Referrals Guide for Accountants
Table of Contents How this guide will help you 2 Referrals in three easy steps 3 START - WHAT TO CONSIDER WITH REFERRALS 4 Determine what you will refer 4 Find the right referral partner 7 Review the advice and advice process 8 Advice Review Checklist 9 TRANSITION - MAKING IT WORK 10 How the relationship will work 10 Receiving revenue 10 Legal, disclosure and privacy issues 11 Establish a trial period 11 Plan an exit strategy at the start! 12 Referral Partner Checklist 12 ENSURING A SUCCESSFUL ONGOING RELATIONSHIP (PRACTICE) 13 Document your objectives 13 Develop an 12-month action plan 13 Client analysis 14 Communicate to your clients 14 Ongoing relationship management 15 TEMPLATES 16 First meeting with referral partner Suggested Agenda 16 Client referral letter template 17 Marketing letter for clients 18 About us Licensing for Accountants is an independent firm which supports and transitions accountants into financial services licensing. We have an extensive background in accounting and financial licensing issues, and understand the opportunities and challenges licensing presents. Our expertise lies in providing information and education to guide accountants during their licensing journey. 1
How this guide will help you This guide will help you to navigate the elements that you need to consider to ensure a seamless, transparent, mutually beneficial and successful referral relationship. You will know the relationship is working well, when: You are confident that the referral partner fits culturally and their business model complements yours. You can see the value in the advice given to your clients. Your clients can see the value in the financial planning advice they receive. You have documented processes. The arrangement is mutually beneficial. You have an exit strategy. Regardless of your current situation, we strongly recommend that you review and take an active role in forming a referral arrangement. This is for a number of reasons. First, if you take an active role, your client is far less likely to find their own solution, where that planner encourages the client to use their preferred accounting partners. Second, taking an active role puts you in the driver s seat, so that you can form a relationship that will work for you, instead of one that has been driven with the planner s best interests in mind. Don t let previous referral experiences influence you when forming new referral relationships. The industry has progressed over the last decade, and by using this guide, you will be able to take a considered and active role in identifying a referral relationship that works for you. Ensuring benefits for all parties To reap the rewards of a successful referral arrangement, you must do the hard yards and research. It s about identifying the right match for you and your business and ensuring there are benefits for both parties. Benefits for your business You stay competitive by fully servicing your clients and minimising the likelihood of another group meeting client needs. You oversee control of your clients and have a comprehensive understanding of their full financial situation. Depending on your referral arrangement, there is scope to significantly increase revenue for your business. You control the arrangement in conjunction with your referral partner, thus you maintain total independence and transparency. 2
Benefits for your clients The referral arrangement will provide your clients with a complete service that takes into account the past and the future, corresponding with goals and life stages. Clients will receive guidance on goal setting, wealth creation, personal insurance and protection strategies. Client interests will be served through the adviser keeping abreast of the latest legislative changes that may impact pensions, superannuation and other benefits. Referrals in three easy steps The journey to a successful referral arrangements is not too dissimilar to the one you will take with licensing. As such, we have broken the guide into three areas: 1. Start Information and tools to help you focus on exactly what you intend to become licensed for, what you still need to refer out and how to assess potential referral partners. 2. Transition - Factors to consider when forming an arrangement, including revenue sharing options and disclosure requirements. 3. Practice Key steps to ensure a successful and ongoing relationship. 3
START - WHAT TO CONSIDER WITH REFERRALS Determine what you will refer Most accountants are currently considering their options and deciding between a referral arrangement, becoming authorised or obtaining a limited licence. However, referrals are not a mutually exclusive option. In fact, unless you are intending for your practice to have full financial services capability, referrals should be considered by every accountant. Before you even begin to look at a referral arrangement, you need to be clear in your mind about what you want to refer and what you want to offer in-house. Until you have this clear in your mind, it will be difficult to find a suitable partner. The diagram below breaks down client needs into three sections: business, SMSF and individual. You will need to decide between licensing and referring for every orange box. You will note that even structural advice is highlighted, as your structural advice regarding the use of a SMSF will be limited unless you are licensed. 4
