Mutual Funds And Scholarship Plans
In mutual funds and scholarship plans, commission sharing takes place through a client referral agreement. It is direct or indirect compensation that the dealer agrees to pay or receive for referring a client or potential client after receiving compensation for working as a mutual fund or scholarship plan representative (advisor).
There is no restriction on the people with whom one can have a client referral agreement. Therefore, a registered company may enter into an agreement with an unregistered person. This agreement must be established between the representative (advisor)’s dealer and the person sharing it. The compensation resulting from this agreement may or may not be contingent on the completion of a transaction, and may vary based on the sale of a product or the provision of a service to the potential client.
The representative (advisor)’s dealer may participate in a client referral agreement:
- if it outlines the agreement stipulations in a contract signed by the dealer and the person sharing it BEFORE client referrals
- if it enters all the client referral commissions in a record
- if it provides the necessary information to the client before opening the account or providing the service
An advisor or dealer planning to refer a client to another person must take reasonable measures to ensure that this person has the required skills to provide the services and, if applicable, that they are registered to provide them. The advisor must ensure they comply with their dealer’s policies and procedures and, if needed, communicate with their dealer’s compliance officer.
BEFORE an account is opened or services are provided to a client, the dealer must provide the following information
- to them, usually through their advisor:
- the name of each party to the contract
- the contract’s purpose and important terms, including the type of services that each party must provide to the client
- the conflicts of interest resulting from the relationship between the parties to the contract
- the calculation method for the client referral commission and, to the extent possible, the commission amount
- the registration category for each registered person who is party to the contract, with a description of the activities that each person is or is not authorized to conduct in this category
- in the case of a client referral given to a registered person, a mention under which each activity requiring registration resulting from the agreement will be conducted by the registered person receiving the referral
- any other information that a reasonable client would deem important to evaluate the agreement
- Any modification to this information must be provided in writing to each concerned client as soon as possible, and no later than 30 days before the next payment date or next receipt of a client referral commission.