CPA and Attorney Partners Programs

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jwcopper's picture
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Joined: 2008-05-13

More and more I am finding attorneys and CPA's are asking about splitting commissions or getting a piece of my revenue for referring clients.  I am finding more CPA's entering into these relationships and basically steering clients just so they can get commissions on work they don't do.  One CPA even told me their AXA advisor told them they (the CPA) does not have to disclose the relationship!  Well maybe AXA thinks that is okay, but I reminded the CPA that their license and the AICPA requires the disclosure.  And if the advisor has so much money left over to split commissions, wouldn't it stand to reason the client is paying too much or being steered into high commission products?
How are others dealing with this issue?  Who thinks this will eventually be caught up in a Dateline show?  Who is doing it and why?  If you don't do it, how do you feel and how do you address CPA and Atty questions about doing it?
 
Again, just so I don't get blasted here, I don't like the practice and don't condone it.

jwcopper's picture
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Joined: 2008-05-13

It is legal.  The AICPA code of conduct allows it if the conflict of interest is disclosed.  Same with attorneys.  The problem is that most of the time the disclosure is buried along with all the other new account documents and it just gets signed.  This brings up the age old Ethics 101 philosophical question "If it is legal is it ethical?"  That is so novice level I don't really want the question answered.  I really would like to see some discussion on what are you seeing, how do you handle it, do you see atty's and CPA's in your area doing it, if you do it why, how much do you split?  Again, I don't like it, I won't blast you if you say you do and answer some questions.

Borker Boy's picture
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Joined: 2006-12-09

Ice, aren't you the guy who aced the 7 and the 66? I believe the Series 66 covers the issue of compensating referral sources. I don't recall the details, but I believe it is legal if done correctly.
I don't think that just because an advisor can afford to pay referral sources necessarily means his clients are paying too much or being steered into high commission products. That may indeed be the case, but your argument by itself doesn't hold water. 
 
If this practice is legal, and a person was getting a large number of referrals from CPAs and attorneys, then it is very likely they would have plenty money "left over" to split the commissions.

snaggletooth's picture
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Joined: 2007-07-13

It is legal.  In fact, I met with an estate atty yesterday who doesn't want any split of commissions because he feels it might be viewed as a potential conflict of interest.  Further, the estate law association is PUSHING estate atty's to get securities and insurance licensed.  This same atty is not an advocate of this because of potential conflict of interest. 

jwcopper's picture
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Joined: 2008-05-13

Snaggle do you have a reference to that assocaitions website that is encouraging the practice of getting licensed?  Several attorneys do get life licensed and sell life policies, but I have not heard about securities licensing also.

And why not split fees and commissions the other way.  If I refer a lot of business to an attorney, then why not give me part of the estate planning fee?  I just see giving away a portion of my fees as another way to minimize my value.  Margins get squeezed, regulatory costs take a bigger bite out of profits.  If I refer a client to a tax preparer, should I expect to get 50% of their fee?  How is that line of thinking any different?

troll's picture
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Joined: 2004-11-29

The wirehouses all (or most) have a program. SB calls theirs the Professional Alliance Group. Its been around for a long time and obviously, is legal. It must be, SB is run by lawyers.
The CPA has to be series 7/63 licensed. Usually he can do a limited number of referrals with pay then after that limit he has to be licensed, but the limit varies by state. At SB, the CPA is payed 25% of the gross (at 100% payout). The client must SIGN A FORM that discloses the relationship and that the CPA is being paid. And the CPA can only be paid on fee based programs.
My experience is that some CPA;s wont do it, for two reasons - conflict of interest, and liability. Many CPA's will set up a completely separate firm to receive the commish, just to keep it separate from their practice.
The one's who will do it, at least the few that I work with, will generally speak with me about the accounts fairly regularly, to be sure their client is being taken care of. Also it helps for the CPA to become your client, because then the appearance of conflict of interest, while still existing, is perceived to be mitigated.

snaggletooth's picture
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Joined: 2007-07-13

jwcopper wrote:Snaggle do you have a reference to that assocaitions website that is encouraging the practice of getting licensed?  Several attorneys do get life licensed and sell life policies, but I have not heard about securities licensing also.

