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CFA Level II Exam · Guidance for Standard VI: Conflicts of Interest

Standard VI(C): Referral Fees in CFA Level II

Updated 7 October 2026 · Fact-checked

Standard VI(C) says members and candidates must disclose to their employer, clients and prospective clients any compensation or benefit they receive from others, or pay to others, for recommending products or services. Disclosure must come before the client takes the service, so the client can judge the recommendation's objectivity.

Understand Standard VI(C): Referral Fees

A referral fee is any payment or benefit linked to sending business to someone else. It can be cash, a share of fees, gifts, or a favour. It can flow to you for recommending a firm, or from you for being recommended.

The problem is bias. A client trusts your advice to be based on their needs. If you are paid when they buy a product, you have a reason to recommend it even when it is not the best fit. The client cannot see that incentive unless you tell them.

Standard VI(C) solves this with disclosure. You must tell your employer and your clients and prospective clients about any compensation or benefit you receive or pay for a recommendation. The disclosure must be made before the client enters the service agreement. It must be specific enough for the client to evaluate the true cost of the services and any possible partiality.

The duty covers both directions. If you pay a broker for client introductions, the client must be told. If you receive a benefit from a lender for recommending it, the client must be told. Your employer must also be told, so it can assess whether the arrangement creates conflicts. Disclosing to the client alone is not enough.

The Standard does not ban referral fees. They are allowed if properly disclosed. It also does not stop you recommending a product you are paid for. It requires that the client knows the arrangement and can weigh the advice.

Key formulas to remember

Core rule
Disclose any compensation or benefit received or paid for a recommendation → to employer, clients and prospects
Applies to both receiving and paying. It covers cash and non-cash benefits.
Timing
Disclose before the client enters the service agreement
Late disclosure, after the client has already committed, does not meet the Standard.
Content of disclosure
Nature of the benefit + value or basis + who pays whom
Must let the client evaluate the cost of the service and any bias in the recommendation.
Audiences
Employer AND clients/prospects
Both must be told. Telling one does not satisfy the duty to the other.

How to solve Standard VI(C): Referral Fees questions

Use this sequence for any item-set question on referral fees or similar recommendation-linked benefits.

  1. 1Find the facts in the vignette: who recommends what to whom, and who pays or benefits.
  2. 2Identify the benefit: cash, fee share, gift or other advantage. Note whether the member receives it or pays it.
  3. 3Check who knows: the employer, the client, the prospect. Mark who has not been told.
  4. 4Check timing: was disclosure made before the client agreed to the service?
  5. 5Check the content: was the disclosure specific enough to show the benefit and its possible bias?
  6. 6Decide whether Standard VI(C) is violated. If so, name the missing disclosure and audience.
  7. 7Pick the answer that gives the corrective action: disclose to the employer and clients before further dealings, in writing where possible.

Quickest way: Who, what, when check

When to use it: Use when time is short and the vignette describes a recommendation linked to payment or benefit.

  1. Ask: is anyone paid or rewarded for the recommendation? If not, VI(C) is not the issue.
  2. Ask: were the employer and the client both told?
  3. Ask: was it before the client committed?
  4. If any answer is no, it is a VI(C) violation. Choose the option that discloses fully and promptly.
  5. Discard options that suggest ending the fee silently, or disclosing only to the employer or only to the client.

Common mistakes in Standard VI(C): Referral Fees

  • Thinking disclosure to the client alone is enough.

    The Standard seems client-focused because the bias affects clients.

    Fix: Remember the employer must also be told, so it can judge the conflict and approve or restrict the arrangement.

  • Treating referral fees as prohibited.

    Candidates link any conflict with wrongdoing.

    Fix: The Standard requires disclosure, not a ban. A properly disclosed arrangement is acceptable.

  • Applying the rule only to fees received.

    People picture a member being paid for referrals.

    Fix: It covers fees paid as well. Paying someone for client introductions must also be disclosed.

