Improve profitability and offer clients a broader breadth of services

With the relationship between accountants and financial planners growing ever closer, practice owners are thinking differently about their business models and how they can best add value for clients in the current market.

While some firms are building multidisciplinary in-house service offers, others are focused on a specialised model that reinforces their expertise and draws on referral arrangements to offer clients a broader breadth of service.

According to Macquarie’s 2015/16 AFS Benchmarking Report, 44 per cent of accounting and financial services practices believe increasing referral partner activity is an effective strategy to improve profitability. For this cohort, the advantage is they retain the primary relationship with the client.

But for a high-functioning referral partner network to work, several factors come into play. How do you choose a referral partner? Should the arrangement be commercial or informal? How do you manage the day-to-day relationships? What happens if something goes wrong?

One financial advisory firm has been running a referral model exceptionally well. Primarily a holistic private wealth management business with its own AFSL, Apt Wealth also offers tax, accounting and estate planning services through a blend of commercial and informal partnerships.

According to Managing Director James McGregor, up to 20 per cent of Apt’s referrals come from partner organisations. That’s a sizeable chunk for a firm that manages $1.6 billion in funds for more than 3,000 family groups around Australia.

Q. So how does your business model work?

Our service offer is what I call a “financial services house”. Our 40 staff operate out of three offices in New South Wales and Victoria, and we offer a range of services internally and by external referral through a mix of different models.

Insurance and debt advice is delivered through a fully-owned subsidiary in-house, and we have dedicated risk specialists in all of our offices. We also use a number of mortgage brokers in Victoria and NSW.

Legal, estate planning and tax compliance services – for example accounting, self-managed super funds administration and auditing – are provided through specialist external referral partners and joint venture partners.

We have a JV with an accounting firm in our Geelong office, which services our Melbourne clients too. In Sydney, we have referral arrangements with four separate accounting firms, through a mix of formal and informal arrangements.

Q. How do you manage the model day-to-day?

We start with the client first, find out what their requirements are and identify the gaps in the client’s needs. If we can’t service those needs ourselves, we have other experts in our professional network that we can call on to assist them.

Our network is built using a panel approach, and we work with a range of different firms so clients can be matched with the right service provider based on their individual needs.

What we’ll do is analyse the complexity of someone’s affairs and make sure we introduce them to the right lawyer or accountant, for example, who will provide them the right level of service for their level of complexity.

Some clients have complex family arrangements and their estate planning requirements may also be complex so they need a different service provider than someone who has a fairly simple family structure.

Q. What are the benefits for your clients and for you?

The overwhelming feedback we get from our clients is that they prefer a model where one person or one firm coordinates the activity and everything is done in an organised matter. So we have positioned our firm as a proactive financial partner clients can rely on.

Effectively, we are the ‘trusted adviser’, the quarterback, coordinating other services that clients might need and putting them at the centre of the relationship.

For example, if we’re introducing a client to an estate planner and they have complex needs, our adviser would always attend that meeting so that we maintain that coordination role even though we aren’t specifically providing that advice. That coordination role is seen by the client as being at the centre of the holistic advice.

Q: What are your biggest challenges?

The risk is maintaining a level of service across all referring partners. A poor experience in one firm could damage our reputation as the trusted adviser. While you can’t prevent all negative experiences, you can minimise service disappointments by preparing in advance.

Prior to introducing the client to a referring partner, we will do our homework to make sure we collectively agree on what level of service we think is sensible and fair for a client to expect.

Our focus has been on managing the clients we gain from referrals – and in fact, all our clients - with a high level of proactive contact, regular reviews and ongoing monitoring of their investment portfolios. If you do that effectively, and manage people’s money effectively, your referral partners will tend to send you more referrals for similar clients.

Q: How do you measure success?

It’s important to have visibility over the end-to-end client experience. All our professional advisers, partners and clients appear in a single client management system, which is critical to team efficiency We can run a report any time that tells us which clients we’ve referred to which organisation.

Where we have a formal arrangement with a partner and there is revenue sharing as part of that arrangement, we can track the clients who have been referred and also the FUM and the fee revenue that comes from that referral source. We report this data to the referral partner on a quarterly basis.

For the informal arrangements, performance review is less stringent and less frequent. Once or twice a year we’ll review our database and check in to see which clients have been serviced by which firm to get a sense of how everything is tracking.

Q: Any tips for other firms looking to build a referral network?

First, we don’t see other professional advisers as competitors; we see them as potential partners. If a new client comes to you and they have an existing adviser or accountant, don’t be concerned about that. Pick up the phone and say hello to them!

Second, spend the time up front to make sure everyone is clear about where the services start and end for each organisation. Establishing trust and transparency is critical. This is particularly relevant now, with the changing licensing requirements for the accounting profession. Many of the accounting firms who don’t want to be involved in financial advice seem inclined to partner with an advice firm they can trust, so again it’s an opportunity.

Third, keep everyone in the loop as time unfolds. Working collaboratively with your referral partners to keep the client experience at the centre of the advice process is the most important thing.

If you can get those three things right, there is no reason those relationships can’t deliver value your clients, and be successful and sustainable sources of new business for your firm.

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