Providing monetary compensation to accountants who provide client referrals is a practice financial planners should not reject as it can establish the most effective path to signing up new clients, according to the head of an advisory firm.
Speaking at the Association of Financial Advisers 2014 National Advisers Conference in Cairns last week, Robina Financial Services chief executive Paul Forbes said in many situations the only way a referral relationship with an accountant would work is through a commercial arrangement.
Agreeing to an arrangement such as that would put the accountant’s mind at ease in regard to any opportunity cost they feel might arise from the time it took to make the referral, Forbes said.
He added it could also eliminate the possibility of accountants feeling like they had done the hard work in cultivating the client relationship only to see the financial planner reaping a proportion of the benefits.
“I have absolutely no problem at all paying fees to accountants who are introducing us to their clients,” he said.
“They’ve done all the hard work and the best referrals we get are from accountants.”
To that end, he said a commercial arrangement could lead to the most valuable referrals where the adviser was the only person the accountant recommended as opposed to a referral to a group of advisers.
He pointed out disclosure was an important element of the process.
“We fully disclose everything, so if an accountant has referred a client to us, it will be in the SOA (statement of advice) if there is any revenue sharing at all,” he said.
Some accountants did not want payment, but did want reciprocal referrals instead, he said, but he warned that type of arrangement was not always practical.
“Because so many of our new clients come from accountants, it is unlikely we’ll be sending them off to see another accountant,” he said.
“So we’d rather have a commercial arrangement. We see the benefit in what they’re doing for us and we want to have a partnership.”
A formal commercial arrangement was needed, but not necessarily at the start of the arrangement, he said.
“We don’t have formal agreements in the initial stages, but we tell them what the formal agreements will be once all parties are happy with it so they understand the structure straightaway.”