  • Ignoring non-cash benefits.

    The word 'fee' suggests money.

    Fix: Standard VI(C) covers any compensation or benefit, including gifts and other advantages.

  • Accepting disclosure after the client has signed.

    The vignette shows a disclosure was eventually made, so it looks compliant.

    Fix: Check timing. Disclosure must come before the client enters the agreement, so late disclosure is still a problem.

  • Confusing VI(C) with IV(B) or VI(A).

    All deal with compensation and conflicts.

    Fix: IV(B) is about extra pay from others for work that competes with the employer. VI(A) is general conflict disclosure. VI(C) is specifically about recommendation-linked payments.

Worked examples

Example 1

Vignette: Anna Meyer is a portfolio manager at a wealth firm. She recommends a third-party tax advisory firm to her clients. The tax firm pays her a quarterly payment equal to 10% of the fees it collects from each referred client. Anna has told her clients that she 'works with trusted partners' but has not mentioned the payments. She has not told her employer. Q1: Does Anna violate Standard VI(C)? Q2: What must she do?

Show the solution
  1. Identify the benefit: Anna receives a share of the tax firm's fees for each referral.
  2. Check who has been told: neither the employer nor the clients know about the payments.
  3. The vague phrase 'trusted partners' does not reveal the compensation or its basis, so it is not adequate disclosure.
  4. Conclude a violation of VI(C): required disclosures to both audiences are missing.
  5. Corrective action: disclose the arrangement to her employer and to clients, stating the nature and basis of the payment, before further referrals.

Answer: Q1: Yes, she violates Standard VI(C). Q2: She must disclose the fee arrangement to her employer and to her clients, specifically and before they use the tax firm.

Example 2

Vignette: Kenji Tanaka is an adviser at an asset manager. His employer has approved in writing an arrangement where Kenji pays a broker a fixed fee for each new client introduced. Before signing any client, Kenji gives each prospect a written note stating that he pays the broker a fee for introductions, and what the fee is. Q1: Does the arrangement breach Standard VI(C)? Q2: Which feature is most important to compliance?

Show the solution
  1. Identify the benefit: Kenji pays a referral fee, which is within the scope of VI(C).
  2. Check the employer: the employer knows and approved in writing.
  3. Check the clients: each prospect receives written disclosure of the fee and its amount.
  4. Check timing: the note is given before signing, so it is before the agreement.
  5. All three conditions are met: both audiences informed, specific content, proper timing.
  6. The most important feature is the disclosure to prospects before they commit, with the employer also informed.

Answer: Q1: No breach. Fees paid for introductions are allowed when disclosed. Q2: Written disclosure to prospects before they sign, alongside the employer's knowledge.

Exam tips

  • Look for payments, gifts or favours tied to recommendations. These signal VI(C) even when the vignette does not use the word 'referral'.
  • Both employer and client must be told. Reject options that cover only one.
  • Timing matters. Prefer answers that disclose before the client enters the service agreement.
  • Be wary of answers that say stop receiving the fee as the only fix. Disclosure is the required action.
  • Pay attention to whether the fee is paid or received. The rule applies to both.

Standard VI(C): Referral Fees in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Standard VI(C): Referral Fees: frequently asked questions

What does Standard VI(C) require?

It requires you to disclose to your employer, clients and prospective clients any compensation or benefit you receive or pay for recommending products or services. The disclosure should let the client judge the cost and any bias.

Are referral fees allowed under the CFA Standards?

Yes. The Standard does not ban them. It requires that they are disclosed to the right people before the client commits.

When must a referral fee be disclosed?

Before the client enters into a service agreement. Disclosing later does not give the client the chance to weigh the recommendation with full knowledge.

How is VI(C) different from VI(A)?

VI(A) is a general duty to disclose conflicts of interest. VI(C) deals specifically with payments or benefits linked to recommending products or services, in either direction.