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Whom do you have to tell about referral fees?

A is a portfolio manager. His old friend B refers to A's firm high-level individuals. In return, A allows B to play golf at A's country club for each new client referred. According to VI (C) Referral Fees, A is required to disclose the arrangment with B to:

a. his employer, all clients and all prospective clients
b. prospective clients referred by B
c. his employer and to prospective clients referred by B.

My take would be (a) since the standard VI (C) says:

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.

According to a training material provider, the correct answer is - surprisingly- (c). Explanation says that you need to disclose to employers and to affected clients.

Could someone explain why you should not tell to existing clients? I think the supposedly correct answers contradicts with the standard.

In the question, A did not get just an occasional referral from B but had a policy of rewarding him for new clients. I left part of the text where B is described as a head hunter who meets lots of wealthy executives and directs them to the firm whera A works. It looks to me that this kind of policy should be brought into attention of his existing clients according to the standard.

One could interpret (a) so that 'all clients' refers to the whole firm and not just A and his clients. But this requires interpretation beyond what is said...

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This is one of those remarkably ambiguous and misleading ethics questions that makes ethics a crapshoot regardless of how many times you study it. It clearly states in the CFAI curriculum under referral fees that all forms of compensation received from or paid to others for the recommendation of products or services must be disclosed to employers, clients, and prospective clients.

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This question was from Schweser practice exam (exam 1, afternoon part).

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There are lots of these ethics questions where the answer is also a). Would CFAI have a problem if your brochure said "BTW - If my buddy Joe B Donuts referred you, I am letting him play golf at my country club for the referral"? Of course not, which means that a) is also right. If I had such a referral system I would write that in my brochure just so nobody could say that I didn't tell them and I would never forget.

Ethics is so much BS.

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JoeyDVivre Wrote:
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>
> Ethics is TOO much BS.

Fixed!

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