Referral Fees---are They Legal ?

Mike Siegal

Guru
100+ Post Club
527
Hi all,

Newby agent here with a simple question; Its is legal to pay a referral fee?

If a captive agent sends a lead to an independent, and the deal closes and like-wise the indi sends the referring agent a check, is this legal?

Thanks
 
I think this could varry from state to state. In MS I believe the regs state if non licensed the amount is "nominal" and not contingent on making a sale.
 
Hi all,

Newby agent here with a simple question; Its is legal to pay a referral fee?

If a captive agent sends a lead to an independent, and the deal closes and like-wise the indi sends the referring agent a check, is this legal?

Thanks

90% of the time, its not an issue as long as the payment of the fee isn't contingent on making a sale OR the person you pay it to is licensed, then it can be contingent on the sale.

The big exception to this is realtors / mortgage brokers who can get caught up in RESPA. No issue on your end, but it can be on theirs to collect a referral fee. I have never fully understood how this works, so you just have to ask the realtor and make sure its okay with them. In general, they have to disclose that they get a fee to the person they refer, so it is usually not worth it to them. This is how the mortgage crisis of 2008 was solved ;)

Dan
 
Seeing that you are a newbie.

Some experience. I highly recommend not paying any referral fees to anyone. Instead use some money to take them food, gifts, happy hour... etc. a tit for tat referral relationship is not a lasting one. Or one that's fun.
 
Hi all,

Newby agent here with a simple question; Its is legal to pay a referral fee?

If a captive agent sends a lead to an independent, and the deal closes and like-wise the indi sends the referring agent a check, is this legal?

Thanks

The bolded above - from my understanding, a referral fee cannot be contingent on the policy being sold. It must be on the referral of the customer, whether you sell the policy or not.
 
Since the question was specific to sharing commissions with a captive agent.

Yes, I'm not aware of any state in which it is illegal to share commissions with another licensed producer. HOWEVER, many contracts prohibit this. Almost certainly the captive agent is not allowed to receive it per his/her contract. Also, your contract may prohibit it as well, even if you are an independent agent. Companies like to know where business is coming from and the commissions are going to. Obviously this does not apply to your staff, marketing expenses, etc.
 
Back
Top