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.

Example 1

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.

Example 2

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.