Referral agreements are a common arrangement that planners and accountants use to grow their businesses and client base. However, there are a number of critical elements that both parties need to consider in formalising their referral arrangement.
Legal advice is fundamental to this process. However, if you can arrive at the key terms of your agreement before you engage a lawyer, this can save you a lot of time as well as legal costs.
In developing a formal agreement, key terms that should be covered off relate to revenue sharing arrangements, key performance measures for both parties, restraint provisions and communication procedures.
It is worth spending time on getting the restraint provisions right. For example, if the accountant doesn’t want the provision of any other accounting services to a client when they are referred to planner, the planner needs to commit to that. Similarly, an agreement should include appropriate details around communication and who the right contact person is, particularly where there are multiple parties and planners involved in an arrangement.
One particularly important term in any formal arrangement is how it will be unwound if necessary. Often the basis of referral agreements are struck over a beer between two parties, but the hard questions – such as how do you unwind an agreement – need to be asked when everything is all good, either at the outset or during the trial period.
If there is not enough detail around this term, both parties could incur a lot of legal costs in unwinding the arrangement should the relationship break-down. Lawyers will typically document everything that forms the basis of an agreement, but often they will not include details about how an agreement should be unwound, or not provide enough detail around this process.
Key elements to consider in unwinding any agreement include what will happen with existing revenues, who owns the client servicing rights and details of any restraint provisions around clients that have already been referred across. Should an arrangement come undone, it is important that the clients are still looked after.
