Referral Fees - Legal or Not?

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llcoolj's picture
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Joined: 2008-11-23

I am in a situation where I am paying a flat monthly referral fee to a well know website to send me leads in my area that need any general financial help..........things like questions about IRA's, any kind of Investments, Insurance, etc. I am the only one in my area that gets these leads. It has been a great arrangement for me. Sometimes it is a pain but it is activity, if you know what I mean.
My OSJ had approved the contract/relationship with the referral website when I took it to him about 6 months ago. Now the Compliance dept at my B/D / Custodian has said no way to the arrangement. They were reading my emails and found out I was doing this. According to them it is a clear violation to FINRA's solicitation rules. Now my OSJ is in the hot seat and I am afraid he has thrown me "under the bus" on this. Of course, nothing in writing from him other than my email to him showing the signed contract.
 
This particular referral source has 1200 reps / advisers just like me located across the US. They seem to be getting along just fine with FINRA. I'm not sure who is right or wrong here..........I'd just like a little feedback and see if anyone has some input as to the legality of this arrangement.
 
For what it's worth.........the referral source is a Hub for financial information but does not give any specific advice. They send to people to us for the advice.
 
Thoughts??

troll's picture
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Joined: 2004-11-29

Broker/Dealers suck. I hope I never have to associate with one, again. Just thought I'd share.

deekay's picture
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Joined: 2007-05-15

Will you re-affiliate with a B/D if 151(a) passes?

Indyone's picture
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Joined: 2005-05-31

IMO, your compliance department appears to be taking a typically conservative stance.  Next week, you can propose the same arrangement to a different party in compliance and get a totally different opinion from another compliance person.  That is by far my biggest beef with compliance...the lack of consistent application of the laws and regulations.
Since you've gotten a compliance hack's opinion, I'll give you mine...I think it is NOT a clear violation of FINRA's solicitation rules.  It's simply a lead generating site...not pitching specific products.  I think you have a clear overreach in the application of the rules by some compliance hack that probably hasn't gotten any for awhile.  Unfortunately, their rulings are the ones you must live by.  About your only recourse is to step this up the ladder in your compliance department and see if you can get an overrule on appeal.  Otherwise, you might look for a B/D that is not ran by it's compliance department.  I'm all for keeping it legal, but I could give you more than one example where I got two COMPLETELY opposing opinions on the same matter from the same compliance department...it's maddening.

anonymous's picture
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Joined: 2005-09-29

Big producers can get away with things.  Little producers can't.  It's a shame, but compliance has absolutely nothing to do with doing what is best for clients.  It's all about CYA.  Unfortunately, the "A" is not yours.
 
Maybe you can talk to someone at the referral source to find out how others have dealt with this issue.   You may be able to find something that proves that FINRA has no problem with this.
 
By the way, it should be easy to show that you got approval for this simply because you have the proof that you showed him the signed contract and nothing exists back from him with any record of him saying you couldn't do this.

llcoolj's picture
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Joined: 2008-11-23

Thanks for the feedback. You all are confirming what I have been veeerrrryyyy emotional about for quite a while.
I have gone back to the referral source and asked them to reach out to others and see how they are doing it. They have really been great. They even had their Lawyers willing to call my B/D Compliance dept and discuss it directly. It has fallen on deaf ears.
I feel it is mostly because I have to run everything through my OSJ. I cannot go directly to Compliance. I'm sure it is because I am not a big enough hitter............don't really care. I just don't want them to ding my U-4. I share an office with my OSJ and I can't even look him in the eye. Time to move on.
I was planning on going Indy in time.........now I feel that time has come. Working on my Business Plan now.

Moraen's picture
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Joined: 2009-01-22

llcoolj wrote:Thanks for the feedback. You all are confirming what I have been veeerrrryyyy emotional about for quite a while.
I have gone back to the referral source and asked them to reach out to others and see how they are doing it. They have really been great. They even had their Lawyers willing to call my B/D Compliance dept and discuss it directly. It has fallen on deaf ears.
I feel it is mostly because I have to run everything through my OSJ. I cannot go directly to Compliance. I'm sure it is because I am not a big enough hitter............don't really care. I just don't want them to ding my U-4. I share an office with my OSJ and I can't even look him in the eye. Time to move on.
I was planning on going Indy in time.........now I feel that time has come. Working on my Business Plan now.
 
James - RIA is the way to go. 

Ash's picture
Ash
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Joined: 2009-03-18

llcoolj wrote:I am in a situation where I am paying a flat monthly referral fee to a well know website to send me leads in my area that need any general financial help..........things like questions about IRA's, any kind of Investments, Insurance, etc. I am the only one in my area that gets these leads. It has been a great arrangement for me. Sometimes it is a pain but it is activity, if you know what I mean.
My OSJ had approved the contract/relationship with the referral website when I took it to him about 6 months ago. Now the Compliance dept at my B/D / Custodian has said no way to the arrangement. They were reading my emails and found out I was doing this. According to them it is a clear violation to FINRA's solicitation rules. Now my OSJ is in the hot seat and I am afraid he has thrown me "under the bus" on this. Of course, nothing in writing from him other than my email to him showing the signed contract.
 
This particular referral source has 1200 reps / advisers just like me located across the US. They seem to be getting along just fine with FINRA. I'm not sure who is right or wrong here..........I'd just like a little feedback and see if anyone has some input as to the legality of this arrangement.
 
For what it's worth.........the referral source is a Hub for financial information but does not give any specific advice. They send to people to us for the advice.
 
Thoughts?? I hate to somewhat side with your compliance department, but I do see their point.  Yes a case can be made that it is not really solicitation, but it all depends on the regulator you get during an audit.  Additionally there is nothing wrong with solicitation, but you need to follow the rules which adds a lot of headaches for compliance.  Unfortunately you are stuck with their ruling unless you can speak to them directly.Look me up when you decide to go Indy or send me a PMGood Luckwww.FAfreedom. com - The Breakaway Experts

troll's picture
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Joined: 2004-11-29

deekay wrote:Will you re-affiliate with a B/D if 151(a) passes?
 
 
Yes, but I will be pouting.

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