Payment or Receipt of Commissions

By CPABC
Last Revision: 9/30/2016

Practitioners are sometimes approached by investment or insurance advisors to refer clients in return for a fee. Alternatively, public practitioners might want to pay third parties to help obtain clients. We refer you to Rule 216 in the Code, Payment or receipt of commissions, where you are prohibited from paying or receiving commissions except for certain specific circumstances:


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. A registrant engaged or employed in the practice of public accounting who pays or receives 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 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.

The term “registrant” is used throughout the Code and means a designated member, registered CPA firm, a professional accounting corporation, or a student.

The additional guidance to Rule 216 are as follows:

  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 registrants engaged or employed in the practice of public accounting are permitted to receive or pay referral fees only when the referral is between registrants engaged or employed in the practice of public accounting [or between such a registrant and another person who is so engaged or employed (where permitted by legislation)]. On occasion, a registrant may consider establishing 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 and CPABC will consider the substance and effect of any such transactions when making a determination as to whether a breach of the Rules 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.