What do CFP Board standards say about conflicts and referral compensation?

What do CFP Board standards require when a planner earns referral compensation?

In short, the CFP Board's Code of Ethics and Standards of Conduct expect a CFP professional to be open about compensation and to disclose and manage material conflicts of interest before they affect the client. How that plays out for a referral reward depends on the planner's engagement type, fiduciary status and employer, so read the current text on the CFP Board's own website rather than relying on a summary, this page included.

This page is a practical reading aid for planners who serve business owners. It does not quote the standards, because the exact wording and numbering change between editions. This is general information, not legal, tax or financial advice. Confirm with your own counsel, compliance team or professional body before acting.

Why the question comes up for planners

A planner who works with a founder sees the balance sheet, the buy-sell agreement, the insurance, the succession plan and often the board minutes. That vantage point makes you a natural source of introductions, and also the person whose recommendation carries the most weight. A referral reward attached to a recommendation is exactly the kind of fact the standards want the client to know.

The question is not whether introducing a service is allowed in the abstract. It is whether the client can make an informed choice when you tell them about it.

The three duties to map to a referral

Rather than recite rule numbers, map the arrangement to three duties that run through the Code:

If your firm is an RIA, your Form ADV and compliance manual may add disclosure obligations beyond the CFP Board's. If you are dually registered or sit inside a broker-dealer, your firm's outside-activity policies apply as well, and FINRA's Rule 2040 on payments to unregistered persons applies to member firms and their associated people, so involve compliance early.

A conflicts screen before you mention the program

Run these questions in order. Any "no" is a reason to pause and speak with compliance.

• Does your employer or firm permit paid outside referral arrangements, and is that approval in writing?
• Is the introduction unrelated to the advice you are paid to give the client?
• Have you written down how you would disclose the reward, and when?
• Could the client refuse without any effect on your service or fees?
• Will you avoid handling, exporting or describing any of the client's records?
• Do you know whether your state or another license you hold limits referral compensation?

For a planner whose firm requires pre-approval, the best sequence is internal approval first, client disclosure second and introduction third.

When in the client relationship to raise it

A disclosure you can adapt

Keep it plain and put it in writing before the introduction.

Then ask the client to acknowledge it. The same approach is explained from the exit-planning side in exit planners and referral fees, and a policy you can adapt is the conflict of interest policy template for consultants and advisors.

What the introduction involves

You make the introduction and nothing more.

1. The owner asks to hear about the program, or accepts an introduction after your written disclosure.
2. Either the owner applies with your referral link, or you send the company name and basic fit facts.
3. SourceX screens on size, history, data breadth and rights.
4. The company prepares its inventory; price and terms are set with the company before any buyer review.
5. A closed deal leads to delivery under a signed agreement and payment to the company; your reward is payable only after SourceX has received its fee.

You never export, upload or describe confidential records. Use the company fit checker with the client if a quick, no-contact-details screen helps.

How the reward works

Partners earn 25% of the eligible platform fees SourceX collects from the referred company's licensing deals, capped at $100,000 cumulative per referred company. It is payable only after the buyer pays and SourceX receives its fee. An introduction, meeting or signed agreement alone triggers nothing, and no reward is guaranteed. Planners should compare the program terms with their firm's compensation and conflict policies before signing up.

When not to make the introduction

• Your firm has not approved the arrangement, or you have not read its policy on outside income.
• The client depends on your recommendation and cannot easily decline.
• The company has fewer people than the baseline of 50+ full-time employees at peak (contractors excluded).
• The records mainly belong to the owner's clients or are mostly personal data without a licensing basis.
• Family-office or trust structures are involved and the trustee has not agreed; the policy points in family office conflict policies help here.

Next step

Check your compliance manual, write your disclosure, then register as a partner and introduce one business-owner client who has asked. If a client's sale process is involved, also read the Section 15(b)(13) overview.