LFG's Tim Larkin explains the role of referral partnerships in building resilient adviser businesses
Plenty of referral arrangements between New Zealand mortgage advisers and their insurance or investment counterparts have been sealed with a handshake. The adviser introduces a client, the specialist looks after the policy or portfolio, and each side trusts the other to keep the relationship intact. Trouble arrives when the specialist sells the business, retires or changes direction, and the new owner owes nothing to the adviser who made the introduction.
For advisers already rethinking how they earn a living, that exposure is growing harder to carry. At the same time, many are looking for practical ways to expand their offering and build more resilient businesses without increasing operational complexity.
"The biggest risk isn't losing a referral partner. It's losing visibility and influence over a client relationship you've spent years building," said Link Financial Group general manager Tim Larkin.
Three forces reshaping the adviser business
Larkin linked the rising interest in structured referral partnerships to three shifts in the market. The first lands closest to home for mortgage advisers.
"As trail commissions have become less common, advisers are reassessing how they create sustainable revenue and continue investing in their people, systems and client experience. The challenge for many advisers today isn't finding opportunities. It's finding ways to grow without adding complexity," said Larkin.
For many advisers, the real value of this approach is the ability to broaden the support available to clients without having to recruit additional advisers, invest in new licensing requirements or build capability before demand has been proven.
Ownership is the second shift. More firms are bringing lending, insurance and investment specialists under one roof, either by growing organically or by buying other businesses.
"While that creates opportunities, it also highlights the importance of protecting client relationships. Historically, many referral arrangements have been built on trust and a handshake. In today's market, advisers are looking for greater certainty around client ownership and continuity if business circumstances change," said Larkin.
The third shift comes from the other side of the desk.
"Clients increasingly want holistic advice and expect their adviser to help them access expertise across lending, insurance, investments and KiwiSaver. The reality is that clients don't care how the advice industry is structured. They simply expect their adviser to help them access the right expertise when they need it," Larkin explained.
Handshakes give way to contracts
According to Larkin, the expectations placed on referral arrangements have changed significantly over time. Firms were smaller then, ownership rarely changed hands, and the lines between lending, insurance and investment specialists were easier to draw.
"Today's environment is different. Businesses are growing, consolidating and diversifying. Having a documented framework around referrals provides clarity around client ownership, referral obligations and what happens if circumstances change," said Larkin.
LFG runs referral programmes for all types of financial advice through FG Link and Link Advisory Services. Day to day, an introduction through LFG's programmes looks much like any other.
"The adviser introduces the client, FG Link or Link Advisory Services provides specialised advice in the relevant area, and the referring adviser remains connected to the client relationship throughout the process," said Larkin.
The difference lies in the documentation underpinning the referral programme, which was written to provide certainty in the areas that unravel informal deals.
"Businesses are bought and sold, advisers retire and priorities evolve. The Link model is designed to give advisers greater certainty around those situations. We have formal agreements that protect referral relationships, support the referring adviser and ensure clients continue receiving specialist advice without disrupting their existing adviser relationship," Larkin explained.
LFG says the model was built by advisers for advisers. Larkin framed the agreements in terms any practice owner planning a sale or succession would recognise.
"We understand that for most advisers, their client relationships are their most valuable business asset. Any referral arrangement should reinforce trust and enhance the client experience rather than create unnecessary distance between the adviser and the people they support,” said Larkin.
Testing demand before spending
Revenue is part of the appeal, particularly in a softer market.
"Structured referral arrangements can create additional recurring revenue streams without the cost, compliance obligations and operational complexity of employing advisers across multiple disciplines," said Larkin.
Some advisers are also using the programmes as a planning tool.
"One of the unique outcomes we've seen is advisers using the model to test and validate demand for new advice services before making significant investments in people, systems or licensing requirements. That allows businesses to grow in a disciplined way while continuing to focus on delivering great client outcomes," Larkin explained.
This can provide advisers with valuable insight into client demand before committing capital and resources to building additional advice capabilities themselves.
Once that demand is proven, the agreement leaves room for the adviser's own ambitions to change.
"If an adviser later decides to expand into another advice area and becomes appropriately qualified, they can take over servicing that advice themselves. Referrals don't have to be a permanent solution. LFG has deliberately structured them to also be a pathway to business growth for members of the network," said Larkin.
Clients see the arrangement through a different lens from the advisers who set it up.
"Most clients don't think about advice in separate categories. They think about buying a home, protecting their family, building wealth and preparing for retirement. A well-structured referral partnership allows clients to access specialist advice across those areas while maintaining a coordinated experience," said Larkin.
Not every referral partner will suit every business. Larkin suggested advisers weigh three things before putting their name to an agreement:
- Alignment, meaning whether the two businesses share values, client philosophies and service standards
- Structure, including what happens if either party sells, retires, changes strategy or moves into new areas
- Capability, or whether the partner can help the adviser reach its business goals and support long-term success
Beneath all three sits a test advisers can apply to any arrangement on the table.
"Advisers should ask a simple question: does this arrangement strengthen or weaken the value they provide to clients over time? The right referral partner should help deepen trust and engagement, not create distance between the adviser and the client," said Larkin.
Support beyond the introduction
A sole adviser who falls ill, takes extended leave or begins planning an exit faces a different kind of risk to the client book.
“Business continuity, succession planning and locum support are becoming increasingly important considerations for adviser businesses. One of the advantages of the Link model is that it can provide support across these areas as well as referrals," said Larkin.
Larkin expects referral arrangements to become more strategic and more formal. He also does not see consolidation as the only route to a broader offering.
"As compliance requirements, business costs and client expectations continue to increase, advisers will look for smarter ways to provide broader solutions without losing focus on their core expertise. Some businesses will continue to pursue mergers and acquisitions. Others will choose to remain independent but build deeper strategic partnerships that give clients access to a wider range of advice," said Larkin.
The advisers he expects to do best will treat their specialist partners as part of the business itself.
"I expect the most successful advisers will be those who build strong ecosystems around their businesses. They'll remain the trusted adviser at the centre of their clients' financial journey while partnering with specialists who can add value where needed. The future isn't necessarily about owning every advice capability. It's about building the right partnerships while protecting the client relationships that make a business valuable," said Larkin.
This article was produced in partnership with Link Financial Group
