MONEY

Should friends charge finder’s fees?

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: A good friend is investing $25,000 in an alternative-energy deal that looks very promising. He says he can arrange for me to get into it, but in exchange he wants 10% of whatever profit I make. I think he’s being incredibly greedy, but he says that he deserves to be compensated for opening an otherwise closed door. Does he?

Answer: If the dealmaker’s name is Madoff, run. And even if it’s not, remember: While alternative-energy projects have a certain cachet these days, so did hedge funds and Las Vegas real estate not that long ago. In short, caveat investor.

Should you still decide you want in, however, it’s not unethical in the business world to compensate someone for opening an otherwise closed door (bribes are another story). But to flip Michael Corleone’s famous phrase, this isn’t business, this is personal. And in the personal arena, friends don’t charge their friends fees. Unless your pal is a professional financial adviser – that is, someone who earns his living finding and vetting investments – what he deserves for a favor like this is your sincere thanks and a nice bottle of wine. If the deal turns into a jackpot, then a more substantial gift – some nice green cash, perhaps – is in order. And if it goes belly up? Well, don’t say we didn’t warn you.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

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