A finder’s fee is a payment made to someone who helps connect a buyer with a product, service, or investment opportunity. These fees, common in industries such as real estate, finance, and business brokerage, are typically a percentage of the deal or a flat fee paid for making the introduction.
Finder’s fee disclosure involves clearly informing the referred party that a fee or commission is being received for the referral. This practice is crucial for maintaining transparency and trust, helping clients understand any financial incentives the referrer may have, which could influence recommendations.
In many regulated sectors, including financial services overseen by the SEC or FINRA, mortgage lending regulated by the Consumer Financial Protection Bureau (CFPB), and real estate governed by the Real Estate Settlement Procedures Act (RESPA), disclosing finder’s fees is often a legal requirement to prevent conflicts of interest and protect consumers. For example, mortgage brokers must disclose commissions they receive from lenders when referring borrowers (Learn more on CFPB’s RESPA guidance).
Disclosure typically happens before the transaction and is often included in written agreements or contracts. Failure to disclose can result in legal penalties, loss of professional licenses, reputational harm, and voided contracts.
For consumers, it’s important to ask about potential referral fees and review disclosure statements carefully. For professionals, clear, specific, and timely disclosure of any finder’s fees is essential to comply with legal standards and uphold ethical responsibilities.
Related: To learn about the basic concept of these fees, see our Finder’s Fee glossary article.
External authoritative sources:
- FINRA Investor Alert on unregistered sellers: https://www.finra.org/investors/insights/watch-out-unregistered-sellers-private-placements
- CFPB guidance on RESPA: https://www.consumerfinance.gov/compliance/regulatory-guidance/mortgage-lending/real-estate-settlement-procedures-act/
Proper disclosure ensures all parties have clear information about any financial incentives involved, enabling better informed decisions and reducing potential conflicts of interest.
