Is it a violation of Standard VI Referral fees, to not inform the clients of any compensation benefits from the employer for referring them to the firms products?
I thought it was a recommendation to disclose this, but is it a violation if you dont disclose?
company and client would form a relationship . Referral means an outside party , such as consultant or advisor , facilitates that relationship by recommending or referring the client to the firm .
If it is an employee that is dealing with the client , it is not referring , it is marketing . In this case , the client knows that the party is an employee and as such is paid to push the product . No disclosure is necessary to the client ( an of course the employer that pays you )
However a case may come up ,when there are several alternative products that may be suitable , but with different fees charged by the firm. If the employee is pushing a more costly product to the client because the advisor receives a higher commission . In this case standard VI A says that the client or prospective client must be made aware that fees for some alternatives may be higher than for others ( Page 207 , book I , section 13 , 4th paragraph )
He refers product of his own company where he receives his salary…but he should disclose if there is a benefit in referring the companies products, so that client knows if there is a conflict
My understanding is this:
You do not need to disclose cross selling of in-house products because the client is expected to assume that will happen, and if the referral fee is part of your standard employment contract that is not to be disclosed.
The purpose of this standard is for referrals to other businesses i.e. if a stock broking business refers a client to a law firm who then pays the stock broker a referral fee, both the stock broker and the lawyer are required to advise the client of that arrangement.
Note that if the referral is to another department in the overall business who offers legal advice then this need not be disclosed
Hope this helps.