May an investment advisor be paid a referral fee?
QUESTION: An investment advisor recently referred one of her clients to me to assist the client in purchasing a property for his investment portfolio. The investment advisor asked if I would be willing to pay her a referral fee. I told her that unless she had an active real estate broker’s license, I was prohibited by law from paying her a referral fee. She told me she had a securities license and that the next time she had a client who was going to purchase real estate as an investment, she would handle it herself.
Did I give the correct answer? May an investment advisor assist someone in investing in a piece of real estate without having a real estate license?
ANSWER: Yes, you gave the correct answer. The Real Estate Commission may discipline a real estate broker for paying a commission to any person for acts performed in violation of the Real Estate License Law. Referring real estate business to a real estate broker, if done for compensation, is a real estate brokerage activity requiring an active real estate broker’s license. Although there are a number of exemptions from the requirement for real estate licensure, there isn’t one for acts performed by someone with a securities license.
Regarding your second question, we are not experts in the laws and rules governing the compensation of investment advisors. On the one hand, a licensed investment advisor certainly may be compensated for assisting a client in purchasing a registered real estate security, such as an interest in a real estate investment trust (REIT). On the other hand, an investment advisor who is compensated for actively assisting a client in the process of identifying and purchasing an individual investment property likely would run afoul of the Real Estate License Law. Questions about the compensation of an investment advisor in a specific situation should be directed to the Real Estate Commission’s Regulatory Affairs Division and/or the Securities Division of the North Carolina Secretary of State’s Office.
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