By James A. Woehlke, CPA

The NYSSCPA board of directors approved on February 4 a membership ballot that proposes a new ethics Rule 503 on commissions and referral fees. The proposed rule makes clear that a Society member can accept commissions and referral fees so long as the member does not perform an audit, review, compilation, or an examination of prospective financial information for the client. The rule provides an exception for compilation clients if the report discloses a lack of independence.

The proposed rule requires that when a member receives a commission, he or she must disclose the commission to the client in plain language. Regarding referral fees, members must simply disclose the referral fee, whether paid or received by the member, to the client

"The new proposed Rule 503 represents a major step in clarifying what heretofore has been confusing our members--when the acceptance of commissions and referral fees is proper and when it is not," said Allen L. Fetterman (Mid Hudson), chair of the Professional Ethics Committee. "Our Society's primary objective is to serve its members. Eliminating areas in the Code of Professional Conduct that are unclear or inconsistent with the State Education Department or the AICPA furthers that objective."

A new interpretation to Rule 102, Integrity and Objectivity, accompanies the proposed rule. Interpretation 102-7 notes that Rule 102 requires a member who receives a commission or who receives or pays a referral fee "to maintain objectivity and integrity, act in the client's interest, and not knowingly misrepresent facts or subordinate his or her judgment to others." The interpretation also advises, "A member may not recommend a product or service, or make a referral, without determining that the product, service, or referral is appropriate for the client."

"The proposed changes will put the CPA on a level playing field with the other non-CPA providers of typical commission services. This will significantly improve the quality of advice the public receives for services like personal financial planning, including insurance, wealth accumulation, and estate planning," said Vincent J. Love, immediate past chair of the Society's Professional Ethics Committee. "At the same time, the changes make it clear that the CPA must comply with the profession's integrity and objectivity standards, and not knowingly mislead a client or push any one particular product over others."

If approved by the membership, this rule would align the NYSSCPA with the AICPA's recent changes. It also generally conforms to what the Society has been told is the unofficial position of the State Education Department.