Paying COI’s: Perhaps prepare for the harvest before you prepare for the feast
Best Practice Advice & Marketing Ideas & Sales & Marketing for Professional Services

Paying COI's: Perhaps prepare for the harvest before you prepare for the feast

June 24, 2019
by Tony Vidler  CFP logo   CLU logo  ChFC logo

Is it appropriate to be paying COI’s a share of your success from their influences?


Or, to put it bluntly, nother way, should you share remuneration or the spoils of the sale with referrers?


Personally, I think not.  However, it is actually just a little more complicated than that because there are multiple parties involved with perhaps conflicting views.  So before trying to answer the question of what to do with the harvest, I think it makes a lot more sense to put in the work thinking about how to create the harvest first.


Jumping straight to the question of “what to do when this succeeds” with a Centre-Of-Influence seems to come up continually when discussing the topic of developing referrals and it is a divisive one.  There are certainly some potential influencers who are definitely interested in getting a share of the spoils, and definitely some advisers who are very happy to share the revenue. There appear to be a lot more as far as I can tell in both the influencer category and the advisory world who shun the idea and my perception (absolutely no science involved!) of the mood in professional services generally on this topic is that the “nays” far outweigh the “yays”.


This seems to be especially true when talking with professionals from non-financial-services sectors, such as lawyers and accountants and bankers.  There is a strong ethical leaning away from the idea of sharing in the revenue for a professional referral. That feeling appears to be so strong much of the time that the suggestion of revenue-sharing is in itself a complete professional turn-off, to the point where they wouldn’t consider providing professional referrals to someone offering to split revenue or pay spotters fees or anything similar.  So merely suggesting it is often dangerous and completely undermines an advisers efforts to create a COI relationship.


Yet, I continue to meet and speak with advisers who ask the question because they are willing to share revenue with those who do refer and they are keen to find ways to incentivise such referrals seeing as they believe incentives will generate the desired behaviour.  So it seems that this remains an issue, or a barrier, for many financial advisers trying to cultivate the right type of relationship with potential influencers.


I believe the appropriate thing to do is is to be transparent and show a willingness to share success if that is the way you lean, but in such a way that it doesn’t compromise the professional position of the influencer.  Being transparent means being open about the fact that revenue is being generated from business referrals…they know that in principle of course because thatis the whole point of it, but often influencers have no real idea of what levels of revenue a new client may be worth.  So even if there is no suggestion philosophically of sharing revenue for referral generation it seems to make sense from the perspective of transparency-building-trust to be open about the quantum…how much money is actually on the table from successful referrals?


There are three reasons for this:

1.  I don’t want someone to imagine there is more revenue being made than actually is. They do get influenced by headlines and media stories about the massive amounts of commissions, etc, etc that financial advisers make.  I want to kill that perception as quickly as I can, and have us dealing with facts.

2. I want them to know that I am being open about everything, including the often unspoken area of “money”.  Open-ness leads to trust, and that is a critical ingredient in building a successful professional COI relationship.

3.  I do want to be commercial about it. It is a business tactic, and I am not hiding from that.


So my suggestion is that to prepare for a good harvest we must put in the right groundwork first.


When positioning with potential COI’s be quite open about the typical client engagement, and the typical revenue generated from that engagement.  While being open about it, be open also about the fact that this a key element of your marketing – and as a business person you have a marketing budget.  You have to spend money each year to continue getting clients…that is just a fact of business.  So too does the COI usually.  They get that.

Typically we would allocate some 10-15% of the firms revenue to prospecting or marketing type efforts over the course of a production year, wouldn’t we?  Isn’t the COI referrals part of that marketing budget?


If a COI relationship does provide good quality and well qualified business prospects then that is business you do not have to pay to find in the broader market place, and that is effectively a saving in marketing costs for your business.

Is it reasonable and fair to allocate that marketing budget to the appropriate source?


Many will say that it is…and it is this division in philosophies which necessitates having the discussion abut it with potential COI’s.  Not discussing difficult questions is a poor way to manage a professional relationship which we hope will be mutually beneficial.


Why not put the dilemma on the table then?


There is merit in the argument that perhaps some marketing budget is saved, making the margin per sale or client acquired better.  There are a number of ways we could use that improved margin, and perhaps giving the COI the choice in how that might be utilised is a good approach.  The opening suggestions are:

a.  we can rebate it in some form directly to clients, either by way of a reduced fee or in some form of “thank you” to them from both of us.

b.  we can allocate it to a charity or community organisation as a form of sponsorship from you or your firm, or even from the client potentially.

c.  we can do something else with it if you’ve got a better idea…..


Option C of course does provide an opening for that occasional influencer who does want to discuss revenue sharing. experience.


Option A fits neatly with most professionals views of what is appropriate, and it also provides a clear value directly to the clients which is a direct reflection of the COI’s involvement.  In other words, the client gets a valuable discount or rebate simply because they are a client of the COI.  Everyone wins in that one.


Option B appeals to the truly altruistic, or those with a cause which is especially important to them.  It is also useful for those COI’s who do have strong views on professional positioning and do not wish to create any sense at all of discounting or rebating expectations flowing from mutual clients back to their own business.


As with so many things in professional services, the essential question asked at the beginning is actually a reasonable question if we approach it from the perspective of seeking transparency and clarity for all involved.  Commercially it makes sense to consider the issue too – we are all in business for a profit.  The adviser and any COI (usually) have commercial requirements…they are running businesses and need to generate profitable revenue if they are to keep staff employed and continue providing ongoing service and advice to clients.  Therefore it IS fair to consider the issue.


But; as with so many things in our commercial world now the essential question is inter-woven with a host of other issues and positions involving ethics, regulatory expectations, statutory obligations, branding and professional images, customer perceptions and value….and on it goes.  Somehow we have to balance all of these questions from all of the potential stakeholders (which is way more than just you and the COI who are having the actual conversation) and then be able to come up with a solution, or range of solutions, which meet the expectations of all stakeholders as well as achieving the commercial purpose.


So rather than approach the problem with a clumsy and inelegant offer to share commissions, think about how you can help the COI and clients be better off while still acknowledging that we are in business and trying to create a mutually beneficial arrangement.


“Mutually beneficial” doesn’t just mean you and the COI….it means something which works to meet ALL stakeholders expectations…the customer, regulators, staff, suppliers…everyone involved.  This is an area where the right outcome is one that scores a “win” for everyone.


Sharing the harvest is a good thing.  Before there is a harvest to share though some hard work needs to be done beforehand in the way of addressing a complex issue in a forthright fashion…and that should help generate greater levels of trust…and potential future clients.


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