To help you with this exercise, the table on the following page breaks down these advice areas further to help you think about the services you want to offer and what you are comfortable referring. Many accountants are only interested in providing licensed advice to their SMSF clients, and are happy to refer on clients that have a retail super fund. To ensure you are clear about what you will refer, you will need to think about whether you intend to provide these activities to: Existing and new SMSF clients. New SMSF clients only. All clients, regardless of their superannuation fund structure. If you decide not to become licensed but are still running a SMSF administration business, you should still have a discussion with your referral partner about the following activities to ensure it is clear who will be doing this. Minutes for SMSF when there is a change to the fund. Documenting an investment strategy. Investment recommendations. End of year super contributions. Exercise: Go through the table on the following page and determine the services you will advise on in a licensed capacity. Also think about if you intend to provide these services to your new and existing SMSF clients, new SMSF clients only, or all your clients. 5
Services you want to provide in a licensed capacity * Structural advice Super advice Non-super advice Simple Simple Simple Comparing structures (eg: husband, wife, SMSF, family trust) Recommending an SMSF Contributions advice Retirement projections TTRs Pensions / Retirement income streams Sal sacrifice (exc. Super) Savings plans Debt management Budgeting and cashflow Centrelink Binding nominations Re-contributions strategies Rollover advice Lump sum withdrawals Complex Complex Complex Multiple entities & ownership issues Intergenerational & succession Small business CGT relief Buy sell arrangements LRBA Gearing and margin lending Reserves Estate planning Ownership issues Aged care Direct property transfers Redundancy entitlements Investment advice Risk profiling and asset allocation Preparing and investment strategy Investment recommendations (basic deposit products) Insurance advice Insurance needs analysis (types, sum insurance, r ship) Insurance product recommendations * Not all services listed above require licensing (eg: debt management). However, they are often provided in a licensed capacity to ensure conversations are not restricted in any way. 6
Find the right referral partner Now that you know what you want to refer, you can move on to find a partner that will meet your needs. Understandably, many accountants are fiercely protective of their clients. Having spent many years building their business, they very reluctant to jeopardise their reputation or clients trust with the wrong referral relationship. There are a number of ways you can identify a prospective referral partner through existing networks or word of mouth. If your networks have not been able to identify anyone suitable, most licensees will gladly introduce you to potential referral partners for the advice areas you are not becoming authorised in. It is recommended you identify and screen at least three potential partners, and have several meetings with them to identify synergies, common experiences, benefits and obtain a general feel for their business. This will also give you an insight into what your clients may experience when they meet with the adviser. During these meetings, it is imperative to assess the following: Trust Mutual trust, respect and goodwill is the foundation to a solid and valuable referral arrangement. While this will build over time, are you initially willing to keep an open mind and start from a position of trust with this person? Do you recognize and value each other s expertise, and the value this will provide to your clients? Cultural compatibility Could you work well together? Do you respect and value the work of the potential partner? Does the potential partner have similar objectives and philosophies to business and clients as you do? Are there similarities between client bases? Business compatibility Does the business meet stringent professional standards? Are they degree qualified or a member of a professional body? How long have they been in practice? Does the potential partner s business model complement yours? Have the benefits for your business and the clients been clearly identified? Are there mutually beneficial remuneration arrangements? 7
It s also important that you use these initial meetings to obtain a thorough understanding of the potential partner s practice. This includes the business model and structure, objectives, client base, staff, specialist areas and any other referral arrangements, ensuring that you can adequately assess suitability to you and your business. Refer to the first meeting agenda template at the end of this guide for you to use and adapt as required. Review the advice and advice process This is a critical step in securing the right referral partner. Once you have found that your businesses and culture are compatible, you must evaluate their advice. Your reputation depends on ensuring that the advice your clients receive is of a high quality and compatible with your business philosophy. You can review the advice a number of ways. First, ask the planner to take you through their process using your own financial situation and goals. This will give you an understanding of what your clients will experience and allow you to review the advice based on the information you have provided. Second, ensuring that client names have been removed for privacy, review some financial plans in detail and keep in mind your own client base and any potential referrals you may make. When reviewing the plans, ensure that the following areas are adequately addressed: Strategies Have they captured the client s full financial history and future goals? Do you agree with the strategies put forward? Is the client fully protected with appropriate insurances? Products Do they have expertise in specific areas, ie, SMSFs? Are there any gaps, ie, direct property and direct equities? Is there a synergy between your philosophies, as these areas are often ignored by planners? Are you comfortable with the products recommended from their approved product list (APL)? You should review this list and ask any questions you may have. Remuneration and pricing Are you comfortable with how the planner s fees are calculated (flat fee, hourly, commissions, asset based) and the overall fee being charged? How does the fee structure fit with your business model? 8
