Everyday ethics: Referring in a client’s best interests

As told to Susan Muldowney

Question: “An advice group with a good reputation is trying to establish a relationship with my accountancy company, promising a healthy pipeline of referrals. The advice group generally caters to millennials and under 40s, while we mostly cater to retirees. What should we consider before deciding on the referral relationship?”

Answer: It sounds like the advice group in question is reputable and there are no signs of unprofessional behaviour, but accountants should never adopt a blanket approach to referrals — no matter how promising they may sound. 

Each client has specific needs, and accountants are obliged to work in the best interests of their clients and to perform the necessary due diligence before recommending any financial advice groups. 

Accountants must also ensure they are equipped to provide the services that meet the specific needs of each client.

Under the APES 110 Code of Ethics for Professional Accountants, accountants are required to comply with the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. 

When it comes to referrals, this means ensuring that any third-party relationship aligns with the needs and expectations of their clients. 

The accountant and the advice group work with clients who are experiencing different life stages. This affects the financial advice they require, as well as their potential accounting needs. 

A service model geared toward younger investors interested in growing their investment portfolios may not meet the risk profiles of retirees who may be more focused on estate planning or capital preservation. 

The services that younger investors require from an accountant may also be different — a millennial may not be considering things like succession planning, and they are very unlikely to be thinking about the Age Pension just yet.

In this scenario, the accountant must ensure they have the professional competence to work with any new client referred and that the advice group can competently work with their own clients before they refer them.

Just because the accountant works mostly with retiree clients does not mean that the advice group would not be able to assist them, but it is still something to consider. It is important to think about the services the advice group offers — their key areas of specialty and what they are qualified to provide advice in. 

This due diligence should extend to reviewing the advice group’s investment philosophy, compliance history, fee structures and client outcomes. 

The accountant should also ensure they have the professional competence to assist younger clients with needs that may be outside their area of speciality. A healthy pipeline of referrals may seem attractive, but are they equipped to act in the client’s best interests, and can they accept this new group of clients while maintaining their ethical obligations?

Real or perceived conflicts of interest should also be managed — there are strict disclosure requirements around this. If there are any referral fees, for example, they need to be disclosed, and the client would need to understand how that referral process works.