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Answer: Yes, by not disclosing the estimated dollar value of the fee.
According to **Standard VI(C), Referral Fees**, members must disclose both the nature of the consideration and the estimated dollar value of the referral fee. Appropriate disclosure requires advising the client or prospective client, before entering into any formal agreement for services, of any benefit given or received for the recommendation of services. The disclosure must include the nature of the consideration (e.g., flat fee, percentage basis, one-time or continuing benefit) and the estimated dollar value. Huang's omission of the estimated dollar value constitutes a violation of the Standards, as the disclosure was incomplete.
Author: LeetQuiz Editorial Team
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Thomas Huang, CFA, is an investment advisor for Newline Partners (NP). NP has an agreement with brokerage firm Ridge Capital (RC). Huang refers clients to RC in exchange for compensation. RC pays a cash fee to NP for referrals. Before entering into formal agreements for services, Huang makes the following disclosure to NP's clients: "Please note that Newline Partners receives an annual cash percentage fee from Ridge Capital for the referral of clients." Huang omits disclosure of the estimated dollar value of the referrals. Has Huang violated the Standards?
A
No.
B
Yes, by accepting a cash fee for referral of clients.
C
Yes, by not disclosing the estimated dollar value of the fee.