And why not split fees and commissions the other way.  If I refer a lot of business to an attorney, then why not give me part of the estate planning fee?  I just see giving away a portion of my fees as another way to minimize my value.  Margins get squeezed, regulatory costs take a bigger bite out of profits.  If I refer a client to a tax preparer, should I expect to get 50% of their fee?  How is that line of thinking any different?
 
I don't remember the name of the association the estate atty belongs to.  If you google estate atty associations you may be able to find it.
 
He doesn't want to get securities licensed because he already has a full-time job as an estate atty.  But he is getting insurance licensed to do funeral trusts or something by the name of funeral.
 
He is specializing in estate transfers and gets 1% of the estate.  So for a $1MM estate, he gets a one time $10,000. 
 
If I have a $1MM account on some sort of a fee basis at 1%, and we split commissions, I would think I would lose in the long run to him since we have annualized business.
 
I'm sure it works for some, but it's not how I choose to run my business, and there are countless ways to do that.

Akkula's picture
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Joined: 2008-02-17

Speaking of Series 66, I thought you could only share commissions with individuals that are registered under the same broker/dealer.  I think the rules for a investment adivsor are similar. 
Perhaps they are referring to commisions on pure insurance products (not variable annuities)?  I can't remember what the rules on that are.
 
Perhaps they are getting the attorneys signed up as registered reps under the AXA broker dealer so they can get paid.   

jwcopper's picture
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Joined: 2008-05-13

For those who do think this practice is helpful to their practice, why wouldn't you ask other CPA's and Attorneys to pay you for referrals?  If you refer 20 clients to an attorney each year, would you tell the attorney to pay you 40% or 20% or a fixed $ amount for those referrals?  Still having trouble figuring out why this practice is okay for our industry to take a haircut but not the attorneys and cpa's.

Borker Boy's picture
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Joined: 2006-12-09

They're in a different league, professionally. Do you really believe anyone from either of those professions would agree to give a portion of their hard-earned fee to a stockbroker?
 
More and more CPAs are getting securities licensed and chipping away at our prospective client pool. I just hope the attorneys don't figure out how easy it is to get securities/insurance licensed.
 
Once they see how much they can make off of very little effort, they'll kick themselves that they didn't get licensed years ago.

anonymous's picture
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Joined: 2005-09-29

First of all, the absolute best way to get referrals from CPAs and attorneys is to make them your client. 

 
"For those who do think this practice is helpful to their practice, why wouldn't you ask other CPA's and Attorneys to pay you for referrals?"
 
1) I'm sending business to the CPA/Attorney because I feel that they can do a good job for my client.  I'm not doing it looking for a direct revenue source.
2)I would have to disclose this to my client.
3)The only ones who will get referrals from me are either personal clients or send business to me.  I am making money from them and thus have no need for direct compensation via the referral. 
 
Still having trouble figuring out why this practice is okay for our industry to take a haircut but not the attorneys and cpa's.
 
It's not about taking a haircut.  It's about having business literally handed to you with a bow.  It's a smart business practice IF it causes an attorney/CPA make a proactive effort to send business to you.  Would you be willing to give up some commission to get a phone call that said, "Mr. Cooper, this is Joe Blow.  My attorney said that I should call you to purchase a $5 million dollar 2nd to die insurance policy.  Can we take care of it this week?"? 

EDJ4now's picture
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Joined: 2006-02-08

This is probably a state by state issue, but I would be surprised if any states would allow an attorney to share his fee.  Just like the attorney needs a securities license to share our fee, we would have to be a licensed attorney to share his, which is a slightly higher bar to get over (3 years of law school and a bar exam that makes the series 7 look like a 1st grader's spelling test).

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