If referring clients to other professionals, practitioners have a clear duty to ensure they receive the best possible advice.
By Zilla Efrat
To refer or not to refer? It’s a question many practitioners face regularly, and the answer is not always simple.
“The old-fashioned advice is to stick to your knitting – know what you do and do it well, and more importantly, know what you can’t or shouldn’t do,” says McCann Financial Group principal Phil McCann.
“The older and wiser we get, the more we realise what we don’t know. [Financial services] is becoming a very specialised space. Accountants, like all professional advisors, are trying to find their point of advantage or market niche. We are general practitioners, but there are lots of things we don’t have experience in.”
According to McCann, the mark of a true professional is preparedness to say: “No, that’s not my field, but I will make sure you get the proper advice you need.”
As such, practitioners often refer clients to a wide range of experts including bookkeepers, tax lawyers, estate planning specialists, financial planners, super fund auditors, valuers, insolvency practitioners and mortgage or insurance brokers.
“I refer clients every day,” says Absolute Accounting Services director Gavin Swan. “We can’t do everything.”
Practitioners risk breaking the law if they provide advice for which they are not appropriately licensed – for example, around self-managed super funds – or breaching the Tax Agents Services Act Code of Professional Conduct by giving advice in an area they lack competence.
“Referring clients to other experts is a fundamental part of risk management,” Swan maintains. “It would be a mistake to step into areas we should not, such as giving financial planning or legal advice.”
Fortunately, the appropriate referral of clients can also add value to a practice. Smithink director Mark Holton believes that if you refer work to others, they are likely to refer clients back to you.
According to Holton, firms can help future proof and diversify income streams by becoming the focal point for handling both a client’s business and family affairs, outsourcing where necessary to a network of reliable strategic alliances.
“You become the client’s business and family manager and integral to [recommending] whatever other business advice they need,” he says. “I am a big one for turning compliance into reliance. Clients can become reliant on you for all their financial issues, whether you look after them yourself or outsource.”
Swan agrees, adding: “If you have a trusted network of advisers and that helps your clients, it ultimately reflects well on you. It’s about clients knowing that when they phone you, they will get an answer.”
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The risks you run
Even so, referring clients is not without potential liability risks.
“The law in Australia is not joint and several,” warns Drew Fenton, director of insurance brokers Fenton Green & Co. “It’s about proportional liability. In a judgment situation, the judge will apportion damages to those who were involved and will effectively examine the percentage of their involvement.
“So, if you were the accountant who referred me to a financial planner who was a dud and you only gave me one option, and I lost all my money, I am sure the judge could say that you, the accountant, contributed to that loss because you had not done your research correctly and did not give your client any alternatives.”
To avoid potential liability, Fenton says practitioners can either not refer clients at all, or provide them with a range of options on which they can make their own decisions.
“If asked in court why you recommended someone and you said it was because you play football with them or they are your next door neighbour, you could be in a lot of trouble,” he states.
“But if you said, ‘We have a policy at our firm to give clients the option of three different providers and each one has gone through our own due diligence in relation to the skillsets and knowledge our clients need’, all of a sudden that starts to become a good defence.
“Further, if there is a remuneration flow for a referral, it must be declared, as otherwise it can be deemed a secret commission.”
For his part, Holton says: “I have always believed it is inherently dangerous to refer a client to someone if you don’t know whether that person will do the right thing. If they don’t deliver, it will always rebound on you.”
Do your homework
He firmly advocates thorough due diligence to ensure that the person or firm you are referring work to is able to do that work, has the time to do it, and will deliver on milestones and promises.
“Before you refer a client, you must do your homework,” Holton says.
This can include meeting with the expert, speaking to that person’s clients, and checking with the relevant professional association to confirm they are in good standing.
Having referred a client, the onus is on the referrer to keep track of the process using an appropriate customer relationship management system.
“This will give you internal controls and if something is starting to crack, you can be all over it before it becomes a gaping chasm,” Holton says.
In the event you remain uncertain about an expert’s credentials, simply refer clients to the relevant professional association, which can make its own referrals, Fenton advises.
“Even if you can’t give clients a solution, pointing them in the right direction will be a benefit,” he says.
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