Communication Is the strategy document easy for the client to understand? What is the level of initial and ongoing service and exactly who will provide that service? (the planner themselves, para planner or outsourced). Advice Review Checklist 1. Do you agree with the strategies? Yes No 2. Are you comfortable with the Approved Product List the adviser works from, the products being recommended and the rationale for selecting those products? 3. Do you have any concerns about how their fees are charged? Yes No 4. Does their fee structure complement your business model? Yes No 5. Can the client understand the strategy? Yes No 6. Do you see any issues with ongoing service and who provides it? Yes No Yes No 9
TRANSITION - MAKING IT WORK How the relationship will work There are essentially three standard ways to enter into a referral arrangement. These are: Informal arrangement Here, you do not enter into any formal arrangements, but simply refer your clients to a planner you are comfortable with. Formal arrangement Here, no separate entity is formed. However, a legal agreement is formed between the two parties as there is usually a revenue sharing agreement. There may also be some shared servicing costs and asset value. Joint venture In this instance, a new entity is formed under a Joint Venture (JV) arrangement. Here, there is shared ownership of profits, clients and asset value. Receiving revenue If you intend to receive some kind of revenue as a result of this relationship, there are several effective approaches to consider. These include: Set referral fee. Revenue sharing. Profit sharing (revenue minus the cost of providing the service). Sharing of asset value (usually calculated on a multiple of recurring income). If you are planning to receive a referral fee, be aware that most financial advisers operating as authorised representatives must receive client payments through their licence holder. Payments are forwarded to the adviser minus what is owing to the licence holder. If your agreement involves you receiving a percentage share of revenue, the financial adviser may be able to organise for your business to be to be paid directly by the licence holder, but this is not always the case. 10
Legal, disclosure and privacy issues If you are planning to establish a formal arrangement, legal support will be required to create standard commercial clauses for an alliance deed. Templates should be developed so that you can document responsibilities, specify the nature of the relationship and use it as a basis to provide to your legal counsel. If you decide on a JV, corporate governance requirements will need to be considered. These are different from other business structures and you should seek legal guidance before proceeding with any agreement. Disclosure The Financial Services Reform Act regulations (R7.6.01(1)(e)) specify that as an accountant, you can refer clients to a financial planner without being licensed. However, if you or your associates receive any remuneration or benefits from your association with the planner, this must be disclosed. If you are a member of a professional association, such as CPA Australia, Institute of Chartered Accountants in Australia or Institute of Public Accountants, your professional code of conduct requires you to disclose in writing any benefits received. Refer to the referral letter template at the end of this guide for you to use and adapt as required. Privacy With any referral arrangement, you are obliged to follow the Privacy Act. This is your sole responsibility and includes: Obtaining client consent if you disclose their details to any other parties. Ensure that any direct contact (ie, email, phone or mail) is made by you and not the financial planner. Any marketing material contains opt out prompts and that can be cross referenced and updated with your database before any new campaigns are launched. Establish a trial period To test the waters, it is recommended that you agree a trial period to begin with and then when you feel confident that you have the right fit, establish a formal arrangement. To mark the trial period, we recommend approximately six months and referring at least four clients, allowing you to test the relationship. Depending on your preferences for involvement, you can actively participate in client meetings or monitor the service delivered to your clients. Your observations and client feedback will allow you to address any concerns and tweak the process. 11
