Which CFA Institute standard is violated when a firm accepts referral fees from a broker for directing clients there without informing the clients?

• A. Standard IV.D Performance Presentation.
• B. Standard VI.A Disclosure of Conflicts.
• C. Standard VI.C Referral Fees.
• D. Standard I.D Misconduct.

Answer: (C)

The situation highlights conflicts of interest that arise when a firm benefits from steering clients to a particular broker. The standard that governs referral arrangements strictly requires that any referral fees or compensation be disclosed to the client, and that the client has a real opportunity to make an independent choice. When a firm accepts referral fees for directing clients there and fails to inform the clients, it hides the incentive structure behind the recommendation, which can bias the advisor’s advice and erode trust. Disclosure of such fees and conflicts is essential so clients can assess whether the broker referral is in their best interest rather than benefiting the firm.

While disclosure of conflicts is relevant more generally, the specific rule addressing referral fees directly mandates that these arrangements and any associated compensation be disclosed to the client. That’s why the referral fees standard is the best fit for this scenario.