Referral Fees

[Burke]

Do any of you pay (or receive) referral fees for new clients? If so, what is it based on?

[Uncle]

Referral fees

I pay to the referrer 25% of any fees I collect from the new client for the first four years the new client is with me. For example, if a new client is referred to me and I collect $200 each year for the next five years, I pay the referrer $50 for each of the first four years. This works well for me. I disclose the arrangement to clients, even though disclosure is not required. Disclosure is required for NAEA members.

[Burke]

Disclosure is required for NAEA members.

So an EA who pays any kind of referral fee must disclose this to the client? That's interesting.

[kathyc2]

If a client sends me a referral I give the client 15% off prep fees as a thank you.

I believe the disclosure comes from if you receive a fee. For example if you refer a client to an investment advisor and the investment advisor then pays you a fee, it should be disclosed.

[Uncle]

Disclosure requirement

EAs are not required to disclose. Members of NAEA are required to disclose (NAEA requirements).

[taxea]

Wow, Uncle, so generous! I discount the fee of the referring client if the new client uses my services.

[Burke]

Discussion with local preparer here for many years reveals he pays 25% to the referrer as a one-time fee (if that referrer is not a client, say another tax preparer who does not want to take any new ones on.) Which would be deductible as an expense. I suppose discounting to an existing client for a referral would have the same net effect.

[TXEA]

I have never paid a referral fee nor have I received or asked for a referral fee. I simply send the person who made the referral a thank you note or e-mail. I generally don't mention the client's name in the note.

As for those paying referral fees, I hope you remember to pick up the fee as income if you prepare that person's return.