Five unbreakable rules to keep you on track

For financial planners and accountants who are considering the idea of a referral partnership, getting into the right frame of mind is absolutely essential to making the relationship work.

Third-party referrals are one of the best sources of business leads, yet many referral relationships fall by the wayside. Maybe the arrangement was entered into too hastily. Or one party didn't know what they were looking for. Or perhaps they simply didn't have enough in common.

Referral relationships are just that – relationships. And Division Director at Macquarie, Fiona Mackenzie says getting into a relationship mindset is the first step to keeping your referral model on track.

"You can't 'set and forget' – you need to cultivate and strengthen the relationship over time, which takes patience and persistence," she says. So how do you create the referral relationship you want and deserve? Five easy steps will get you on your way.

1. Think like your partner

Building an effective referral relationship means first understanding what's important to your partner.

For financial planners looking to accounting firms as a referral source, for instance, this means thinking like an accountant.

"Accountants typically have time pressures, are conservative, client-focused, and want to maintain control and trust. They also want to partner with strategic financial planners, so starting the conversation with the benefits of a particular product is not a good idea," Mackenzie says.

Similarly, because fee-for-service is top-of mind for accountants – and this model does not correlate with assets under management – planners need to be mindful of the types of fee conversations accountants will be having with their clients, and how that might affect their referral conversation.

2. Build understanding

Like any relationship, it's important to first understand in order to be understood. Keep an open mind. Leave the past in the past. Bringing old relationships (and all the issues and baggage that went with them) into your current situation is a lose-lose proposition.

Mackenzie says this is where a lot of planners trip up. "Planners need to be aware that accountants are targeted by many businesses trying to gain access to their clients. They may have had a bad experience in the past," she cautions.

She says both parties should leave their perceptions at the door. "Instead, focus on really understanding your potential referral partner's business. Can you explain what they do day-to-day or summarise their value proposition?"

3. Be honest

Giving before expecting something back – whether that's information, contacts or referrals – builds trust and sets the tone for the relationship.

"Have honest conversations about whether – and how many – referrals you can give back. Accountants may have a client base of 500 to 1,000 clients and so can potentially refer many, whereas as a financial planner may have 50 to 120 active clients," Mackenzie says.

When it comes to clients, she says, don’t sneak around trying control the client relationship. Instead, be open about how you want to work with your clients throughout the year.

"Planners typically have more touch points with a client than accountants, so understanding the frequency of client communication, as well as what is discussed on a regular basis, will help with agreeing on an approach to ongoing engagement."

"It also helps to make sure your discussions remain in the realm of what is practical. For example, if the referral partner wants a weekly report from you but you know you can't deliver, then set a realistic deliverable so you don’t let them down," she says.

4. Look for chemistry

There's no doubt there is merit in identifying which characteristics are important to you in an ideal referral partner, and making a list of these before you even start looking is a worthwhile exercise.

But don't underestimate the value of personal chemistry, Mackenzie says. "If you don't feel like sharing a meal with each other, then forget it – you won't want to refer your client to that person."

Once you have identified some potential new partners, she says, it's important to prepare well. Ask questions to gain an understanding of their philosophies and even their personal interests. And always make sure that you're positioning the referral relationship according to what is best for the client.

5. Critically assess the relationship

The biggest pitfall in any relationship is getting so comfortable that you don't realise when things go wrong.

Mackenzie suggests taking a fresh look at each of your referral partners at least once a year to consider whether they're still positive supporters.

"Take a step back and critically assess whether they're the right one for you. And if not, decide whether to refresh the relationship or whether to look elsewhere for new opportunities. Don't be afraid to accept that the relationship might be over," she says.

The cardinal rule? Don't waste your referral partner's time. Referral relationships are one of the most common ways in which financial planners and accountants can work together for mutual business benefit. But if there is a gap between your respective businesses that can't be bridged, move on.

Putting a number on success

While getting into the proper mindset is the first step to referral partner relationship bliss, quantifying success is just as important.

David Clatworthy, accounting segment director at Macquarie, says understanding the impact on your bottom line is paramount.

"Many financial planners put so much time into a relationship and never really calculate the true Return on Effort – that is, the cost of the effort relative to the revenue return," Clatworthy says.

"Some of the questions you should be asking are: 'What constitutes a lead, what does that look like, how many are you expecting, what revenue will it bring, and how will you report back?' Defining metrics is the key to understanding if a referral relationship is worthwhile."

In other words, if a financial planner wants to evaluate an accounting firm's capacity to produce qualified leads, they need to define how many and what kinds of leads per year will generate an acceptable revenue increase for their business.

For example, that could be 12 to 15 qualified leads per annum at a 30 per cent conversion rate or more, generating $5,000 to $10,000 per annum in fees (which could relate to insurance, assets under management, or fees for service) from each client.

In terms of the number of partnerships, Clatworthy says less is more.

"Fewer and deeper partnerships are the way to go; otherwise you spend more time relationship managing than doing business. If, for example, five partners each bring in 12 to 15 leads per annum at a 33 per cent conversion rate, then that will yield 20 new clients per year. Now things are starting to look good."

Remember: it's not the numbers themselves but rather defining them that counts.

Once you've put the numbers on paper, it's much easier to track progress and make adjustments to the model where necessary.

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