Can anyone direct me to a source that defines or limits what a bank can pay to an employee that refers a cusomter to a subsidiary (wholly owned) financial services company (like trust)? Are there any limits? Spceial rules?

Another question would be about the nominal referral fee. Is it like a small fee for each referral or sale? For example, could the bank pay its employees $10 for each annuity referral?

Thanks
Roger

The fee I'm talking about would be 10% of the first year's fee income on the account. I know that trust departments operate in this fee arena, but are there other rules to worry about?

The Interagency Policy Statement on Retail Sales of Non-Deposit Products authorizes payment of a nominal incentive for referrals on nondeposit products. The nominal payment (Ithink the policy or some other literature I have seen mentions a max of $25) must be a one-time payment and not related to whether or not an account is etablished.

That pretty much kills the idea of a referral of 10% of first-year income on investment accounts.

I think the SEC and NASD also have rules regarding compensation of unlicensed personnel. The situation you describe would fall into the category of paying a commission. The NASD and SEC frown on unlicensed personnel receiving commissions.

When you say one-time fee am I correct that that is an incentive for each referral, e.g, 5 referrals@$25=$125?

Update: I was wrong that the "company" was owned by the bank. The bank has no interest in the Investment Company at all. They are proposing to pay our bank employees a 10% incentive for the first year's fee income. Are there any restrictions since this would not fall under the Interagency rules? Our employees would "refer" a customer if we could not offer them a product of their liking.

I would suggest that you carefully review the FFIEC Interagency Statement. It sounds like the bank needs to do a little more research if they are asking questions such as this. Before the bank enters into an agree to provide referrals to this investment company, there are many more due diligence issue that need to be addressed, not to mention a board approved policy on Non-Deposit Investment Products. You can find it at:
http://www.ots.treas.gov/docs/84015.pdf

I'm not sure I follow - but...

I would suggest also taking a look at the NASDR web site and looking at the NASD Rules of Conduct. If the entitiy paying the incentives or referral compensation is a Registered broker/dealer, then the NASD has some thoughts about how much and when incentives can be paid.