If the trial period is a success, you can then move on to formalising the arrangement and establishing a plan for the first 12 months, setting targets and strategies for the year ahead. Plan an exit strategy at the start! While it may seem uncomfortable discussing an exit strategy before a relationship has even begun, this is the best time to put some measures in place. If circumstances change and you need to exit the relationship, deciding on the process early on will ensure a smoother transition should the relationship end. Regardless of the arrangement, you will need to agree and document the following: Who maintains ownership of the client and the clients preferences? How ongoing client service is maintained. Existing revenue arrangements. If the arrangement ends and the servicing rights remain with the financial adviser, any value placed on the client relationship will need to be addressed in the exit plan. Referral Partner Checklist 1. Is there a cultural and business fit? Yes No 2. Are all parties comfortable with the types of advice to be provided by each business? 3. Can you agree on the type of arrangement to meet your short and long-term objectives? 4. Have you agreed on revenue sharing arrangements? (Referral fee or revenue sharing) 5. Have you set your own objectives and do you understand your referral partner s? 6. Do you have an exit strategy? Ensure that you have a formal agreement that covers revenue and client service should the relationship end. Yes Yes Yes Yes Yes No No No No No 12
PRACTICE - ENSURING A SUCCESSFUL ONGOING RELATIONSHIP You are now at the pointy end of the arrangement ready for practice. Depending on who you partner with, additional support may be available through their licensee or you can also source guidance from a specialist practice management or business consultant. Document your objectives By now, you should have a good understanding of your prospective referral partner and their business. From this point, it is important to document your objectives being specific about what you both want to achieve from the arrangement. If you are both clear about what your overall plan is and what the partnership can achieve, you have a basis to drive business activity and evaluate results. Objectives may include: Making a certain amount of referrals per month. Locking in a certain amount of client meetings per month. Securing a number of new clients over a specific timeframe. Achieving profit projections over a specific timeframe. Your referral partner providing a certain amount of referral back to you. Develop an 12-month action plan You have identified your objectives and you are ready to put a plan in place for the next 12 months. Your action plan needs to cover: 1. Setting goals and agreeing a targeted number of referrals for the first 12 months. 2. Confirming a process for how those referrals will be passed on. 3. Confirming a process for tracking, reviewing and monitoring the advice that is provided. 4. Specific times for formal reviews you should hold at least three formal reviews in the first year. Communicating peak commitment times of each practice, for example, BAS lodgment. 13
Client analysis Your referral partner may be authorised through a licensee who has client segmentation software which can identify clients likely to benefit from financial planning. Or you may be able to access this type of software through a financial services business coach. Some software can analyse your client base and group clients with similar characteristics such as age, income, wealth and occupation. It may also identify those more likely to value a paid financial planning service. Even if you don t have access to software, we strongly recommend you go through a manual process to analyse your client data and identify clients that have a need. You can get most of this information from your client s taxation information. Here are some simple client groups to consider approaching to kick start a referral arrangement: Those approaching retirement, and/or in need of a Transition to Retirement strategy. Those that are claiming a deduction for income protection insurance (offer an insurance review). Those that are earning greater than $100,000 p.a. Those that have had a recent change in circumstance (marriage, death, divorce, children). Those that have reasonable deductions for interest (indicating surplus cash), or investment income (review of investments). Communicate to your clients It is important that you and your referral partner develop a marketing plan to effectively communicate with your clients in a clear and consistent manner. Components of your plan should cover: Client communication preferences and how new communications fit with existing. Client segmentation know who you are speaking to and adapt communication accordingly. Marketing and communication and objectives. Strategies What smart plans do you have in place to meet your objectives? Tactics How will you reach your audiences? If you haven t done this before, ensure that you allocate responsibilities, time frames and ways to evaluate effectiveness. Keep in mind that you may not need a complex marketing and social media strategy. If your clients are informed in a timely manner, via their preferred communication channels, you are on the right track. Some referral partners may have a range of marketing material beneficial to your clients. Brochures, fact sheets, editorials and presentations may cover the following topics: 14
