Why outsource?
A key benefit for accountants looking to outsource is that it lets you stick to your knitting with tax/compliance services. Many accountants tell us that their clients come to them because they offer specialist skills. Outsourced arrangements allow you to remain a specialist in your field while ensuring that your clients receive advice from a financial adviser who is also a specialist.
Second, the costs of establishing the service offer are much lower than with in-house options. You don’t need to complete any extra education, obtain a licence or hire a person and worry about covering their salary.
As with most things, there are pros and cons. As some accountants can attest, outsourced arrangements may not always be successful (read on for a few pointers to overcome this). Also, the potential for you to benefit from a profit and value perspective is not as great as with other options.
Before deciding on the approach to take, it is important to have a clear vision for the business outcomes and client services you are trying to achieve. This will help you determine your options, as well as helping to define the relevant criteria needed to assess them.
What are the outsourced options?
Broadly, the options can be broken into three categories, which form a continuum: professional relationships, referral relationships and joint ventures.
The diagram overleaf shows the three approaches on a continuum. It may be that a professional relationship leads to a referral arrangement or a joint venture, or ultimately lead to financial advice being brought in-house via a merger. However, as discussed below, the intermediate steps may be the appropriate end points, depending on what you’re trying to achieve.
1. Professional relationship
A professional relationship is one in which an accountant and a planner acknowledge that they have a complementary service offer and agree to refer their clients to each other when they see the need. These arrangements are typically informal and arm’s length, with no revenue-sharing arrangement, no formal referral process and no legal agreements.
Professional relationships suit accountants who like to be able to provide one or more financial advice options for their clients. In some cases, they will give three names, provide no recommendation of anyone in particular and let the client make the choice. In others, they will try to match the client to an adviser who seems to be the best fit, considering the advice needs and personality of the client and the corresponding offering and style of the adviser.
Some accountants choose this option because they don’t want to be seen to be recommending an adviser in case that adviser provides poor-quality advice. This is understandable but not insurmountable, as long as you can find an adviser who you can trust to give good-quality advice to your clients. Many accountants also prefer not to receive any financial compensation from the adviser so they don’t feel in any way conflicted in their conversation with their client.
Your financial services outsourcing options lie on a continuum from professional relationships to referral arrangements to joint ventures. One can lead to another – and the function can eventually come in-house via a merger. Your financial services outsourcing options lie on a continuum from professional relationships to referral arrangements to joint ventures.
One can lead to another – and the function can eventually come in-house via a merger.
A couple of key issues with this approach are: how to find the right advisers with whom to develop relationships and how to make the most of the relationships.
Large licensees like MLC are well placed to introduce accountants and financial advisers who are likely to be complementary. Based on the key criteria that you identify (eg fee-for-advice pricing model, specialist SMSF skill set and advice offering, geographic location and client philosophy that aligns to yours), these consultants can identify a shortlist of candidates, arrange for an informal introduction and assist you in assessing their suitability.
The downside of professional relationships is that they tend to be weak. In our experience, referrals going each way are limited and this may not lead to the best outcome for you or your clients. To take it to the next step, you need to consider a referral arrangement.
