l-hunter/dt1st/mark2nd

CPA Commissions and Referrals

A confusion of terms in the Wall Street West column of Dec. 14 could lead to grave misunderstandings in the business community and among consumers about the role and scope of services offered by certified public accountants.

The column refers to changes in existing regulations that formerly restricted CPAs to a single type of fee arrangement, that of fee-only. Beginning on Jan. 1, 1999, however, CPAs will also be allowed to collect commissions from third parties under certain conditions. Columnist Benjamin Mark Cole writes that the regulatory change “…allows CPAs to collect referral fees, also called commissions.” That statement is wrong. Referral fees and commissions are two very different transactions, and CPAs cannot in fact receive fees solely for referring their clients to others.

The new regulatory change simply permits CPAs to be compensated for services rendered to their client by payment from a third party a commission.

Furthermore, and perhaps most importantly, the CPA can only accept commissions in the course of rendering professional services to their clients. The CPA is not free to blindly refer the client to a third party without direct or value-added involvement in the process. In addition, the CPA must of course be licensed and/or registered to offer the product according to the rules and standards of other regulated industries.

The phrase, “referral fee” is loaded with improper connotation. It implies the CPA has passed the client on to a third party and then exited the process. This is illegal for CPAs. For a CPA to receive any payment from a third party, he or she must be adding professional value for the client in the context of financial, tax or investment planning, in which case it would be a “commission” not a “referral.”

PAMELA A. HUNTER

Chair, Commissions Project Team

California Society of CPAs