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Series 7 practice questionhardMarketing and Prospecting — Customer Referral Payments

A registered rep wants to pay a $500 referral fee to a friend for introducing three prospects. Which of the following conditions must be met for this payment to comply with FINRA rules?

  1. AThe friend must be registered with a FINRA member firm
  2. BThe rep can pay the fee if it is under $1,000 per referral per year
  3. CThe registered rep must obtain prior written approval from the firm and disclose the arrangement to the customer✓ Correct answer
  4. DThe payment can be made if the friend is not involved in the transaction beyond the initial introduction
Explanation

Why C — The registered rep must obtain prior written approval from the firm and disclose the arrangement to the customer

FINRA requires that referral payments to non-registered individuals must be pre-approved by the firm and disclosed to the customer; otherwise, they may be considered a prohibited sharing of commissions.

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