Fee for service practices require advisers to provide the full range of financial planning services to each client. It’s just too hard to get meaningful fees from one service.  

What is “the full range of services”? Opinions differ, but for me it includes:

  1. home advice, particularly advice on how to buy a first home how to up-size, how to down-size, how to extend and how to pay for that new kitchen and, for older clients how to help adult children buy homes,
  2. property investment advice (including why you should never buy off the plan apartments). Property is the best long-term investment, and most clients’ biggest and best investment, so you must be able to advise on property
  3. business advice; businesses are the best investments and although it’s not for everyone buying or starting a business should be considered for many client
  4. tax planning, including tax optimal investment structures
  5. estate planning, including controlling the wills preparation process
  6. debt management, focussing on the rapid reduction/elimination of non-deductible debt
  7. accounting, bookkeeping and related compliance tasks
  8. direct shares, particularly index based ETFS
  9. superannuation, particularly SMSFs
  10. Centrelink and age care advice generally.

Your clients want advice on these ten services. And if you don’t provide it someone else will.

The most profitable and valuable practices provide the full range of services to their clients.

Referral arrangement are needed

It’s almost impossible to be across each of these ten specialties, particularly in smaller practice. It’s just too much for one person to know.

This is where referral arrangements come in. A book could be written about referral arrangements, the good and bad and disastrous.

They invariably start with the best of intentions, but usually quietly die away or, worse, end up in ugly recriminations over who does what, when and where, and how is the client fee treated. And who “owns” the client and who can sell the goodwill.

Many have have innocently allowed another professional to work with their clients only to be betrayed as they watch that person establish themselves as the primary adviser and, in effect ,take over their client relationship.

The best referral arrangements establish the referrer as the primary adviser, limit the work the referee can do, require the referee, as the secondary adviser, to include the referrer in all client communications and state the referee “owns” the client, in the sense of being able to direct the referee to transfer the client to the referee’s nominee, such as a practice purchaser if the referee sells the practice.

These promises are needed to give the arrangement commercial efficacy: why would you refer your client to a potential competitor? And vice versa: why would anyone refer their client to you if you are a potential competitor?

But once the referee accepts the referrer is the primary adviser and controls/owns the client relationship the stage is set for a mutually beneficial long term working relationship based on mutual trust and respect and more importantly, contract law.

Reciprocity

Many referral arrangements are reciprocal. You refer your clients to, say, a mortgage broker, and the mortgage broker refers her clients to you.

Ideally your agreement will set out how and when clients each of you will refer clients to the other. For example, your referral agreement could include a paragraph like this:

Each of us will use our best efforts to refer clients to each other, and this includes:

  • including a link to each other on our websites
  • include a reference and description to our services on each Financial Services Guide or similar disclosure document
  • at least once a year send an e-mail to each client providing the other’s contact details, website details and recommending each client contact the other
  • provide a list of client names and e-mail addresses and licence the other to send marketing materials once year (or more often as agreed) direct to each client and
  • in each statement of advice or similar advice include an appropriate paragraph suggesting the client contact the other adviser for relevant assistance.

A sample letter confirming a referral arrangement

You don’t need to spend a fortune on lawyers. And to be frank more often than not the lawyers, as well meaning as they are, end up wreck what otherwise would be a beautiful long term relationship before it starts.

I find an exchange of e-mails or an old fashioned letter, is just as effective as a 50 page contract, does not cost anything, and does not wreck everything.

A sample letter looks like this:

1 January 2019

Joe the Mortgage Broker
10 ANZ Lane
Melbourne Vic 3000

Dear Joe 

Confirmation of mutual and exclusive referral arrangement.

It was a pleasure to catch up yesterday. I am delighted to have someone with your experience and expertise available to help me with my clients. I hope you feel the same.

I look forward to working closely with you and helping each other build our practices.

I thought it would be useful to summarise the terms of our agreement:

  1. each of us will use our best efforts to refer clients to each other
  2. the person who refers the client is the primary adviser and the person who receives the referral is the secondary adviser in respect of that client
  3. the secondary adviser will generally respect the primacy of the primary adviser’s client relationship and not do anything to reduce or impede that relationship
  4. the secondary adviser:
    1. will pay the primary adviser 20% of all fees from the client (including all family members, related persons and business associates) within 7 days of receipt
    2. will include the primary adviser in all client communications and advices
    3. will not provide any other services to the client
    4. will not refer the client to any other business or professional person
    5. will transfer her client relationship to any other person nominated by the primary adviser and
    6. otherwise agrees the primary adviser owns the goodwill in the client relationship and can sell/transfer the total fees (ie fees from both the primary adviser and the secondary adviser) to another person on one month’s notice
  5. each of us will use our best efforts to refer clients to each other, and this includes:
    1. including a link to each other on our websites
    2. include a reference and description to our services on each Financial Services Guide or similar disclosure document
    3. at least once a year send an e-mail to each client providing the other’s contact details, website details and recommending each client contact the other
    4. provide a list of client names and e-mail addresses and licence the other to send marketing materials once year (or more often as agreed) direct to each client and
    5. in each statement of advice or similar advice include an appropriate paragraph suggesting the client contact the other adviser for relevant assistance.
  6. either of us can end the relationship on three month’s written notice and
  7. we agree to cooperate professionally and present a united and professional approach to clients at all times including during any notice period.

It makes sense to maintain a record of clients showing who is the primary adviser and who is the secondary adviser in respect of each client, and other relevant details. I will do this, and send a copy to you each month for checking to make sure we are on the same page. 

I suggest we meet at least once a month over a coffee to discuss how we are going and to identify any concerns and any ways of making the relationship work better.

Let me know if you want to add anything, or have any concerns. Let’s catch up on Monday to get the show on the road.

Best wishes

Finn the Planner