How To Use A Solicitor’s Agreement for AUM Fees

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Understanding Solicitor's Agreements

Despite the hundreds of pages of regulatory material financial advisors must navigate, one crucial topic often gets overlooked: how to compliantly compensate professionals who refer clients for asset management services. This arrangement, known as a solicitor's agreement, is essential for advisors working with centers of influence (COIs).

What Is a Solicitor's Agreement?

A solicitor's agreement is a compliant way to pay ongoing compensation to professionals who refer clients for asset management services. This arrangement works both ways:

For advisors looking to compensate referral partners
For non-securities licensed professionals seeking compensation for referrals to investment advisors

Typical Compensation Structure

Based on experience with over 1,100 advisor partnerships and 500 accountant relationships, typical compensation ranges between 15 to 35 basis points of assets under management. Here's how it typically works:

If an advisor charges a 1% management fee:

The advisor collects the full 1% fee monthly
15-35 basis points go to the referring professional
The remainder stays with the advisory firm

Who Can Use Solicitor's Agreements?

These agreements can benefit various professionals:

For Financial Advisors

A way to compensate CPAs
Structure partnerships with attorneys
Pay enrolled agents
Reward insurance professionals
Compensate tax preparers

For Non-Securities Licensed Professionals

CPAs
Insurance agents
Business bankers
Tax professionals
Attorneys

Implementation Requirements

Before setting up solicitor's agreements, consider:

Your RIA must allow solicitor arrangements
State regulations may vary
Compliance oversight is necessary
Proper documentation is required
Disclosure requirements must be met

The Importance of Financial Alignment

As industry expert John Cutton says, "It's not about the money, it's not about the money, it's not about the money... until it's about the money." While compensation isn't the only factor in successful partnerships, it's an important component that shouldn't be ignored.

Taking Action

For RIA Firms

If your RIA doesn't currently allow solicitor's agreements:

Discuss the possibility with your compliance officer
Research industry standards
Consider the competitive advantages
Document potential benefits
Evaluate compliance requirements

For Referring Professionals

If you're making introductions without compensation:

Ask about solicitor's agreement possibilities
Understand the compliance requirements
Evaluate your current partnerships
Consider firms that offer these arrangements
Document your referral activities

Making the Switch

If your current RIA doesn't allow solicitor's agreements, consider working with one that does. While financial arrangements aren't the only factor in successful partnerships, they're an important component of creating sustainable, long-term relationships.