Standard VI (C) - Referral Fees

This standard states that if a member receives any referral fees (compensation or benefit) for recommending a product or service, he must disclose it to the concerned people such as employer and clients.

Examples of Violation

• Example 1: A manager working for a bank has an arrangement with a brokerage firm, where the brokerage firm gives him a referral fee for every person to open an account with the brokerage firm. The manager refers several of his bank clients to the brokerage firm. However, he does not disclose this arrangement to his bank. This is a violation of the standard.
• Example 2: An investment firm’s trading desk conducts its business with a variety of brokers. The portfolio manager in that firm tells the trading desk to direct a large portion of its trades to one of his friend’s brokerage firm. The brokerage firm in return of this favour, recommends the investment firm’s advisory services to its own clients. This arrangement is not disclosed to the portfolio manager’s firm or to the clients of the brokerage house. This is a violation of the law.