Standard III(A) Loyalty, Prudence and Care

(Question)
Would either following compensation arrangement to reward a broker for client referrals violate the CFA Institute Standards of Professional Conduct?

• Doubling the commissions paid on trades executed through the broker on the referral accounts
• Paying the broker a cash referral fee for each additional TIM account opened by the broker's referral.

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• The increased commission would be a violation,
• but each referral fee would NOT.

Doubling the commission paid to the broker would be a violation of Standard III(A) Duties to Clients - Loyalty, Prudence and Care. Client brokerage is strictly an asset of the client and must be used for the benefit of clients in research that will assist the investment manager in the investment decision-making process. Client brokerage CANNOT be used as a reward for bringing clients to an investment manager and to do so is a misappropriation of client assets.


Cash referral fees are acceptable, so long as the referral arrangement is fully disclosed to the clients in advance of opening their accounts. This disclosure allows the client to evaluate any potential conflict(s) of interest in the referral process.