Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services.
Prior to agreeing to provide services to a client, members must advise the client or prospective client of any benefit given or received for recommendation of services to clients. This should include the nature
of the benefit (such as the fee structure, terms, etc) and its estimated dollar value. Consideration includes all fees, whether paid in cash, soft dollars, or in kind.
Firms should establish procedures regarding referral fees and notify clients of any such arrangements on a regular basis.
The CFA Institute Standards of Practice Handbook provides several examples of potential referral fee violations.
- Not disclosing to clients referral fees received for recommending a security
- Not disclosing fees received for referring clients to other professionals or firms
- Not disclosing a referral fee relationship to the employer
- Not disclosing a referral fee paid by an outside advisor for recommending the advisor to clients