Referral relationships are one effective method for accountants to boost their client network as compliance work continues to wane.
For some time now we have been talking about the options which accountants have under the Future of Financial Advice reforms (FOFA). Essentially these are:
1. Make a business decision about whether to stay in the SMSF space or get out.
2. Stay in but refer clients to a financial adviser.
3. Become licensed as an authorised representative under an AFSL holder.
4. Apply to ASIC for a limited (or full) licence.
5. Have a combination of a limited licence and referring clients for advice outside the scope of the limited licence.
Much of the early discussion and focus has been on becoming licensed – either a limited licence or as an authorised representative.
However, despite early predictions, very few limited licences have been issued by ASIC – and time is seriously starting to run out to become authorised, especially for those who haven’t started doing something about the RG 146 education requirement. With less than 18 months to go until 1 July 2016, places on fast-track RG 146 courses are going to become popular. Online courses can take 12 to 24 months, so for some it is simply not going to be a viable option.
There will be many accountants who choose not to become licensed. I have been told by so many accountants over the last four years that they have no inclination to do more education and to take on more compliance headaches and not to mention the cost. It may well be there are more accountants in this category than we had first estimated. And it may be fair to say that many in this category don’t want to get out of the SMSF space and lose their clients – they still want to service them; they just won’t be able to, or don’t want to, do it themselves.
This leaves the referral option, which means having to find a financial adviser or financial planning firm that the accountant totally trusts to be able to competently advise their clients. Some accountants already have arrangements in place based on a solid relationship; and for this group FOFA won’t be too disruptive.
For others, they will have to find someone they can work with and establish an arrangement and relationship that they are totally comfortable with. We’ve all heard the horror stories from both sides of the fence – accountants being burnt by planners and vice versa.
How can you know when a financial adviser you are referring your clients to is competent, ethical and charging appropriately? How do you choose? Certainly, you need to consider the following:
1. Qualifications. An obvious starting point is qualifications. Some carry the CFP (Certified Financial Planner) designation and the Financial Planning Association is trying to increase the overall standard to this level. Some may have tertiary qualifications but not necessarily be CFP-qualified. Being a member of a professional association also shows they are subject to a code of ethics and have to undertake continuing professional education.
2. Good reputation. Do some word of mouth and online checking. Search for negative judgements, disciplinary actions and any other suggestion about ethical and professional behaviour and competence. A good reputation can usually be supported by people who are happy to provide positive endorsements. Even if the firm (or its principals) has a good reputation it doesn’t necessarily mean that each and every adviser is created equal. Make sure you know who is doing the actual work on behalf of your clients. Ask if your clients will be team clients or allocated to a specific adviser.
3. Stability. People entering into a relationship with an adviser usually assume it will be long term. Some feel that frequent firm changes imply a lack of stability. If you’re referring to a firm then consider how long it has been in existence and check its track record over an extended period of time.
4. Specialised experience. Generalist financial advisers are fine. However, if your client needs advice relating to certain areas of specialisation then you need to check that the advisers have demonstrated experience in that specialty or can access experts through their team or firm. The people you refer to should be qualified to provide all the specific help your clients need. Consider whether the adviser has the same depth of knowledge and experience that you have in your area.
5. Explaining the cost. The adviser should plainly spell out direct and indirect fees paid by the client, which need to be documented in the Financial Services Guide along with the other terms of the relationship. Clients expect to pay but they deserve to know how much. Ensure your client knows what they are going to be paying for the financial advice services.
6. Work Ethic. You value your clients. You follow up and have back-up systems in place if you are travelling. You want an adviser who will treat your clients with the same level of service and attention. You may need to get to know the style and approach of the adviser.
Once you’ve chosen a financial adviser or firm then consider how you are going to formalise the arrangement. While some accountants are happy to have an informal arrangement and some are happy not to receive a fee for the referral, I would strongly suggest having a formal arrangement with a written agreement and agreeing a referral fee (eg an introducer's agreement). This also gives you more of a reason to ensure that your clients are happy and being looked after.
Vicki Stylianou, executive general manager, leadership, Institute of Public Accountants
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