Client referrals from an alliance partner (also known in the business as a “centre of influence”) can be an excellent source of new business for financial planners. In theory, it provides client acquisition at a lower cost to a business, especially when you have someone else recommending your services and there is a natural, seamless fit between the two parties that makes sense from the client’s perspective.

That’s the theory. In reality, these alliance relationships often produce mixed results.

Even though they start with the best of intentions, experience shows that unless they are proactively cultivated and professionally managed, they can quickly “die on the vine”. The industry seems to be plagued with failed examples.

From my experience working with a range of practices the symptoms of COI failure include:

• perceived benefit imbalance
• lack of clarity
• perceived risk
• client ownership
• lack of incentive
• lack of understanding
• lack of skill in identifying client needs
• lack of a structured marketing plan

And once there has been a negative experience and things don’t turn out the way we expect, it can place a grey cloud over the relevance and viability of pursuing such a relationship into the future.

However, the challenge for every business is to keep growing, which means taking advantage of and maximising potential opportunities. Even if you have had a negative experience in the past, strategic alliances are still worth pursuing given their potential to be the core client acquisition strategy for a business, if structured and supported in the right way.

Poor results often come from a lack of cultural and commercial compatibility.  It is critically important for any business seeking to pursue a centre of influence strategy that they begin by establishing the desired qualities of a partner to help ensure better compatibility.

Factors which influence the strength and quality of a relationship include the business locations, the type of business, the demographics of the client base and whether partners show a similar degree of professionalism. 

A ten point strategy for COI success:

1. Know Your Client/Know Your COI – This is critical – the more homework you can do on a potential COI partner, the more clearly you can articulate how working with you will be of benefit to them and how it may fit into their own business strategy.
2. Mutual Benefit – if one party is getting more out of the relationship than the other the alliance will suffer.  Outline the benefits and the proposed referral process so your COI knows you will both be working hard for the same outcome – more business.
3. Client Ownership – this is one of the leading concerns for practices going in to a COI relationship.  This issue must be addressed at the beginning.  No one really “owns” a client, but there should be clear rules for what jurisdiction the referrer has over the client and what the referee’s limitations are, if any.  Clarity over this issue will make any financial agreements over revenue sharing a whole lot easier to manage.
4. Transparency – all earnings from COI clients should be reported as part of the ongoing communication with the COI.  Both parties should fully understand the financial arrangements of the relationship from the outset. 
5. Document the Plan – as with all parts of your business a plan for your COI relationship is critical.  Start with the achievements expected from the relationship and how these objectives will be met. Then, detail the process for managing the relationship, managing referred clients, revenue sharing, dispute resolution and client “ownership”.
6. Formalise the Agreement – once the plan is agreed to by both parties, make the plan formal by signing an agreement to fulfil the objectives of each party.  This ensures commitment from both sides and gives each a foundation document to turn to if any dispute arises.
7. Reporting System – regular reporting is necessary to keep communication regular and information updated.  A regular face to face meeting is a good way of keeping up to date and swapping reports, as there might be more information to share outside the parameters of the report.
8. Relationship Manager – This is the nurturing part.  Each business must dedicate one person to the COI relationship to ensure that the strategies are being driven, objectives are met and communication is constant.  If there is no one to drive the relationship it will falter, staff will get distracted performing their other regular business tasks and you will not have a successful referral source.
9. Review and Monitor – the relationship manager needs to monitor the progress of the relationship against the stated objectives of the plan, then update other stakeholders on the performance of the COI alliance.  If the results are not meeting the expectations documented in the plan then the whole situation must be reviewed to find where the problems lie.
10. Service Standards and Professionalism – lessen the “leap of faith” for each party by documenting and sticking to your service standards, such as the response rate for client contact, client dispute resolution procedures and your service offer to clients.

Where does a practice find good COI’s? A financial planning client may have a separate insurance broker, an accountant and a solicitor all providing services to help structure the client’s finances.  It makes sense for the financial planner to talk to the insurance broker, the accountant and the solicitor to see if they have similar clients suited to the planner’s services. 

If none of these businesses are providing competing services, and all can find mutual ground on levels of client service and professionalism, then all are good prospects for client referrals. 

