Laws & RegulationsQuestion 102 of 110
When an adviser pays a cash fee to a third-party solicitor for referring clients, the arrangement generally requires:
a.No disclosure of any kind to the referred client
b.That the solicitor personally guarantee investment results
c.A written agreement and disclosure of the solicitor's compensation to the client
d.That the client pay the solicitor directly in cash
Explanation
Cash referral or solicitation arrangements generally require a written agreement between the adviser and solicitor and disclosure to the prospective client of the solicitor's relationship with the adviser and the compensation paid. This transparency lets clients weigh the conflict of interest behind a referral. Undisclosed paid referrals are prohibited.
Law Reference: Investment Advisers Act of 1940Practice all 110 questions free — no signup required.
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