|
Tips and Traps – Referral Arrangements
Many brokers have arrangements with others to refer business to them. As this is such a valuable source of business, brokers often pay a fixed fee or a commission for the referral. However, it is important to understand the requirements to ensure that neither you as the broker, nor the referrer breaches the AFS laws.
No advice - First of all, the referrer cannot give any advice at all about insurance or the suitability of your services. All they can do is tell the potential client what services you provide and pass on your contact details. If they do any more than this, they run the risk that they could be providing a financial service without an AFS licence.
Remuneration – The referrer must also tell the potential client about any commission, fee or other remuneration or reward they receive for referring them. This applies regardless of whether the client is a wholesale or retail client. This information should be provided at the same time and in the same way as the referral. In other words, if the referral is oral, the disclosure can be oral, if it is written, the disclosure must be written. If the dollar amount of the remuneration is known, then the client should be told this amount.
Broker disclosure – Brokers who pay referral fees must include information about these in their FSGs (and if an SoA is required for a referred client, their SoA). As details of the remuneration are unlikely to be known at the time the FSG is given, it is adequate to provide a general description of the fee in the FSG, e.g. “If a person refers you to us, we may pay them up to 15% of the commission we receive from the insurer”. However the SoA needs to contain the exact dollar amount.
No disclosure is required for wholesale clients unless the referral fee gives rise to a conflict of interest and disclosure of the referrer’s remuneration is the appropriate way to manage the conflict.
|