Advisers’ referral relationships need to be “based on trust” instead of being financially driven, as the consequence could be losing the initial client, according to research from CoreData.
Financial advisers often utilise their own professional relationships, rather than their firm’s, when they need to refer clients to services they cannot provide, such as mortgage broking or accounting.
The CoreData research found advisers lean most on their personal relationships (64 per cent) when making referrals, highlighting that trust and connection hold more sway than firm-level agreements.
“The key criteria for the relationship is not how much money they’re getting for the referral, if they get anything, it’s around how they’re actually going to treat them and what it actually does for the client,” CoreData Research consulting director Grahame Evans tells Professional Planner says.
But he adds that one of the challenges people have when they build professional relationships is actually being comfortable that anybody they introduce to a client is not going to destroy the relationship.
“[It’s] important from that perspective that you distinguish between that personal relationship and the financial relationship, because people are much more concerned about that personal side, so that they don’t certainly annoy their client, that the client gets a good experience, and in some instance, make sure they don’t wander off.”
Evans says advisers who give clients a referral to another professional and the service turns out to be unsuitable or unsatisfactory, could see the client leave the original adviser due to a lack of trust.
Alternatively, if an adviser doesn’t have a referral relationship with other providers, that client may find one – for example another account and mortgage broker – who may refer them to another adviser.
Professional referral relationships go both ways, as mortgage brokers and accountants often need to refer clients to financial advisers, so it is a two-way street.
Both sides are looking at the referral process from two aspects, the personal and the financial.
“One is certainly the personal side, which is actually about ‘do I trust these people to do a good job for these clients who are important to me’,” Evans says.
“And then the second from the perspective of financial, is [if] my expectations are financially appropriate.”
Having personal relationships across several areas is essential and reinforces the important role professional networks play in financial services.
“If you think about things like just looking at estate planning and wills, this is not a job that can be done by advisers,” Evans says.
“You do need to be able to refer to a good lawyer who understands the implications from an estate planning perspective and the adviser and the lawyer work together. Same thing goes with tax considerations.”
