Due Diligence for Advice Practices



In the following two features, business coach Scott Charlton says there are 10 common errors financial advisers make when working with accountants, while Steve Murray of Catalyst Compliance explains why advisers should perform their own due diligence when considering aligning themselves with a licensee…


Ten Errors to Avoid When Collaborating with an Accountant

Slipstream Coaching’s Scott Charlton details 10 errors you should avoid when collaborating with accountants. While many of you may already be avoiding some or even most of these errors, the range of areas that Scott covers and the way he talks about them demonstrates his obvious deep understanding of how accounting firms work and, importantly, how accountants ‘think’…


Accountants are generally quite ruthless in rebuffing the numerous approaches they receive from advisers and providers. They will also quickly terminate discussions if they feel a relationship is not worth pursuing.

However, there are ways you can ensure your chances aren’t spoiled by avoiding these 10 rookie errors when developing relationships with accountants

1. Expecting the accountant to give you their client list and you’ll make lots of money

If you think telling the accountant that it is vital for their clients to be insured, have a plan for their retirement, or that you can assist them with the cheapest loan, then think again.

The reality is the accountant may or may not agree with your assertion. More importantly, the accountant may not sufficiently trust you at this stage nor have confidence that you can do a good job. You are an untested commodity, so frankly, why should the accountant risk client relationships when you’ve not yet done anything to foster goodwill and confidence?

2. Not doing your research and going in cold to a first meeting

“So, what kind of work do you do here at ABC Accountants?” This is just a bad question and for the accountant, it is at the cost of otherwise chargeable time.

To create a strong first impression and give yourself a much better chance of success, always be prepared by conducting the relevant research before meeting with an accountant. A thorough review of an accountant’s website before the initial meeting should be regarded as mandatory.

Some of the other things that you should know before you enter their office include clients that you have in common, personal interests of the partners, if they have a PA and who their key team members are.

3. Playing the short game (i.e. get discouraged early and give up)

This is where an adviser hopes to obtain a referral or (even more unlikely) a referral relationship from the first meeting with an accountant.

As with all relationships, the best and most sustainable referral relationships usually emerge over time. This gestation period enables trust to be formed, test cases to be successfully negotiated, and confidence in you to be developed.

4. Failing to account for the money (if in an income splitting arrangement)

Accountants take a dim view of errors and oversights. An error to avoid is presenting the accountant with the list of commissions from clients referred to you and have clients missing from that list.

They will then extrapolate these into a conspiracy (“What else is missing?”) and a back-dated test case (“Couldn’t even get that right”).

5. Being unaware of tax deadlines that accountants are working towards

In Australia, 15 May is the final date for lodging tax returns for the previous financial year. In the weeks leading up to this deadline, many accountants are under considerable pressure to get these returns prepared.

As a result, accountants will have less scope to meet with you and/or work on joint initiatives with a statutory deadline looming. Best to find out when these are and work around them.

6. Assuming you are the first person to approach the accountant for referrals

Accountants are approached all the time, so you need strong credentials and good reasons for why they should refer to you.

7. Making a meeting with an accountant armed with nothing but hope

Closely aligned with the previous point, in order to have a valuable conversation, ensure that you have something interesting to say about how you can add value.

8. Promise to refer clients

Don’t promise what you can’t deliver. Besides, you are more likely to find that accountants assign higher priority to ensuring that you do a good job for the clients they refer to you than any clients you send to them.

9. Make basic errors in punctuality, spelling, calculations and dates

Accountants tend to view their value proposition in terms of technical excellence. The importance they place on precision is understandable:

  • Telling a client to buy an asset in the family trust when it should have been in the super fund or vice versa could have significant tax implications
  • Getting a calculation wrong may result in tax penalties
  • Missing a deduction means a client pays more tax than necessary

So, frustrating as it may be, accountants will judge you at least in part on the accuracy of your correspondence and calculations. To prevent these errors, ask a team member to proof read your documents and double check your numbers before sending anything to an accountant.

10. Refer the wrong type of client

An accountant specialising in business clients will understandably be puzzled if you persist in referring salaried clients with rental properties. This is an obvious one to steer clear of.

If you have been a culprit of making any of the above rookie errors, there are some suggestions to be implemented to ensure a more successful outcome for the next time you collaborate with an accountant.

