Sub-Broking: What a Sub-Broker Does & How It Works

Updated 12 Mar 2026Content was accurate at the time of publication

What is sub-broking?

Sub-broking describes a commercial arrangement where an individual or small firm intermediates to introduce clients, generate leads or assist with transactions on behalf of a licensed broker or AFSL holder. A sub-broker typically does not hold its own Australian Financial Services Licence (AFSL) and operates under referral, agency or authorised representative arrangements.

Key characteristics:

Client-facing distribution: client acquisition, product explanation and basic transaction facilitation.
Commercial title: "sub-broker" is a commercial descriptor, not a formal licence class — regulatory status depends on the arrangement with the AFSL holder.
Activity range: from simple referrals to transactional execution (when authorised by the AFSL holder).

How sub-broking works — the commercial model

Sub-broking models range from low-touch referrals to high-touch execution partnerships.

Common models:

Referral model: Sub-broker refers clients and receives referral fees or commissions. The AFSL holder retains onboarding, KYC/AML, execution and custody responsibilities.
Execution model: Sub-broker handles transactional steps (orders, paperwork) while the AFSL holder retains clearing, settlement and oversight. This requires tighter contractual controls and supervision.

Typical commercial flow:

Client meets the sub-broker and expresses interest.
Sub-broker explains products and collects preliminary client data.
Client is introduced to the AFSL holder for onboarding or is appointed under an authorised representative agreement.
Trades or transactions are processed via the AFSL holder's systems; funds are held/cleared per the AFSL holder's procedures.
Commission/referral fees are calculated and paid per the agreement.

Typical commission/fee structures and an illustrative example

Flat referral fee per lead or conversion (e.g., $100 per approved loan).
Percentage of transaction value (e.g., 0.5% of trade value).
Split of ongoing trail commissions (e.g., 40/60 upfront, 30/70 trailing).

Illustrative example:

Trade value: $1,000
Broker commission: 0.5% = $1
Commission split: Sub-broker 40%, AFSL holder 60%
Sub-broker receives: $1 × 0.40 = $1.00; AFSL holder receives: $1.00

This example is illustrative only; actual splits depend on negotiation, compliance costs and regulatory oversight.

Who holds client funds and how trades are settled

Client funds and custody typically remain with the AFSL holder or a licensed custodian/clearing participant.
Sub-brokers must not accept or hold client funds unless explicitly authorised and compliant with licensing and trust-account rules.
Clearing and settlement are managed by the AFSL holder or third-party clearing services — sub-brokers usually pass orders and documentation to the licensed party.

Roles and responsibilities of a sub-broker

Common day-to-day activities:

Client acquisition and relationship management.
Initial needs assessment and product explanation (non-advisory unless authorised).
Collecting and forwarding client documentation for KYC/AML and onboarding.
Facilitating transaction execution when authorised.
Maintaining client communications and basic record-keeping.

Boundaries — what sub-brokers must not do without authority:

Provide regulated financial advice unless authorised and trained.
Hold client funds or securities without explicit authorisation and appropriate trust-account arrangements.
Misrepresent the AFSL holder's services, scope or compensation.

Client disclosure & conflicts of interest:

Disclose the commercial relationship (referral fees, commission splits) clearly and in writing.
Keep transparent records of client conversations, product explanations and fees.

Sub-broker vs stockbroker vs authorised representative vs introducer

A short comparison:

Role	Regulatory status	Typical duties	Can hold client funds?
Sub-broker	Commercial intermediary (not a licence class)	Lead generation, introductions, basic execution if authorised	Usually no; only if authorised by AFSL and compliant
Stockbroker	AFSL holder or market participant	Execution, advice, market access	Yes (under licence rules)
Authorised representative	Appointed under an AFSL	May provide advice/execution within AFSL scope	Depends on AFSL authorisation
Introducer	Referral-only role	Introduce clients, minimal engagement	No

Regulatory and compliance obligations (Australian context)

Sub-broking activities sit within the AFSL framework and AML/KYC rules. Key obligations:

AFSL / authorised representative requirements

The AFSL holder is responsible for ensuring authorised representatives and agents act within licence conditions. A sub-broker who gives advice or deals in financial products will generally need to be an authorised representative or operate under an explicit referral/agency agreement. See ASIC guidance: https://asic.gov.au/regulatory-resources/financial-services/authorised-representatives-and-clients/

KYC / AML obligations (AUSTRAC)

Intermediaries involved in payments, transfers or financial services may need to comply with AML/CTF obligations, including KYC, ongoing monitoring and suspicious matter reporting. Refer to AUSTRAC: https://www.austrac.gov.au/

Record-keeping, disclosure and advertising rules

Keep client records for statutory periods and maintain written disclosure of fee arrangements. Advertising and social media content must comply with ASIC's consumer protection guidance.

