As a financial adviser, your role goes beyond just following regulations; it’s about building trust with your clients. But what happens when money gets involved, especially in the form of referral fees? These fees—payments you might receive for referring clients to other professionals like accountants or mortgage brokers—can raise tricky questions. Are you acting in your client’s best interest, or are you just taking the referral fee? It’s a question that has puzzled many in the industry, especially since the introduction of Standard 3 of the FASEA Code of Ethics.

Let’s dive into this issue, break down what the law says, and explore what FASEA really expects from advisers like you when it comes to referral fees.

What Does the Corporations Act Say About Referral Fees?

Under the Corporations Act, referral fees aren’t explicitly forbidden or embraced. They exist in this gray area, but there are clear rules about disclosure. Essentially, if you receive any benefit—whether it’s money, a gift, or even a non-monetary perk—you must disclose it to your client. You’ll find this covered under sections like Section 912 (regarding the obligations of Australian Financial Services Licensees) and Section 963 (conflicted remuneration). So as long as you're transparent about these benefits in key documents, like the Financial Services Guide (FSG) or Statement of Advice (SOA), you’re good to go—at least from a legal standpoint.

But here’s where things get a bit more nuanced: disclosing a conflict of interest doesn’t necessarily eliminate it. Just because your client knows about a referral fee doesn’t mean that fee won’t influence your judgement. This is where the FASEA Code of Ethics steps in, taking the conversation beyond disclosure and into the realm of what’s truly in your client’s best interest.

The FASEA Code of Ethics: More Than Just Disclosure

Under FASEA’s Standard 3, you’re required not just to disclose conflicts, but to avoid them altogether. This standard caught many advisers off-guard when it was first introduced. Does that mean referral fees are automatically a conflict of interest? Should we all just stop making referrals?

Not quite. FASEA recognises that there’s a line between a referral that benefits the client and one that primarily benefits you, the adviser. Stephen Glenfield, FASEA’s CEO, put it well during a panel discussion: "You need to ask yourself, is this referral in the client’s best interest, or am I just accepting it because of the fee I’m getting?” If you’re referring a client to someone just because there’s money in it for you, rather than because it’s the best option for them, then yes, there’s a conflict. But if the referral genuinely serves the client, and the fee is just a byproduct of that, you’re on much firmer ground.

The Real Question: Does the Referral Fee Create a Conflict?

Here’s the heart of the issue. It’s not the referral fee itself that creates the conflict. Instead, it’s whether the fee could induce you to make a recommendation that isn’t in your client’s best interest. Let’s put it this way: if an independent, unbiased person knew about your referral arrangement, would they reasonably conclude that it could influence your advice?

Imagine you’ve referred a client to an accountant. You know the accountant does great work, but you also receive a fee for every client you refer. Now, what if that same client might be better off seeing another accountant or tax specialist—someone who might not offer a referral fee? This is where Standard 3 steps in and asks you to look in the mirror: are you really thinking about the client first?

FASEA makes it clear that you need to professionally assess whether this kind of arrangement creates a conflict, even if it’s not immediately obvious. It’s about using common sense. If the arrangement passes the “would this be okay if I weren’t getting paid for it?” test, then you’re probably in the clear. If not, you might be walking into a conflict.

Navigating Standards 3 and 7: The Licensee Loophole

Here’s another wrinkle. Under Standard 7 of the FASEA Code of Ethics, financial advisers can’t accept direct benefits from third parties, including referral fees, unless it goes through your Licensee. In other words, while you can’t personally accept referral fees, your Licensee can. But this doesn’t let you off the hook. Even if the fee flows through your Licensee, you still need to ensure that it doesn’t influence your advice. If that fee makes you more likely to refer a client to a particular service provider—even if it’s not in the client’s best interest—then you’re in breach of Standard 3.

And there’s more: under Standard 7, all benefits—including referral fees—must be disclosed to the client. If your client doesn’t know about the fee, even if it’s paid through the Licensee, you’re potentially in breach. Transparency is key.

So, Are Referral Fees Okay?

The answer, like much in financial advice, is it depends. Referral fees are not automatically unethical, but they can create conflicts of interest if they influence your decision-making in ways that don’t serve the client. As an adviser, you’re expected to put your client’s best interests first, and that means assessing every referral arrangement carefully.

Here’s a helpful way to think about it: It’s not the pathway of payment that matters—it’s the intent. If you’re getting a referral fee and it doesn’t affect your advice, and the client is fully aware of it, then the arrangement can still align with both the Corporations Act and FASEA’s Code of Ethics. However, if that fee starts to push your judgment off course, it’s a problem.

Bringing It All Together: Trust, Ethics, and Transparency

At the end of the day, financial advising isn’t just about numbers or following the law—it’s about trust. Your clients trust you to give them advice that serves their best interests, not your own financial gain. And that’s why FASEA’s Code of Ethics exists—to push advisers beyond mere compliance and towards genuine ethical behaviour.

When it comes to referral fees, the real story is that you can still make referrals, and you can still get paid for them. But you need to constantly ask yourself: Is this benefiting my client or just me? And if the answer is unclear, it’s time to pause and reassess.

In short, referral fees aren’t the enemy—but letting them cloud your judgement could be. Always keep your client’s best interests at the forefront, and when in doubt, disclose everything. Trust is built on transparency, and when you’re open and ethical in your practice, that trust will naturally follow.