Ep. 10 – 21 Questions (Series) – 9. Do you pay referral fees to generate new clients?

Welcome to the Real Retirement Financial Planning Podcast. This series covers the 21 Questions to Ask Your Financial Advisor. The list of questions was inspired by Jason Zweig of the Wall Street Journal, and his blog post: The 19 Questions to Ask Your Financial Adviser. Responses to Jason’s questions I read from other advisor websites lacked depth. “Yes,” or “no,” sometimes needs more context and a greater explanation into the whys. The goal of this series is to target the essence of what I think Jason is trying to protect you from, and help you make a better educated decision.


21 Questions to Ask Your Financial Advisor

9. Do you pay referral fees to generate new clients?

Jason wants a “No.”
At MARGIN, we don’t spend hard earned client fees on bounties; we let our clients and our work do the talking. Some advisory firms have bounties for reeling in people. Rainmakers wine and dine. They (usually) don’t manage portfolios, or do financial planning. This model is present in the bigger Registered Investment Advisor (“RIA”) and insurance space. Referrals are large, so these firms can sell big whole life policies for big commission dollars, or high asset based fees. It’s a good return on their investment: paying someone to find you. Where the fees you pay in commissions or asset-based fees offset the bounty paid for bringing you in. Sounds like a great trade.
Do you know if the firm you works with pays others to find them clients? Do you feel you should pay more to be found by one of these referrers (somebodies got to pay for it)?