Question

Roughly a dozen times a year, Bruce Leonard, a CFP® certificant, encounters clients having serious cash flow and net worth deficits. He generally recommends they consider bankruptcy. Typically, the clients ask Bruce for a referral to a bankruptcy attorney. Bruce generally refers such clients to Mark Mason Esq. Bruce has no formal arrangement with Mr. Mason, but Mr. Mason pays Bruce $150 in cash for every referral who becomes a bankruptcy client.

Which of the following statements best reflects the ethical aspect of this situation?

A. Bruce has no obligation to research Mr. Mason's competence providing Mr. Mason holds a valid legal license.

B. Acceptance of any referral fees clearly violates the Principle of Fairness found in the Code of Ethics and Professional Responsibility.

C. Referral fees to attorneys do not violate the Principle of Fairness found In the Code of Ethics and Professional Responsibility because they do not involve product commissions with potential to compromise the Principle of Objectivity.

D. Acceptance of any referral fees does not violate the Principle of Fairness found in the Code of Ethics and Professional Responsibility if the nature and source of the referral fee is disclosed in writing to each referred client.

Answer 1

Acceptance of any referral fees does not violate the Principle of Fairness if the nature and source of the referral fee is disclosed in writing to each referred client.

Step-by-step explanation:

The ethical aspect of the situation described in the question is best reflected in option D. Acceptance of any referral fees does not violate the Principle of Fairness found in the Code of Ethics and Professional Responsibility if the nature and source of the referral fee is disclosed in writing to each referred client.

Receiving referral fees is not inherently unethical, as long as there is transparency and disclosure. In this case, Bruce refers clients to Mark Mason without a formal arrangement, but Mr. Mason pays a referral fee. As long as Bruce discloses this arrangement to the referred clients in writing, it does not violate the Principle of Fairness.

It's worth noting that although the referral fee itself is not unethical, Bruce still has an obligation to research Mr. Mason's competence and ensure he is a competent bankruptcy attorney, as stated in option A. However, this obligation is separate from the ethical aspect of accepting referral fees.