The Growth Plan: Referral Fees, a Mass Flyer, Cold Calls, and a LinkedIn Post
Marcus is a Series 6 representative at a mid-size FINRA member broker-dealer. His growth plan has four moving parts. (1) He signed a one-page agreement with Dana, a local CPA, paying her $150 for each client she sends him who opens a mutual fund account; Dana holds no securities registration of any kind. (2) He wants to mail a flyer to 400 purchased household names showing XYZ Growth Fund's total return for each of the last ten calendar years, with the tagline 'Call for a free portfolio review - you could enjoy returns like these.' (3) His unregistered assistant began cold-calling the purchased list between 9 a.m. and 5 p.m., reading a script that asks whether the prospect 'wants to hear about our top-performing fund.' (4) Marcus posted on LinkedIn: 'Congrats to my client who made 22% last year in XYZ Growth!' No principal has reviewed any of it.
1. Evaluate the arrangement with Dana. May Marcus accept referrals and pay $150 per funded account? What must happen before any money changes hands?
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No - not as structured.
- The payment is transaction-based compensation for steering securities business to a broker-dealer. FINRA's payments-to-unregistered-persons rule (Rule 2040) bars a member and its associated persons from paying compensation to a person who is not registered as a broker-dealer but who, by reason of receiving those payments, should be registered. A per-account fee contingent on a securities transaction is the classic finder's fee.
- Calling it a 'marketing' or 'professional services' fee does not help, because the fee is contingent on the securities transaction itself. If Dana were compensated only for genuinely non-solicitation services (e.g., clerical or tax-preparation work billed at fair value regardless of whether an account opens), the analysis changes.
- There is no broad exemption for accountants, attorneys, or 'centers of influence.' Any solicitor-type arrangement requires compliance/legal approval, an appropriate registration or licensing path for the solicitor, a written agreement, disclosure to the client of the fee paid, and suitability/statutory-disqualification screening of the solicitor.
Action: do not pay and do not accept referrals under this arrangement. Escalate to compliance, terminate the agreement in writing, and document. Payments already made, if any, are a reportable issue for the firm. Uncompensated, non-solicitation introductions (Dana tells a client 'you might want to talk to a financial professional' with no payment and no scripted pitch) are a different, cleaner fact pattern - but confirm with compliance before relying on it.
2. Classify the flyer and the LinkedIn post under FINRA's communications rules. What approvals, filings, and content changes are required?
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Classification
- The flyer going to 400 retail households is a retail communication (written communication distributed to more than 25 retail investors within any 30-calendar-day period). It requires approval by a registered principal before first use.
- Because it concerns a registered investment company, it must also be filed with FINRA's Advertising Regulation Department within 10 business days of first use.
- The LinkedIn post is static, promotional content about the rep's business - also a retail communication requiring principal pre-approval and firm social-media supervision. Interactive back-and-forth on a forum is treated differently, but a standalone promotional post is not.
Content problems
- 'You could enjoy returns like these' is an implied guarantee/prediction of investment results - prohibited. Communications must be fair and balanced and may not be misleading.
- A hand-picked list of ten calendar-year returns is not the required performance presentation. Fund advertising must use standardized average annual total returns (1-, 5-, and 10-year or since inception), reflect the effect of the maximum sales charge, and carry the required legends and disclosures. Cherry-picked yearly numbers without that presentation distort results.
- The 22% testimonial: testimonials are permitted but must be balanced, must be representative or disclose that they are not, and must not imply that other clients will achieve the same result. The 'Congrats to my client' framing does not exempt it.
- 'Free portfolio review' is acceptable only if it is truly free and not conditioned on a purchase; if the 'review' is a sales appointment, the wording needs review.
Fix: principal approval, FINRA filing, rewritten performance section, removal of predictive language, and retention of the approved versions and the post under the firm's books-and-records system.
3. The assistant has already made cold calls from the purchased list. Identify the compliance problems and the corrective steps.
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Problems
- Unregistered solicitation. A non-registered assistant may not make calls that solicit securities business. Reading a script asking whether the prospect wants to hear about a fund is engaging in the business of effecting securities transactions. The assistant may schedule appointments or handle clerical tasks, but not pitch products.
- Do-Not-Call. A purchased list confers no consent. The firm must scrub it against both the National Do Not Call Registry and the firm's own DNC list before dialing. The 'existing business relationship' exception (generally 18 months from a transaction, 3 months from an inquiry) does not apply to strangers on a bought list.
- Calling hours. Calls must be within 8 a.m. to 9 p.m. local time at the called party's location, and the firm needs a written telemarketing policy, training, and a process for recording and honoring do-not-call requests.
- Supervision. None of this was reviewed by a principal.
Corrective steps
- Stop the campaign immediately; pull the call logs and check every number dialed against the national and firm DNC lists.
- Report to the principal and compliance in writing; any call to a registered number is a rule violation requiring remediation and possibly a filing.
- Retrain the assistant on the boundary between administrative work and solicitation; do not let the assistant make product calls.
- Re-run and document the DNC scrub before any restart, and obtain principal approval of the script.