Advisers have long passed on work to other advisers, but how has the practice changed and how can both parties protect themselves? Nicola Brittain takes a look..
Introducing clients to other advisers may seem a peculiar practice – after all, advisory firms tend to offer similar services to one another and often compete with other local firms for clients. Despite this, the practice occurs regularly and for a number of good reasons.
So, what are the benefits of a relationship of this sort, how easy are they to establish and how can advisers avoid problems along the way?
Managing director of MFP Wealth Management Justin King segmented his client base in preparation for the Retail Distribution Review and, consequently, will not take on clients with the wrong profile.
Clients that do not fit would tend to be mass market and looking for transactional services, while MFP offers holistic planning.
King says that, although he has not yet set up an introducer relationship with another firm, he would consider doing so to service the clients he turns away. However, he has reservations.
"Trust is so important and I would be concerned that if a company had a radically different business model than our own, they would not offer the same quality of service," he says.
But it is just this sort of mass market client that Jaskarn Pawar, chartered financial planner for Investor Profile, takes on from other adviser firms.
He is highly qualified (both chartered and certified) and offers clients a high level of service. Pawar has established relationships with ten introducer firms that do not service the mass market – they tend to offer holistic services to high net worth clients.
Pawar has both formal and informal agreements with these companies and says that about 20% of his business comes this way. Although chartered and certified, Pawar is able to offer financial planning services at a lower cost because he conducts relationships remotely, via phone or email.
Pawar established his relationships by approaching firms direct through his contacts within the financial planning community.
He says: "It is a great PR exercise for the introducing firms. They can offer a referral service to clients that do not fit their profile. It is more helpful than if they just said 'no thanks' or 'sorry, we can't help'."
Alternatively, introducers may want to manage and retain overall control of a client but farm out certain areas of work to other advisers or professionals.
For example, East Midlands-based advisory firm Cockburn Lucas outsources work to tax advisers, commercial financial specialists, lawyers and an adviser that specialises in auto-enrolment.
Cockburn Lucas managing director Mike Horseman says: "We considered getting the expertise in house but there was limited demand for these services. It would not have been cost-effective."
The company establishes its current relationships by approaching the respective firms and establishing a rapport.
Once the firms have agreed to work together, Cockburn Lucus conducts due diligence – looking at a firm's expertise and procedures – then agrees a systematic process for introducing. Finally, it would set up feedback mechanisms for clients.
Horseman concedes that some potential introducers might be worried about competition but explains that introducer agreements come with a no-competition clause.
"I do not see that this process is much different from outsourcing to discretionary fund managers. Both require an element of trust and mutual respect between firms," he says.
Freelance compliance officer Tony Catt was an adviser until 2010 and received introductions because he had expertise in equity release and occupational pension transfers (G60).
He received 120 referrals from advisory firm Kingswood Law over a period of two years. He relied on introducer contracts containing service agreements, which would include information on how long Catt would take to contact the client and the measures he would take to ensure they were informed.
The downside of this process, according to Catt, was that although the introducing firm owned the client, he was liable for any work done. Consequently, out of 120 schemes he assessed for Kingswood Law, he only transferred two.
"I had to be fully confident that I was dealing with these clients correctly and compliantly," he says.
"Equity release and pensions transfers are two areas that the regulator and PII companies are hard on – a firm that offers these services much be absolutely watertight."
| Setting up an introducer agreement
An introducer agreement is designed to protect both parties and help ensure the recipient firm gets paid for services provided. Standard contracts can be downloaded from the internet.
The contracts contain clauses, including:
• Definitions and interpretation
Website Simply-docs provides free introducer agreements.
Three years at Wells Fargo
Effective from 9 December 2019
One firm with permission suspensions left
Continuing the Architas education series for clients.
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