The perceptions and attitudes of Australian financial advisers regarding factors that influence client referrals from other financial services professionals

The Australian Government recognises that quality financial advice can assist consumers to identify and reach realistic financial goals. Qualified professional advisers can develop and implement a series of tailored plans, including financial plans, that grow and protect the clients’ wealth. However, no one professional is qualified, nor are they legally allowed, to provide advice across all six traditional areas of financial advice. By law, financial advisers are required to be properly qualified and are prohibited from providing advice which is beyond their expertise. Professional financial services advisers and their clients have, therefore, much to gain from referral arrangements with other professional advisers in much the same way that medical specialists benefit from referrals from general practitioners. However, unlike the medical industry, financial services professionals seem less inclined to refer clients to each other. A review of peer-reviewed academic journals in the financial service industry showed that coverage of the topic of referrals is scarce with little or no empirical research conducted in Australia or overseas. Industry and professional journals are not backed by rigorous research and many conflicting opinions on how to gain client referrals are evident. The COVID-19 pandemic reduced face-to-face client meetings and may impact referrals due to reduced social interaction. This research explores the perceptions and attitudes of Australian financial advisers regarding factors that influence them receiving client referrals from other financial services professionals. The investigation further outlines a proposed referral networking model for the financial services industry. The research conducted in this thesis was of an exploratory nature and hence was adopted using mixed methods approach. The study undertook three in-depth case study interviews and detailed survey of one hundred financial planning practices. The main findings show: Being a well-qualified financial adviser is not sufficient on its own to gain referrals. Similarly, doing a good job is a base requirement to be referrable but not the reason that referrals are made. An exceptional level of service may get referrers to start talking about the adviser but that does not mean they will refer. Centres-of-influence (COIs) must be fully engaged before they will consider referring clients. Potential referrers need to know what the adviser does and the problems they can solve for clients. So, financial advisers need to coach or train their COIs and clients to make it easy for the referrers to refer clients. Referrers must be able to trust the financial adviser with their family, friends and clients and their reputation. An incentive may be provided to encourage referrals (but will need to stay within the ambit of Code of Ethics Standard 7 ). This means that a formal arrangement or business entity is required, like, for example, a joint venture. Joint ownership of a formal joint venture can provide the referral a business vehicle and further incentive to refer. A referral marketing plan is needed to provide referral tools to make the referral process easier and joint marketing activities undertaken to help drive referrals. A referral networking plan is important to select the right COIs to ensure a steady flow of referrals. It should include the management of the referral networks and relationships and include partner meetings as well as performance monitoring. The research results clarify some misconceptions in the literature and were found to be consistent with established theories such as ‘transaction cost theory’, ‘exchange theory’, and ‘business networking and referral alliance theory’. The portability of these theories and the research findings for the financial services industry is a contribution made by this thesis which advances the profession so that financial services professionals can collaborate to provide their clients with high quality holistic financial advice in much the same way as the medical industry has provided medical care for many years. Notably, Code of Conduct Standard 3 required that advisers act in the client’s best interest. Accordingly, it would appear that advisers who fail to provide appropriate referrals are in breach of the code and their fiduciary duty to the client. The proposed referral networking model, showing business growth factors that influence the receipt of referrals, hence has practical implications. The Referral Networking Model illustrates the relationship between trust, which is developed over time, and the level of engagement and understanding required before referrals will take place. Overall, this research makes a notable contribution both to the relevant academic literature and the practice.