Obtaining Client Consent When Paying Staff for Referrals

By CPABC
Last Revision: 10/1/2018

Practitioners often look to expand their practice by seeking referrals from staff, clients, and other contacts. We wish to remind all members engaged in public practice, both employees and owners of CPA firms, of Rule 216 in the CPABC Code of Professional Conduct.

In general, you are prohibited from:

  • paying a commission or other compensation, directly or indirectly, to obtain a client; and
  • accepting a commission or other compensation, directly or indirectly, for referring a client to products or services of others.

However, Rule 216 does not apply when you are:

  • buying and selling an accounting practice;
  • paying an employee of your firm or another CPA member engaged or employed in public practice to obtain a client; or
  • accepting a payment from another practitioner in public practice for the referral of a client to that practitioner.

Moreover, it’s important to note that when you are paying or receiving any permitted commission or other compensation, you are required to disclose the relevant facts and obtain the consent of the affected client. Obtaining client consent is not necessary when you’re paying or receiving a commission or other compensation in relation to the sale and purchase of an accounting practice.

Rule 216 Payment or Receipt of Commission and the related guidance are reproduced below for your reference. The term “registrant” is used throughout the Code and means a designated member, a registered CPA firm, a professional accounting corporation, or a student.

216.1
  1. Other than in relation to the sale and purchase by a member or registered firm of an accounting practice, a registrant engaged or employed in the practice of public accounting shall not directly or indirectly pay, in relation to obtaining a client, a commission or other compensation to any person who is not an employee of the registered firm or who is not another registrant engaged or employed in the practice of public accounting.
     
  2. Other than in relation to the sale and purchase by a registrant of an accounting practice, a registrant engaged or employed in the practice of public accounting shall not accept directly or indirectly from any person who is not engaged or employed in the practice of public accounting a commission or other compensation for a referral to a client of products or services of others.
     
  3. Other than in relation to the sale and purchase by a registrant of an accounting practice, a registrant engaged or employed in the practice of public accounting paying or receiving any commission or other compensation that may be permitted in accordance with paragraphs (a) or (b), shall:
     
    1. disclose the relevant facts about the commission or other compensation to; and
       
    2. obtain consent to the commission or other compensation from, the client in relation to the transaction giving rise to the commission or other compensation.
216.2

A registrant who is not engaged or employed in the practice of public accounting may directly or indirectly pay or receive a commission or other compensation in relation to obtaining a client or the referral of products or services of others, provided that the registrant complies with the provisions of Rule 207, including those related to disclosure and consent, and with all other applicable laws and regulations that govern the payment or receipt of any such commission or other compensation.

Guidance to Rule 216

  1. A registrant may be asked by an investment dealer or insurance broker to act as agent or sub-agent for the sale of securities or the placement of insurance. A registrant may, at the same time, be receiving fees from clients for services which include advice on the utilization of surplus funds or on insurance coverage. There is bound to be a conflict of interest between this position and that of acting as agent or sub-agent for the sale of securities or the placement of insurance. Acceptance of a commission, finder's fee or other remuneration from third parties for such agency services would be incompatible with the principle of objectivity which is fundamental to our profession.
     
  2. The effect of Rule 216.1 is that a registrant engaged or employed in the practice of public accounting is permitted to receive a commission or other compensation for a referral of products or services of others only from another registrant engaged or employed in the practice of public accounting [or from another person who is so engaged or employed (where permitted by legislation)]. Where a registrant establishes arrangements and corporate or other structures in order to facilitate transactions involving the receipt or payment of commissions or other compensation, such arrangements or structures are unlikely to change the substance of these transactions. CPABC will consider the substance and effect of any such transactions when making a determination as to whether a breach of the CPA Code has occurred.
     
  3. Rules 216.1 and 216.2 require a registrant to provide disclosure to and obtain consent from a client in those circumstances where payment or receipt of a commission or other compensation is permitted. Prudence dictates that all such disclosure and consent be written.
     
  4. Registrants are reminded that transactions giving rise to the payment or receipt of commissions or other compensation for the referral of the products or services of others are frequently governed by statute or other regulations setting out specific additional licensing, registration, disclosure and other requirements.