Understanding professional advice. An overview of your referral partner s business. Wealth creation. Personal insurance protection. Retirement planning. Refer to the marketing letter for clients template at the end of this guide for you to use and adapt as required. If you do not have marketing support, it may pay to seek professional guidance. The marketer may review your current communications and material in conjunction with your referral partner s; analyse your client base and their communication preferences and come up with a coordinated plan that you can implement yourself. Ongoing relationship management Your referral arrangement will require ongoing collaboration and management. It is important to maintain regular formal and informal contact with your referral partner and equally as important for them to give you feedback on client activity, responses and the process. In order to evaluate the progress of the referral partnership, ensure that you measure performance against the objectives that you both set and have regular and formal reviews. This allows you scope to rectify any issues as they arise. 15
TEMPLATES First meeting with referral partner Suggested Agenda 1. Overview of the prospective partner s practice - Client base - Objectives - Staff - Philosophies - Specialist areas - Business practices - Fee structure - Other relationships 2. Introducing your practice to your prospective partner - Client base - Objectives - Staff - Philosophies - Specialist areas - Business practices - Other relationships 3. Establishing common ground and expectations Discuss what each of you are looking for in a referral relationship: - Overview advice areas you want to be licensed for v- refer out - Your level of involvement once the client is referred - Your expectations of how the client would be serviced, initially and on an ongoing basis - Type of clients you can refer (ie: will the referrer take on lower value clients) - What revenue opportunities you are seeking from the relationship, if any 4. Previous experience Discuss past relationships and identify any areas that didn t work or potential concerns you may have. 16
Client referral letter template Dear<client> Based on our recent discussion, you have advised that you are interested in receiving further information about financial services relating to <insert service type, ie, superannuation>. As I am not licensed to provide advice in this area, our practice has established a relationship with <referral partner s name> to complement the range of services we currently offer. <Partner s name> is licensed to provide this type of advice. Our arrangement means that you will have access to professional financial advice to help you with: Setting financial goals for the future. Personal insurance needs. Reviewing superannuation strategies and contributions. Investment strategies. Retirement planning. Estate planning. I may be entitled to a referral fee/and or part of the revenue generated from any recommendations that you proceed with. Any benefits that I receive will also be documented and disclosed to you by the financial adviser. Please note that you are not obliged to see <referral partner> or proceed with any recommendations. This is an arrangement that I have established to fill an advice gap under new laws and with a group that I feel will service my clients in the manner that I do. If you choose to seek financial advice elsewhere, it is important ensure that your adviser: Is authorised by an Australian Financial Services Licensee that is registered with the Australian Securities and Investment Commission (ASIC). Is adequately qualified and is a member of a professional association such as the FPA or SPAA. Has access to a wide range of investment products and looks at your personal protection insurances. Please feel free to call <referral partner s name> or visit <referral partner s website> for more information. Regards <Accountant name> <Business name> 17
Marketing letter for clients Dear<client> We are pleased to announce that we have formed a new relationship with <insert company name> to ensure all your financial needs can be addressed. Our practice currently offers a wide range of tax, accounting and advice services. However, new legislation requires that some forms of financial advice only be provided by someone who is licensed or authorised to do so. We have considered our options and decided to maintain the status quo with our core tax and accounting services, and partner with an external provider for advice that requires licensing. For example, investment strategies, superannuation strategies and personal insurance. Our specialised approach will allow us to focus and build on our areas of expertise, delivering a better overall service to you. Or We are excited to announce that we have extended the range of services that we can offer you and are becoming licensed in financial services. To date, we have provided tax, accounting and compliance related advice in superannuation and SMSFs. However, due to strong client demand, we have chosen to become licensed so that we can take extend these services and take a more proactive role your financial affairs, providing much greater value and support, without being restricted by financial services licensing. This means that we can now <xxxx> To complement our services, and ensure all your financial advice needs can be addressed, we have chosen to partner with <company name> to assist you with specific investment advice and ongoing portfolio management needs. What do you need to do? Over the coming months, we will be reviewing our client files and will contact with you if we identify any specific areas where you could benefit from our new services. However, we are obviously limited to the information we already have about you. If you have any queries or would like to know more about the options available to you, please contact <insert name> on<insert number> Regards <Accountant name> <Business name> 18