Referral fees and recurring income
How a one-off referral fee compares with a share in the ongoing value of the advice, for your income and for what your firm is worth.
How a one-off referral fee compares with a share in the ongoing value of the advice, for your income and for what your firm is worth.
When a client needs advice you cannot give, one option is to refer them on and collect a one-off fee for the introduction. The fee pays you once for a relationship you may have spent years building.
Sharing in the ongoing value of the advice pays you for as long as the client stays advised, and builds recurring income in your firm that a buyer can value.
A referral fee is payment for a single act: handing over a name. Once the introduction is made and the fee is paid, the arrangement is complete. If the client goes on to invest, plan their retirement, protect their estate or stay with that adviser for twenty years, none of that income comes back to you.
A one-off fee suits a one-off transaction. Financial advice is usually an ongoing service that can last decades and generate income every year it continues, and a referral fee pays for all of it with a single payment.
Before a referral is possible, the client has to trust you. They have shown you their income, their debts, their plans and their worries about money, and they took your advice on a large financial commitment.
Advisers spend heavily to win that trust from new clients. When you hand a client on for a flat fee, you are paid for the introduction and receive none of the income the advice goes on to produce.
A one-off referral fee has two limitations. The first is that it does not recur. However well the advice relationship goes, however many years it runs and however the client's wealth grows, your income from it was fixed on day one. The second is that it builds nothing. A stream of one-off fees is income while you are working, and it disappears the moment you stop.
Both come from paying for a transaction, which is over as soon as it happens and leaves nothing a buyer would pay for.
In the partnership with E&G, you share in the ongoing income the advice generates: the recurring revenue that comes from the assets the client builds under management, for as long as that relationship continues. When the client's invested wealth grows, the recurring income grows with it. When they stay advised for twenty years, you share in twenty years of it.
It arrives each year from business already written. Recurring income of this kind is what gives financial planning firms their value, and the partnership gives you a share of it.
An introduction can keep paying for as long as the client stays advised. A client you introduce this year, who invests and stays, contributes to your income next year and the year after. Introduce a handful of clients a year and the recurring income stacks: each year's introductions add to the income from every previous year's.
It also changes how your firm feels through the mortgage cycle. Mortgage income rises and falls with rates, lender appetite and product-transfer pricing. Recurring advice income comes from assets under advice, so it does not follow mortgage volumes. It gives you a second income stream that continues when new lending slows.
A mortgage business is hard to sell for much, because its income is transactional and starts from zero each year, which leaves a buyer little recurring revenue to pay for.
Recurring advice income is a different kind of asset. Buyers of financial planning businesses pay for predictable, recurring revenue, because they can see it will still be there after the sale. By building a share of ongoing advice income alongside your mortgage business, you build an asset with capital value at exit, so what your firm is worth depends on more than how much you write this year.
A share of ongoing value is not guaranteed. It depends on clients actually taking advice, investing and staying, and on the value of their investments, which can fall as well as rise. A referral fee is certain and immediate. The partnership offers a recurring reward that can build saleable value in exchange for that certainty, on business that is written and serviced.
The recurring value exists because E&G is advising your client, managing their assets and being paid for an ongoing service the client receives. You are paid because you introduced the client and remain part of the relationship, and the income rises and falls with those advice relationships and with markets.
The client's interests come first in all of it. The advice has to be suitable and in the client's interest regardless of any arrangement with you, and E&G's regulated obligations see to that. Your share comes from the client staying in an advice relationship that continues to serve them.
Sharing in ongoing value leaves your role and the regulatory line where they are. You still advise on mortgages and protection under your own permissions. You still introduce the client to E&G for pensions, investments and estate planning, and you still never give the regulated wealth advice yourself. The change is in how the introduction is rewarded: you take a share of the value the relationship builds for as long as it lasts.
No. It depends on clients taking advice, investing and staying invested, and on the value of their assets, which can fall as well as rise. A referral fee is certain and paid once. The partnership offers a recurring reward in place of that certainty, on business that is written and serviced. Commercial terms are agreed individually and are not a guarantee of income.
No. The client pays E&G for the advice and service they receive, on the same basis whether or not you share in it. Your share reflects your introduction and continuing involvement. The advice must be suitable and in the client's interest regardless, and E&G's regulated obligations ensure that.
The introducer model is closer to that: you introduce and earn on the introduction, with less of the long-term share. The fuller partner model shares in the ongoing value of the assets under management. You can start with the lighter arrangement and move to the fuller one later. The right choice depends on how much long-term value you want to build.
A mortgage business is largely transactional, so a buyer has little recurring income to pay for. Ongoing advice income is recurring and predictable, which is what buyers of financial planning firms pay for. Building a share of that income alongside your mortgage business gives your firm an asset with capital value at exit.
Each step of an introduction to Equity & General, from the sentence in the mortgage meeting to the update you receive, and which firm carries each step.
Read it
The pension, savings, will and business questions a mortgage completion leaves open, and how to raise them with a client without giving regulated advice.
Read it
What changes for the client and for you when the mortgage advice and the wealth advice come from people who talk to each other and work from the same picture.
Read itYour firm keeps the mortgage and protection advice. Equity & General gives the pension, investment and estate planning advice, and a named partnership manager sets the arrangement up with you.