn when these clients trade through SAS.”

TradeSmartOnline is also working on setting up a mutual fund distribution platform, according to Vikas Singhania, Executive Director of the Mumbai-based discount broker. “There are more investors in India buying mutual funds than direct equity; so we’re keen on capturing that investor segment. Mutual funds is a slow game but sustainable. Once the amount is invested, a distributor keeps earning commissions through the lifetime of the investment. Also, with the compounding effect, the brokerage also goes up proportionately.”

Singhania is also working on upgrading the broking platforms, in order to retain traders. “We will allow traders to plug in their own algorithms to our platform if traders are interested in using this, or guide them in writing these algos for simple strategies. For more complex strategies, we could connect algo traders with third-party algorithm-providers for a fee.” Bangalore-based Zerodha, the market leader in the discount broking space, will soon launch KITE Publisher, part of its bouquet of “pluggable financial products” intended to widen its broking client base. Much like how a website hosts Google ads, if you’re an affiliate for Publisher, you can embed a button on your web page which will let any reader who clicks on it execute a trade through Zerodha.

For instance, a financial advisor can tweet or write a blog post making a buy call on a certain stock, and then embed the Publisher button next to it. (The embed is designed as a copy-paste function.)

As a reader, if the recommendation convinces you, you can click on the button which will lead you to Zerodha and let you immediately buy the stock. If you don’t own a demat account with Zerodha, you could also create one instantly. Zerodha then shares the brokerage with its affiliate as long as this client continues to use its platform. The Publisher button can be used similarly for mutual funds as well.

Kailash Nadh, Chief Technology Officer, Zerodha, said, “We’re working on increasing the size of the trading ecosystem. As people show more interest in stocks, revenue streams will follow. We’re working on this platform where traders can choose to broadcast their traders in exchange for a fee, and other traders — who sign up with a premium subscription — can see what their favourite traders are doing.

“Nobody’s figured out the next best move for discount brokers yet,” Nadh concludes, “but our bet is on technology.”