How should a dealer manage conflicts arising from referral arrangements?

• A. Disclose the arrangement, ensure fair treatment, and avoid conflicts of interest that harm customers.
• B. Keep the arrangement secret to avoid concerns.
• C. Prohibit referrals entirely.
• D. Reveal the arrangement only to supervisory staff.

Answer: (A)

Managing conflicts of interest in referral arrangements means prioritizing transparency and fair dealing. When a dealer has a referral arrangement, it creates a potential incentive that could influence how products or services are presented or recommended. The proper approach is to disclose the existence and material terms of the arrangement to customers, alongside a clear statement that the referral will not compromise the quality of advice or the fairness of treatment. This disclosure helps customers understand any incentives at play and allows them to make informed decisions, while the firm must have controls to ensure recommendations are in the customer’s best interest and not driven by referral incentives. Keeping the arrangement secret undermines trust and can violate MSRB rules on disclosure and fair dealing. Prohibiting referrals entirely is not required, and sharing the arrangement only with supervisory staff fails to provide the customer with necessary transparency.