Level III Core · Guidance for Standard VI: Conflicts of Interest

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

Updated 8 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 or pay for recommending products or services. Disclosure must come before the client decides, and it must be clear enough for the client to judge the recommendation's objectivity.

Understand Standard VI(C): Referral Fees

A referral is a recommendation to use another person's product or service. Sometimes the person who refers gets paid or receives a benefit. That payment can be cash, a gift, or a favour in return. It creates a conflict of interest, because the adviser may recommend what pays them rather than what suits the client.

Standard VI(C) does not ban referral fees. It requires transparency. You must tell your employer, your clients and your prospective clients about any compensation or benefit you receive for recommending a product or service. You must also disclose any you pay to someone else for recommending your services.

Why does disclosure work? The client can then weigh how much to trust the advice. The employer can decide whether to allow the arrangement and can check that the firm is not exposed to risk. Without disclosure, the client cannot judge the objectivity of the recommendation.

The disclosure must be made before the client enters into any formal agreement or acts on the recommendation. It must describe the nature of the consideration or benefit. It should be specific enough that a client understands it. A vague note such as 'we may receive benefits' is weak. Say who pays whom, and what is received, and how it is calculated where that matters.

The standard works together with others. Standard I(B) covers independence and objectivity. Standard III(A) covers loyalty, prudence and care to clients. Standard III(C) covers suitability. A referral fee never excuses an unsuitable recommendation. Disclosure fixes the transparency problem only. You must still recommend what is suitable for the client.

Key rules to remember

Core rule of Standard VI(C): Disclose to employer + clients + prospective clients any compensation or benefit received or paid for recommending products or services; It applies in both directions: fees you receive and fees you pay.
Timing rule: Disclose before the client enters a formal agreement or acts on the recommendation; Late disclosure, after the client has committed, does not meet the standard.
Content rule: Disclosure = who pays whom + nature of the compensation or benefit + how it may affect the recommendation; The client must be able to evaluate the objectivity of the advice.
Suitability still applies: Disclosure ≠ permission to recommend an unsuitable product; Link to Standards III(C) and I(B). Disclosure alone is not a defence.

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

Use this method on any item set or essay question about referral fees or other compensation for recommendations.

1Find the referral. Identify who recommends a product or service, and to whom.
2Find the compensation or benefit. Look for cash, gifts, reciprocal referrals, discounts or other benefits, whether received or paid.
3Identify the parties who must be told: employer, clients and prospective clients. Check which of them were told.
4Check the timing. Was disclosure made before the client agreed or acted?
5Check the content. Was the nature of the benefit described clearly enough for the client to judge objectivity?
6Check related standards: suitability, independence, and employer rules under IV(B) and VI(A).
7State the violation or compliance in one sentence, then name the corrective action, such as disclosing now in writing.

Quickest way: Three-question check: who, what, when

When to use it: Use it when a vignette mentions a payment, gift or reciprocal arrangement tied to a recommendation and you have little time.

Who was told? Employer, clients and prospective clients must all be covered.
What was told? The nature of the compensation or benefit must be clear.
When was it told? It must be before the client commits.
If any answer is no, it is a VI(C) violation. The fix is to disclose now, and to stop recommending until disclosure is made.

Common mistakes in Standard VI(C): Referral Fees

Thinking referral fees are banned.
The word 'conflict' suggests the practice is prohibited.
Fix: Remember the standard requires disclosure, not prohibition. Accepting a fee is allowed if properly disclosed.
Disclosing only to the client and not to the employer.
Students focus on client protection.
Fix: Three audiences: employer, clients and prospective clients. Check each one.
Applying the rule only to fees received.
Referral fees are usually pictured as income.
Fix: The standard covers compensation paid for referrals as well. If you pay someone to send you clients, disclose that too.
Accepting late disclosure as compliant.
The disclosure exists, so it feels satisfied.
Fix: Disclosure must come before the client enters an agreement or acts. Late disclosure does not fix the breach of timing.
Believing disclosure makes any recommendation acceptable.
Students treat disclosure as a cure-all.
Fix: Suitability and objectivity still apply. Recommend only what fits the client's objectives and constraints.
Writing vague disclosure in an answer.
Students want to save words.
Fix: Name the nature of the benefit and who pays whom. One precise phrase earns the point.

Worked examples

Example 1

An investment adviser recommends a tax-planning firm to a client. The tax firm sends the adviser a fee equal to a share of the fee it earns from each referred client. The adviser did not tell the client or her employer about the arrangement. Identify whether the adviser violated the Standards and state the corrective action.

Show the solution

Referral: the adviser recommends the tax firm to the client.
Benefit: the adviser receives a share of the tax firm's fees. This is compensation for a recommendation.
Disclosure: neither the client nor the employer was told. Standard VI(C) requires disclosure to both.
Timing and content: since nothing was disclosed, both fail.
Corrective action: disclose the arrangement to the employer and to the client in writing, describing the fee share, before the client proceeds. Review whether the recommendation is suitable.

Answer: Yes. The adviser violated Standard VI(C) by not disclosing the referral fee to the employer and the client. The adviser should disclose it promptly in writing and confirm the tax firm is suitable for the client.

Example 2

A portfolio manager has a reciprocal arrangement with a custodian: each recommends the other to its own clients, with no cash changing hands. The manager tells prospective clients about the arrangement in the first meeting, before the agreement is signed, and describes it as a mutual referral arrangement. The manager did not inform her employer. Does she comply with Standard VI(C)?

Show the solution

Referral: the manager recommends the custodian, and the custodian recommends the manager.
Benefit: the benefit is the flow of clients from the custodian. Standard VI(C) covers any compensation or benefit, not only cash.
Clients: disclosed before the agreement, with the nature described. This part complies.
Employer: no disclosure. The standard requires disclosure to the employer too.
Conclusion: partly compliant, but the missing employer disclosure is a violation.

Answer: No. The client disclosure meets the timing and content requirements, but she violated Standard VI(C) by not disclosing the reciprocal referral arrangement to her employer. She should disclose it to her employer now.

Exam tips

Read for the hidden benefit. Non-cash benefits such as reciprocal referrals, gifts and discounts count as compensation.
In essay answers, list all three parties: employer, clients and prospective clients. Missing one loses the point.
Always check timing. Phrases like 'after the client signed' signal a violation.
Answer the command word. 'Identify' needs the violation, 'recommend' needs the action, such as written disclosure before the client proceeds.
Link to suitability when a vignette suggests the product was recommended mainly for the fee.

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 Members and Candidates to disclose to their employer, clients and prospective clients any compensation or benefit received or paid for recommending products or services. The disclosure lets the parties judge the recommendation's objectivity.

Are referral fees allowed under the CFA Standards?

Yes. The Standards do not prohibit referral fees. They require full and timely disclosure. You must also keep recommendations suitable and objective.

When must a referral fee be disclosed?

Before the client enters into a formal agreement for services or acts on the recommendation. Disclosure after that point does not give the client a fair chance to weigh the conflict.

Does Standard VI(C) cover fees I pay as well as fees I receive?

Yes. It covers compensation or benefit received or paid for recommending products or services. If you pay someone to refer clients to you, disclose that as well.