After Zerodha, Angel One Also Halts Brokerage Sharing Incentive Scheme Following NSE Circular

After Zerodha, another leading Indian brokerage firm, Angel One, has decided to stop sharing brokerage revenue for demat account referrals. This move comes in response to a recent circular from the National Stock Exchange (NSE), which prohibits the sharing of brokerage income as a referral incentive to prevent potential trade inducement.

Effective from September 01, 2024, Angel One will no longer share a portion of its brokerage revenue with clients who refer others to open demat accounts. However, like Zerodha, Angel One will continue to offer alternative incentives to clients. Referrers will receive 300 rs for each successful referral sign up.

Angel One is also actively engaging with stock exchanges and industry forums to advocate for the continuation of referral programs under revised guidelines. The decision aligns with the NSE’s concern that unregistered individuals referring clients to trading members could lead to activities that are not in the best interest of investors, such as unauthorized collective investment schemes.

The exchange has mandated that anyone referring clients must be appointed as an authorized person (AP) of the trading member, subject to prior approval from the exchange. This move is intended to protect investors and ensure that referral activities comply with SEBI regulations.

Angel One’s decision to halt brokerage sharing underscores the broader industry trend towards stricter regulatory compliance, with a focus on safeguarding investor interests.

Impact

The recent move by Angel One and other brokers like Zerodha to halt brokerage revenue sharing for referrals will likely have a significant impact on individuals who relied on this as a source of income. Here’s how it might affect them:

1. Loss of Passive Income

• For many individuals, referring clients to brokers like Angel One was a way to earn passive income. With the cessation of revenue sharing, these referrers will lose a steady stream of income that was tied to the trading activities of the clients they referred.

2. Reduced Motivation for Referrals

• The removal of monetary incentives may reduce the motivation for existing referrers to continue bringing in new clients. While reward points are still offered, they may not be as appealing or valuable as cash rewards.

3. Shift to Alternative Incentives

• Referrers will now need to consider the new incentives offered, such as reward points that can be used for account maintenance or access to partner services. While these rewards can be useful, they are not a direct financial benefit, which could discourage some referrers.

4. Need to Explore Other Income Streams

• Those who were heavily dependent on referral income may need to look for alternative sources of income. This could include exploring other financial products, services, or platforms that still offer referral bonuses or commission-based earnings.

5. Increased Compliance and Registration Requirements

• The NSE’s directive also implies that anyone referring clients must now be an authorized person (AP) registered with the trading member and the exchange. This means that those who wish to continue referring clients might need to go through a formal registration process, which could be time-consuming and involve additional compliance requirements.

6. Impact on Smaller Referrers

• Smaller referrers, who might not have the capacity to meet the new requirements or who relied on small but consistent referral earnings, might find it harder to justify the effort without the financial incentives. This could lead to a decline in their referral activities.

7. Possible Industry-Wide Shift

• If other brokers follow suit, the entire industry might see a decline in grassroots marketing efforts driven by referrals. This could lead to changes in how brokers attract new clients, possibly leading to increased advertising and marketing costs for the brokers themselves.

In summary, the end of brokerage revenue sharing as a referral incentive is likely to reduce income for those who relied on it and could lead to a decrease in referral-based client acquisition for brokers. Those affected will need to adapt to the new incentives or seek alternative income opportunities.