- CFA Exams
- Level I 2020
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 20. Standard VI (C) Referral Fees
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Subject 20. Standard VI (C) Referral Fees PDF Download
VI. CONFLICTS OF INTEREST
C. Referral Fees.
Members and Candidates must disclose to their employers, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received by or paid to others for the recommendation of products or services.
Such disclosure should help the client evaluate any possible partiality shown in any recommendations of services as well as evaluate the full cost of services.
Members and candidates are required to:
- Disclose the existence and terms of any referral fee agreements to all clients or prospects who have been referred under such agreements.
- Describe the nature of the consideration and its estimated dollar value in this disclosure. Consideration includes all fees, whether paid or not (in cash, in soft dollars, or in kind).
- Consult a supervisor and legal counsel concerning any prospective arrangement regarding referral fees.
You provide investment counseling on a fee-for-services basis. You encourage all of your clients to place trades through a particular broker: Richard Jones. You have known Mr. Jones for many years and feel that he is an excellent broker with fees and services that are competitive for the type of clients you typically work with. Mr. Jones also provides you with a "finder's fee" for each client you refer to him. Even if the services recommended are reasonable and appropriate, you must still disclose the referral fee.
ABC Firm has an agreement with XYZ Firm that ABC will recommend prospective pension clients to XYZ and in return XYZ will give ABC free research. ABC does not disclose the arrangement to prospective clients. ABC violates this standard for not disclosing the arrangement to prospective clients.
Learning Outcome Statementsa. demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity;
b. distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards;
c. recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.
CFA® Level I Curriculum, 2020, Volume 1, Reading 3
User Contributed Comments 11
|johnsk||CFA Institute is just so naive to ask anybody to disclose the referral fee. Would CFAI tell its members the referral fees it gets when it re-direct visitors from cfainstitute.org to efastcom.com to buy all textbooks for the exams?|
|yanpingz||Johnsk, you do have a really good point!|
|asianl6||disclose the related benefits you get from the reccomendation.|
|bananabun2||Its abit of double standard isn't it, i guess they are saying "in theory" thats what you should do...|
|MasterD||I believe this standard has to be viewed in context. This standard relates to Members and Candidates in context of money management and financial services. The CFA Institute is not a money management firm and thus has never stated it is in compliance with the CFA Standards. As a member or candidate yourself however, this standard would apply.
|robB||Well put MasterD.. I agree 100%|
|AUAU||CFAI is the authority to govern the exam NOT US.|
|SuperKnight||Makes sense. So I would assume that a member or a candidate not in the context of money management and financial services would NOT have to disclose referral fees? For instance a candidate that is working in another industry or has another business, selling textbooks for instance? Is this correct?|
|ShagunSingh||CFA standards apply to the financial services industry. So SuperKnight, I guess you are right.|
|johntan1979||Isn't it funny, how some people are so critical of the CFA Institute, yet they are trying to be a CFA member themselves?|
|DrewEB86||"as appropriate," that's the key.
I suppose if you want to look like an ass-hat you can mention random referrals unrelated to financial services or products
I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
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