Best practice for client records and dispute handling

Maintain written agreements, client consent forms and a complaints-handling policy aligned with ASIC expectations. The AFSL holder usually manages dispute resolution.

Penalties and enforcement overview

Failures in supervision, misleading conduct, unauthorised advice or inadequate AML controls can attract civil penalties, licence restrictions or criminal charges. See ASIC enforcement examples: https://asic.gov.au/

How to become a sub-broker (practical steps)

If you're considering acting as a sub-broker, follow these steps:

Decide your commercial model: referral-only or transaction execution.
Negotiate terms with an AFSL holder — define scope, splits, reporting and supervision.
Execute a written agreement covering responsibilities, remuneration, dispute resolution and termination.
Implement compliance controls: KYC procedures, record-keeping templates, AML monitoring and staff training.
Obtain appropriate insurance: professional indemnity and, if handling funds, fidelity cover.
Establish technology and reporting: CRM, secure document exchange and access to the AFSL holder's dealing platform (if applicable).
Complete required qualifications or CPD if you will give advice.

Checklist of documents:

Proof of identity and business registration.
Resume and evidence of relevant experience.
Sample client engagement letter and disclosure documents.
Evidence of insurance cover.
Systems and process documentation for KYC, record-keeping and complaints.

Benefits and risks (for sub-brokers and clients)

Benefits:

For sub-brokers: lower capital and compliance burden than holding an AFSL; predictable referral income; access to established product suites.
For clients: local relationships and easier access to product offerings through trusted intermediaries.

Risks:

Compliance risk: inadequate supervision or poor KYC can create legal exposure.
Liability risk: unauthorised advice can expose both the sub-broker and the AFSL holder.
Commercial risk: commission clawbacks, non-payment or disputes over splits.

Sub-brokers may refer clients to business finance products (e.g., business loans or asset finance) and receive referral fees — ensure the referral is disclosed and authorised. Common compliance failures include poor client documentation, inadequate suspicious matter reporting, and advertising outside authorised scopes.

Tax and accounting considerations

Commission income is generally assessable as ordinary business income for the sub-broker. Key points:

Recognise commission income when receivable under your accounting method.
GST may apply to brokerage services — check if you need to register for GST and report on BAS.
Keep detailed records of commissions, invoices, fee splits and expenses to support ATO reporting and deductions.
For agent or trust arrangements, ensure clarity on who is the supplier for GST and income tax purposes.

Refer to the ATO for business income guidance: https://www.ato.gov.au/Business/Income-and-deductions-for-business/

Practical checklist / starter pack for new sub-brokers

Signed agency/referral/AR agreement with AFSL holder
Identification and business registration documents
Professional indemnity insurance certificate
AML/KYC procedures and template client forms
Client disclosure and fee schedule templates
CRM and secure document-exchange tools
CPD plan and staff training schedule
Record-retention policy and dispute-handling procedure
Backup of email and transaction records

Consider producing a one-page printable starter pack summarising these items for quick client onboarding.

FAQ

Can a sub-broker give financial advice?

Only if authorised by the AFSL holder and within the scope specified in the authorised representative agreement.

Who is liable if a client suffers a loss?

Liability depends on activity and contractual arrangements. The AFSL holder is ultimately responsible for regulated services, but a sub-broker can be liable for negligent or unauthorised conduct.

Can a sub-broker hold client funds?

Not unless authorised by the AFSL holder and compliant with trust-account, AML and reporting obligations.

Do sub-brokers need to register with AUSTRAC?

It depends on services provided. If you conduct remittance or prescribed financial services, AML registration and compliance may apply — consult AUSTRAC guidance.

Are commission splits subject to clawbacks?

Yes. Agreements commonly include clawback provisions for cancellations, chargebacks or regulatory adjustments.

What ongoing compliance should I expect?

Regular reporting to the AFSL holder, AML monitoring, CPD (if advising), audits and record retention.

Key takeaways

Sub-broking is a commercial distribution model that sits outside formal licensing but requires careful compliance with AFSL, AUSTRAC and ASIC rules. Success depends on clear agreements with AFSL holders, robust KYC/AML procedures, transparent disclosures and ongoing record-keeping. Use the practical checklist above to structure your arrangements, and consult ASIC, AUSTRAC, the ATO and legal counsel for binding regulatory or tax decisions.