Recently, my weekly column in the Globe and Mail talked about the desire by many clients to be more involved in the decisions on their accounts and to act more like partners with their advisors.

In response I got an email from a C.A. in a mid-sized community in southern Ontario – we subsequently spoke on the phone.

His approach to referrals

This C.A. has spent twenty years working on his own supported by a small team of associates, focusing on business owners.

As well as audits and tax advice, he also is a certified financial planner and does financial planning. He has historically supplied clients without an investment advisor with a list of three to five advisors who they could talk to about implementing their plan – generally based on advisors that existing clients were working with.

He does this as a service to clients with no expectation of being rewarded by either clients or advisors–  he mentioned that he takes pride in going above and beyond to help clients.  He doesn’t initiate referrals to advisors – if clients are happy where they are, he’s fine with that. The only time he makes referrals is when clients are unhappy, ask for suggestions or don’t have an advisor in place to implement a financial plan he’s developed for him.

In some cases, he has participated in meetings with clients and advisors two or three times a year, provided that clients were prepared to pay for his time to do this – but generally he has not been involved in the process after making referrals, other than preparing taxes.

The historical experience

Historically, his clients were generally happy with the advisors he referred them to, although there were a couple of consistent irritants.

One related to the quality of reporting. He commented that investment industry reporting is not uniform and difficult to decipher – it can take him an hour to calculate how clients have actually done.

He went on to say that some firms look like they’re deliberately making it hard for clients to figure out what their annual return looks like and to determine what clients have paid in fees. He did say that this has become better recently as some advisors have moved to charging fees separately, so that they are deductible on client taxes.

He’s also had some clients comment on the fact that after having paid him to develop a financial plan, there was no reduction in fees charged by their investment advisor – in effect they felt they’re paid twice, once for the C.A. to develop the plan and a second time for the investment advisor’s embedded cost of doing this plan.

He’s never had an advisor try to find a way to have the time they saved by not having to do a plan reflected in reduced fees to clients or ask about trying to find a way to help offset the cost for this C.A. to continue to be involved in client meetings.

 And when I asked about whether advisors had offered to sit down with him to walk through their investment approach or process to manage client risk, he said he’s never had someone offer to do that.

Rethinking the approach to referrals

A couple of things are causing him to rethink his approach to referrals.

One was an article in the March issue of C.A. magazine, talking about the opportunity for C.As to become more involved in helping clients reevaluate their investment strategy and philosophy and  monitor their investment plan.

He said it’s also become apparent to him that some clients have seen the names he suggested they talk to as an endorsement. This was particularly a problem where clients were not actively involved in the investment process, but delegated and deferred to the advisor.

As a result, in future he will be more careful both about the clients he refers and the advisors he refers them to. He also plans to make his role more explicit, both verbally and in the engagement letter he has clients sign and encourage clients to talk to more than one advisor before picking someone. He said that most advisors seem fine with this, although some years ago one advisor called him and said that he was not interested in participating in a beauty contest and that if this C.A. was going to give his clients multiple advisors to talk to, then to take him off the list.

Taking versus giving

At the end of our conversation, I asked about the kind of acknowledgement he’d received from advisors he’d referred clients to.

His comment was that in his experience most financial advisors are much better at taking than giving.

Historically he’s made two to three referrals a year, so about fifty referrals over the past twenty years. In that time, he’s never received a referral in return or had an advisor ask about the nature of his business, should he or she run into a business owner who might benefit from this C.A.’s services.

And while he normally receives a thank you call after referring clients, typically that’s as far as it goes.

He did comment that there are a couple of advisors in his community who’ve picked up half a dozen clients in the past three or four years as a result of his referrals.

One of those advisors makes a point of inviting him and one of his clients out to lunch two or three times a year. He went on to say that even though he considers these two advisors equally competent, he can’t help being more disposed to making additional referrals to the advisor who takes him and his client out to lunch periodically.

“I’m human like everyone else” this C.A. said. “Even though I know this shouldn’t affect my decisions, it’s still nice to feel that someone who’s making money from referrals I’ve made doesn’t take me for granted.”

Key takeaways

I took a few things away from this conversation.

The first is that the changes as a result of events of the past couple of years aren’t limited to clients but also extend to the professionals who sometimes refer those clients.

As a result, advisors need to do a better job of communicating the process they have to monitor and manage risk.

They and their firms need to do a better job on reporting and on transparency of compensation.

And finally, many advisors need to think harder about how they acknowledge the sources of referrals.

None of these were necessarily critical in the past – but will play an increasingly important role for advisors who want to maximize referral opportunities in future.