Why Referral Fees Present Ethical Problems

Posted by Victoria Strauss for Writer Beware

Writer BewareThis is a followup to my post on Thomas Nelson’s new self-publishing division, West Bow Press–specifically, on Nelson’s plans to pay referral fees to agents and others who refer writers to West Bow.

Agent Rachelle Gardner has written a thoughtful blog post on West Bow (I agree with much of her analysis), which has generated a lively comments thread. The issue of referral fees is discussed by a number of commenters, including Nelson’s Michael Hyatt, who says:

With regard to agents getting a referral fee, I don’t see how that is much different than the way it is now. (I was an agent myself for eight years, so I am speaking from my experience.) While the agent represents the author in a traditional relationship, his or her money comes from the publisher. In this case, the same is true. Obviously, as an agent of integrity, you wouldn’t make this recommendation to your client unless you (a) disclosed your compensation and (b) felt it was good for your client—just like traditional publishing.

Several commenters agree. However, I have some problems with this reasoning.

Referral fees are not analogous to commissions. An agent who sells an author’s work to a commercial publisher gets a percentage of what is paid to the author. An agent who gets a fee for successfully referring an author to a self-publishing service gets a percentage of what the author pays. In the first case, the author (not the publisher) is rewarding the agent for services rendered. In the second case, the publisher is rewarding the agent for services purchased. Big difference.

As to integrity, I’m sure there will be agents who will make responsible referrals, providing full disclosure and recommending West Bow only for authors they really believe will benefit. I’m also sure there will be agents who won’t. Some agents may even make referrals a standard part of their rejection letters (as successful agency Objective Entertainment has done with AuthorHouse), whether West Bow is appropriate for the author or not–and many authors will take such referrals more seriously than they otherwise might, since they’ll perceive that they are backed by the agent’s reputation and authority. Relying on integrity to ensure that an abuseable system isn’t abused is naive at best.

Another consideration: who will be most motivated by the prospect of a referral fee? Not, I would guess, agents who are making good money on rights sales, and thus have no need to nickel and dime their rejections (or, if they wanted to recommend West Bow for altruistic reasons, would likely do so whether there were a fee or not). For mid-level agents, however, and especially for amateur and disreputable agents, referral fees could be extremely attractive. When fraudulent editing service Edit Ink was paying fees to agents who sent it business, there were disreputable agencies that survived entirely on the income they got from those referrals. It’s true that Edit Ink dates back to the 1990’s, which is like a century ago in Internet time–but the basic motivator, easy money, is the same.

Of course, if the referral fees Nelson plans to pay are on the order of those offered by AuthorHouse’s Affiliate Program, even questionable agents may not be all that interested. If they’re more like Edit Ink’s, however (EI paid referrers 15% of what the author paid, and EI’s charges were typically in the thousands) the temptation will be more substantial.

In 2001, self-publishing service Xlibris (then independent, now part of the Author Solutions empire) attempted to launch a similar referral program, with agents who referred authors to Xlibris receiving a percentage of the fees authors paid the company for its services. At the time, memory of Edit Ink and other writers’ scams, several of which received considerable media coverage, was still current, and public criticism forced Xlibris to abandon the program. Public memory is short, though. This time around, I fear that many people will simply file Nelson’s referral fee plans in the “publishing is changing” drawer, which is a handy place to store issues you don’t much want to think about.

One Response

  1. Anna

    Seems everyone is finding a way to make money but the author. That’s what bothers me.

    It’s like asking a chef to pay to make their creations at a restaurant. Or ask an engineer to code first and if the product sells, then they’ll get paid.

    Why is it authors, the ones providing the creative product for the publishers and agents, are the last to be considered for payment? Why don’t THEY deserve to be paid for their work?

    Sad.