The Hidden Dangers of Introducer Fees
Thinking about paying referral fees (aka introducer fees) to grow your business? Before you do, consider this sobering reality check…
To be honest, I hadn’t really thought through this in detail until now, and I was surprised by what I learned 😳
The Legal Landmines:
🚨Anti-bribery laws make YOU liable for your introducer’s actions
🚨Due diligence (fundraising or exiting) could see this as a red flag
🚨Directors receiving undisclosed payments breach fiduciary duties under Companies Act 2006
🚨Many introductions require FCA authorisation – breaches = criminal prosecution
🚨IR35 and misclassification risks can trigger costly HMRC investigations
The SME-Specific Traps:
🚨Undisclosed payments to one director can trigger minority shareholder and investor disputes
🚨In close-knit business communities, reputation damage spreads fast and sticks
🚨Professional body sanctions (ICAEW, Law Society) can end careers
🚨True compliance costs often exceed £10,000+ annually
The Ethical Reality: Even with “full legal compliance,” ask yourself:
❓Would your clients still trust the recommendations if they knew about the payments?
❓Will they start demanding discounts that reflect the commission you’re apparently happy to pay
❓Whose best interests are being served?
❓How would this look as a front-page press article?
The Bottom Line: Research shows many benefits, and introducer models can:
✅ reduce acquisition costs by 25%
✅ boost conversion rates by 30%.
✅ bring other benefits
But as a small business, you might well find that the governance burden outweighs the benefits.
Consider this: Every major mis-selling scandal started with someone thinking “we can manage the risks.” or even “what’s the problem, everyone else is doing it?” PPI, endowment mortgages, investment advice – all involved undisclosed financial incentives.
Think very carefully, there might be better alternatives:
✅ Strategic partnerships without financial payments
✅ Reciprocal referral arrangements without financial payments
✅ Joint ventures and collaboration
Your reputation took years to build. Don’t risk it for a simple referral fee.
Our basic advice: do it properly or don’t do it at all, there is no sensible middle ground …..
