Understanding Referral Fees in Investment Advisory Relationships

Medium Cfa Institute Code And Standards Conflicts - Referral Fees

James is an investment advisor who has developed a strong relationship with a local law firm. Recently, the law firm has started referring clients to him in exchange for a referral fee. James is considering implementing this arrangement, as he believes it will help grow his practice. However, he is unsure whether accepting these referral fees aligns with the CFA Institute's Code of Ethics and Standards of Professional Conduct.

Which of the following is TRUE regarding James’s acceptance of referral fees from the law firm?

Accepting referral fees is acceptable as long as James discloses the arrangement to his clients.

James should not accept referral fees, as doing so creates a conflict of interest that may not be disclosed adequately.

James can accept referral fees if he provides his clients with a documented comparison of the law firm and other firms.

Hint

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