Paying a RIA for referrals, is it legal?

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Jan 26, 2010 10:08 am

So I met a RIA the other day that specializes in divorces.  The RIA works with 2 law firms and consults couples on how to fiscally handle the divorce.  The RIA cannot place any trades nor implement the strategies they develop with couples, and is looking for someone they can send the couples to so they can put their money in the investments they discussed during their consultation.  The RIA gets paid hourly for the advice/consulting, however wants some cut of the commission/fee I get paid for investing the couples' money.  I was thinking of just giving them a percentage of whatever I make off each couple sent my way.  I am new to the industry (this is my first month) so am not sure if this is legal or not. Any thoughts?

Jan 26, 2010 10:17 am

Actually, I think it is legal if it disclosed on your ADV II (assuming BigCheese is an RIA also).  If BC is a RegRep, I am not sure.

Jan 26, 2010 10:23 am

It's ok RIA to RIA. (I have an agreement with an RIA like this - he does the planning, I manage the money)

I don't believe it can be done if one of them is affiliated with a b/d unless both are using the same b/d

Jan 26, 2010 2:31 pm
bigcheese09:

So I met a RIA the other day that specializes in divorces.  The RIA works with 2 law firms and consults couples on how to fiscally handle the divorce.  The RIA cannot place any trades nor implement the strategies they develop with couples, and is looking for someone they can send the couples to so they can put their money in the investments they discussed during their consultation.  The RIA gets paid hourly for the advice/consulting, however wants some cut of the commission/fee I get paid for investing the couples' money.  I was thinking of just giving them a percentage of whatever I make off each couple sent my way.  I am new to the industry (this is my first month) so am not sure if this is legal or not. Any thoughts?



Be careful.  Sounds like he is just looking for referrals.  In order to just do divorce planning, you don't need to be registered as an RIA.  You can simply hang out a shingle that says, "Certified Divorce Financial Analyst". 

In all likelihood, he has clients with funds.  What is possible is that he doesn't want to jeopardize his "expert" status in the event he has to testify.  There is a conflict inherent in recommending a "fair" equitable distribution, and having that clients' assets. 


Jan 26, 2010 4:15 pm

As far as I know, for it to be legal you need to be an RIA or atleast dually registered.  A particular dually registered firm that I have worked with before have a program that allowed IARs to set up these professional relationships with Solicitors.  The requirements are basically this:


1. You are an IAR / RIA.
2. The solicitor has a 66 (or could be 63/65 possibly).
3. The solicitor gives the client your ADV Part II at time of solicitation.
4. The solicitor gives the client a disclosure document that states the nature of your and the solicitor's business arrangement, and how much $ the solicitor and you will make from this client.
 
Most typically this is used with "Centers of Influence" as you guys like to call them...professionals...CPAs, Lawyers, etc.
 
There was actually a really good discussion on how to use solicitors on LinkedIn the other month, that also covered how to structure the comp to ensure they keep bringing in clients.  PM me if interested.
Jan 26, 2010 5:27 pm

Hey Wet_Blanket, I would like more information about setting that up.  Could you help me find that discussion you mentioned?

Jan 27, 2010 9:31 am

I'm out of the office till Friday, so it will take sometime...but I've been mulling over this relationship and I have some misgivings.

 
They way it is set up, I can only see two undesirable outcomes.  Either:
 
1) The client pays an hourly fee to the RIA to set up the investment plan, then they pay you commissions to execute it.  What value are you bringing to the table?  The client already has the plan, why not take it to a discount brokerage?  It seems like this approach will be too costly to justify.
 
2) The client pays an hourly fee to the RIA to set up the investment plan, then they pay you an AUM based fee to implement it in an advisory account.  Again, what value do you add?  Plus, with the RIA making the investment decisions, you are shouldering practically all the fiduciary responsibility and liability of the relationship.
 
Can you rework this relationship to where the RIA/Financial Planner handles the broad financial implications of the client's life, and you handle specifically the investment side?
 
Also, before you go to crazy with what I will provide you, keep in mind that it is geared to RIAs, not the dually registered.  A good place for you to start is at your firm, since they will ultimately decide what you can and can not do with soliticors.
Jan 27, 2010 10:32 am

In the State of MO and a few others you do not need to be licensed to be a solicitor and get paid a fee. When this is done normally the RIA that is setting up the relationship will keep half or more of the fee and will want so many referrals a year to keep the solicitor contract in force. The solicitor is responsible for meeting with the client, getting all paperwork signed and completing reviews.