Try reflecting on ways in which the situations above could be handled better and incorporate this into your approach in pitching to accountants in the future. Or for each of the accountants you have unsuccessfully approached for referrals, go back through this list and see which ones applied.

Successful referral relationships with accountants almost always follow being professional, having a solid offering and avoiding these ten errors.

Scott Charlton is a Chartered Accountant and a director of Slipstream Coaching.


Is Your Licensee a Threat to Your Professional Future?

With greater scrutiny on advisers, and the groups that employ them, should advisers be asking questions that go beyond the issue of cost and examine the compliance record of a licensee? Steve Murray of Catalyst Compliance believes advisers should perform their own due diligence when reviewing a licensee…


Reputable AFS licensees have attempted to protect their licence by avoiding the authorisation of advisers employing sub-standard practices – with varying degrees of success. It is now evident that advisers need to be equally as careful in their selection of a licensee as they may turn out to be a threat to the adviser’s reputation and their professional future.

When representatives contemplate moving AFS licensees they usually compare a number of prospective licensee business models against their own shopping list of attractive features. While industry failures are rare, advisers should include a list of risks to avoid, or look out for, in their due diligence process of the licensee.

My use of the term “due diligence process” is perhaps an overstatement of how advisers consider any change of licensees. Firstly, they don’t usually have a process, and secondly there isn’t any detailed scrutiny of potential licensees that is sufficiently robust enough to warrant being labelled as “due diligence”.

Unfortunately, an adviser’s investigation into a potential new licensee is usually very shallow and confined to two issues:

  • How little will I have to pay to be authorised
  • How little will the licensee interfere with the running of my business

Why should advisers look for avoidance issues? Put simply, so that advisers do not expose themselves to a troubled licensee who will appear on their CV forevermore.

Irrespective of the fact that an adviser has a blemish-free history, an association with a troubled AFS licensee can be enough to convince a new licensee to avoid that adviser – they don’t know whether the adviser was one of the “bad” advisers or not, and are not willing to take the chance.

So, what should an adviser look for to avoid a troubled licensee?

1. Low-Cost Business Models

Advisers like low-cost models as it leaves more money in their pocket along with the mistaken belief that licensees don’t add much value. Ironically, if an adviser chooses a low-cost model they won’t get much added value.

Low-cost does not necessarily mean poor compliance and management, but it does mean that there is less funding available to resource the business. It usually means the licensee is heavily reliant on one or two people to perform multiple roles.

Low cost is not all bad news, let me also point out that some of the best compliance comes from small licensees who benefit from having direct control over all aspects of their business.

Advisers should, however, assess whether the low-cost model they are considering will be able to meet its licence obligations and will therefore be viable into the future.

2. Licensee Review

Ask to see the most recent licensee review. Most reputable licensees have an external organisation review their policies, procedures and processes – usually every one or two years. This provides independent third-party input regarding whether the licensee is meeting their regulatory and compliance obligations.

The adviser should review the issues identified and decide whether they are significant and would cause a reassessment of the licensee e.g. if poor monitoring and supervision is identified as an issue, then there is an increased possibility of a rogue adviser and subsequent brand damage and attention from ASIC. Is this the licensee that you want to be associated with?

If the licensee does not review their policies, procedures and processes the adviser should consider whether they are serious about meeting industry compliance standards.

3. Breaches and Client Complaint Registers

An adviser should request to review the licensee’s breaches and client complaint registers. The adviser should consider the contents and assess whether the amount of breaches and complaints and the type of breaches and complaints would cause a reassessment of the licensee.

If a licensee has no breaches or client complaints over an extended period, then avoid this licensee – they are not serious about compliance.

4. Representative Operational Procedures

Assess whether the licensee provides good guidance to their advisers and whether the procedures are compatible with how an adviser’s business operates.

5. Other Representatives

Talk to other advisers who already operate under the licence and assess, through their eyes, how the licensee operates and whether it meets your requirements.
In today’s environment reputational risk works in both directions and advisers need to be proactive in assessing whether a potential new licensee will meet their obligations or whether they are likely to be a blight on their CV – and the ASIC register – for every future licensee to see.

Steve Murray is the Managing Director of Catalyst Compliance, a Sydney based compliance and back office services provider to AFS licensees.


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