Referral Fees, a 18,000 Annuity Commission, and a 200,000 Wire

Treat it as a compensated solicitation, which is a conflict of interest that must be disclosed and documented, not a private courtesy. Paying a third party for client referrals creates an incentive to accept clients who are not a good fit and to compensate the referrer from client assets. If the firm is an investment adviser, third-party solicitation compensation must be disclosed to the client in writing, the arrangement must be governed by a written agreement, and the client must be told what the solicitor is paid and that the payment is a conflict.

Practical conditions before agreeing:

• A written solicitation agreement with a defined scope, term, and termination right.
• Written disclosure to every referred client, delivered before or at the time of engagement.
• A genuine intake process that can decline a referral, so the fee does not drive acceptance.
• A rule that the CPA does not receive a fee that varies with assets, which would convert a flat referral into a performance incentive.

Consider the CPA's own constraints. AICPA ethics rules restrict members in public practice from receiving commissions for referring products or services to clients. Asking a CPA to take a per-client referral fee may put the CPA in violation and may damage a referral relationship worth more than the fee. Consider a flat annual co-marketing cost share or nothing at all instead.

On describing the firm. If any principal receives commissions, the firm is not fee-only in the ordinary sense of being compensated solely by clients. Referral fees the firm pays out should also be disclosed. Do not use a fee-only label on the website while an insurance commission is being earned, even on a single transaction. The label is a factual claim, and an inaccurate one is a misrepresentation independent of whether the underlying advice was good.

Start with the client's actual situation, not the product. She has $1.6M under management, ample liquidity, and no long-term care coverage. The purchase would place 25% of the account into an illiquid, surrender-charged contract with a seven-year schedule, meaning full liquidity returns at age 85, and with a 2% annual rider drag on top of the commission.

Identify the conflicts and the standard. A 4.5% commission on $400,000 is $18,000 paid to you. That is a material conflict whether or not the product is suitable, and it must be disclosed clearly, not buried in a prospectus. As a fiduciary, the question is not whether the annuity is acceptable in the abstract but whether it is better for this client than the alternatives, including simply holding a bond ladder inside the existing account at 0.85%. Where the firm has discretionary authority, examine whether buying a commissioned product for the account is permitted at all under the firm's policies and advisory agreement.

Test the specifics:

• Surrender schedule against a realistic possibility of a health event or a move to assisted living, both of which require cash.
• Whether the income rider is actually needed, given that she already has $1.6M and Social Security; an income rider solves a problem she may not have.
• Replacement: if any existing annuity or life policy would be surrendered, replacement carries additional disclosure duties and is a classic unsuitable-sale red flag.
• Whether the real need behind the request is long-term care risk, which an annuity with those charges addresses poorly compared with a dedicated solution.

Recommendation. Decline to sell, or at most recommend a much smaller allocation after a documented alternatives analysis. Put the alternatives in writing: a Treasury or CD ladder, a fee-only immediate annuity for a defined income floor, a long-term care or hybrid policy quote, and no action. The file must show that the client saw the cheaper path and chose with full information, and that your compensation did not determine the outcome.

Treat this as a suspected exploitation case, not an unsuitable investment. The pattern is textbook: a new person in her life, a guaranteed 9% return, an unregistered promissory note, urgency, and no independent verification. Add the repeated question, the unopened statements, and the absence of family who might otherwise notice.

Do not process the wire today. Your authority is to act on the client's instructions, but you are not obligated to execute a transaction you reasonably believe is part of a fraud or that the client lacks capacity to authorize. Delay is the intervention that buys time.

Take these steps in order:

• Document what she said, what you observed, the date, and who else was present.
• Contact the trusted contact person on file, if one exists, and if none exists, ask her to add one now. Many custodians and firms require this designation.
• Ask open, non-confrontational questions: how she met the man, who else has reviewed the note, whether the funds can be sent to an escrow or attorney trust account instead of an individual.
• Offer to review the note with her attorney or CPA before any transfer.
• Where firm policy or state rules permit a temporary hold on disbursements for suspected exploitation, use it and notify the appropriate parties.
• Report to Adult Protective Services and to the state securities regulator if the offer appears to be an unregistered securities offering.

Respect autonomy where it exists. If, after all verification, she has capacity, understands the risk, and the note checks out, you may execute the instruction after documenting your recommendation against it. What you may not do is execute it silently, and what you may not do is substitute your judgment for hers when she is competent and informed.

Review the firm's written senior investor policy afterwards. If the firm has none, this week is the time to write one, including a trusted contact requirement at account opening.