Conflict of Interest in Referral Fees

James is a financial advisor who works for a registered investment advisory firm. He often receives referral fees from a third-party financial planning service for referring his clients to them. In his recent client meeting, James mentioned this arrangement while discussing the importance of diversifying investment options. He believes that since he disclosed the arrangement to his clients, he is acting ethically and in compliance with industry standards.

According to the CFA Institute Code of Ethics and Standards of Professional Conduct, which of the following scenarios represents a violation of the standards regarding referral fees?