It is worth starting COI prospecting by looking at your business’s top 30 clients.  You may already know which accountant each of these clients use.  This gives you 30 prospective COIs to have a closer look at to find more common ground.

To summarise, a business that has clients who match your target market, provides services that complement your own and has a good reputation is a COI for your potential clients and a key strategy in meeting your marketing objectives. 

If you find other businesses in your market which share your commitment to client services, and who are as willing as you are to look after a referral relationship, go after them and make a proposal.  If your COI relationship is managed well you should find that your client acquisition opportunities are significantly improved.

Graham Peatey is manager of practice management consultancy Encore, a subsidiary of van Eyk.

1 August 2012

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Mr Peatey said many advice practices believed they were ready to implement initiatives like “fee for service” but did not have the systems in place to make them work consistently and sustainably across their businesses.

“’Business operations’ is not a topic that gets many people excited. It doesn’t have the same wide appeal as, say, marketing or business strategy,” Mr Peatey said. “I think this is why business operations are so poorly done across our industry. It can be tedious to invest time in the detail of mapping processes and ensuring they serve a business well.”

He acknowledged that mapping these processes was a considerable investment in time and other resources, “However, putting in the time to ‘hard code’ a business’s operations will pay off in terms of greater control and better cost management, whether it is a one-man practice or a dozen advisers” Mr Peatey said.

He said the four key questions business needed to ask about their processes were:

• Are they efficient?
• Are they scalable?
• Are they accessible to all staff?
• Do they consistently deliver on the client value proposition?

Unfortunately, it was still the norm for operational management to be largely absent or based on limited approaches like a simplistic paper-based manual.

Mr Peatey said client management and workflow systems in software such as XPlan, Adviser Logic or Coin could be powerful tools for automating these processes, from how to handle a new client to managing an insurance claim, but they were usually poorly used.  “They give you the ability to automate the mundane activity so that advisers can focus on the areas that really need their expertise,” he said.

Mr Peatey said once FoFA became mandatory on July 1 2013 the value financial planners were providing clients would assume much greater importance and if an adviser were charging clients a regular fee for advice they needed to be able to demonstrate how much work they were doing for that client. “Mapping and recording business processes in a repeatable and efficient manner will make this task much easier,” Mr Peatey said. “A great relationship with a client will only go so far; eventually clients will want to see value for money and delivery on the CVP and service promise.”

Improving business operations can also help a practice allocate resources much more efficiently. A typical problem for many advisers is spending too much time and resources on low-value clients and not enough on high-value clients, he said.

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Encore specialises in providing consulting services, programs and systems to help financial planning practices and dealer groups improve their businesses. 

The acquisition reflects van Eyk’s commitment to providing quality financial and investment advice and to helping van Eyk’s clients maximise their potential and respond to the rapid and profound changes taking place in the financial services industry. 

van Eyk’s clients will have direct access to Encore’s intellectual capital, practice management products and consulting services. 

van Eyk chief executive Mark Thomas said the acquisition was an indication that the research firm was developing a more holistic relationship with its clients. 

“This acquisition deeply enriches our understanding of our key clients’ needs and challenges at an important crossroads in the industry’s development,” Mr Thomas said. 

Professional practice management is one of the most important developments in the financial planning industry, particularly as it moves to adopt the federal government’s Future of Financial Advice reforms and many planners look to streamline their practices and move their businesses to a fee-for-service model. 

Encore provides solutions for all aspects of a business including business development, sales, marketing, human resources, back office and succession planning. The group has been operating since 2003 and has assisted hundreds of businesses to achieve their growth ambitions, from one-person firms to large dealer groups and institutions, including the big banks. 

Encore Group founding partner Graham Peatey said it was a challenging and exciting time in financial services and the company was pleased to be able to partner with one of Australia’s leading research providers. “The opportunity to partner with such an entrepreneurial business like van Eyk is exciting. It is a major decision for us and an experience we are really looking forward to,” Mr Peatey said. 

“This relationship validates the role quality practice management services can play in the overall dealer proposition.” 

The Encore Group was acquired for an undisclosed sum.

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