Referral partners - Are you doing it right?

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Most brokers have one or more relationships with a referral partner. These relationships have historically been with Real Estate Agents, Accountants, Financial Advisors and Solicitors, though we have often seen brokers engaging with a range of other kinds of businesses to obtain leads. A referral partner can be just about anyone with a business who has the capacity to refer a person looking for a loan.

Referral partnerships are great for business and can be a steady source of quality leads and customers. However, we have been seeing a growing number of cases where a broker’s business has been put at risk by a referral partner, or worse yet, a case where a broker has had to leave the industry due to the fraudulent activity of a referral partner.

These ‘bad’ referral partners have the broker take all the risks, particularly when seeking to submit non-genuine supporting documentation or client information to lenders. Importantly, they are often doing so because they can no longer be a broker themselves for legal reasons.

So how can you reduce the risk to your business?

Do your research.

The best way to reduce the risk to your business is to get to know the prospective referrer and their business before commencing a relationship. That means doing some thorough research and background checks on your prospective partner:

  • Google the prospective partner’s business, and use the word ‘scam’ in the search engine. This will often identify issues their clients have experienced.
  • Peruse their website and social media sites. Look at the comments and ratings.
  • Meet them at their business premises.
  • Become a customer and get to know their business proposition. Ensure their ethics and standard of customer service aligns with yours.
  • Find out how long they have been in business.
  • Search the ASIC Banned and Disqualified Register.
  • Ask family and friends if they have any experience with the business, or if they know anything about the person you’ll be dealing with.

Only discuss how you can assist each other’s business when you have done your research and are sure you feel comfortable with the prospective referral partner. Most successful referral partnerships are two-way relationships. You should ask yourself: would you feel confident about referring your clients to them? If not, why would you take leads from them?

Put a Referral Agreement in place.

It’s important to agree what referral fees or commissions will be paid, if any. However, some of the longest and most profitable referral relationships we know of are built on a mutual referral arrangement with no payment. That’s because a referral partnership works best where there is a mutual desire to offer great service to clients that will build both businesses.

Whether you are paying your referral partner a referral fee or not, you must have a Referral Agreement in place that defines the roles and responsibilities of both parties. To make it easy for you to arrange, we’ve put two Referral Agreement Templates in Mercury that you can locate under the Documents tab.

Own the customer when providing credit assistance.

Finally and most importantly, is the question of who owns the client. The referrer’s role is limited to providing you the client’s name, contact details and possibly a high-level description of their purpose for seeking a loan. If they will be paid a referral fee, they need to disclose that they will be receiving a fee to the client, preferably by email copied to yourself.

Your only contact with your referral partner after this point would be to let them know the outcome of the application.

After the client is referred to you, the client is yours and you need to fulfil all of your Responsible Lending obligations when providing credit assistance. Ensure you independently collect and verify all information regarding their financial situation. If any of the supporting documents are prepared by the referrer, such as financials from an accountant, ensure you get third party verification of the information. As an example, an ATO Tax Assessment would be suitable.

Ensure you look for any red flags – particularly on the first few referrals. Get a feel for the type of client they are referring. If you have concerns you can always cease the relationship.

What does the NCCP Act require of licensees and referrers?

Requirements for the ACL Holder:

  • Must have a referral agreement between the parties
  • Must have a referral register
  • Must contact the client within 10 business days of referral. The call or email must begin with who has referred you, confirm they agreed to be contacted, disclose any referral fee that will be payable and obtain consent to continue the discussion.
  • Must disclose any fees or benefits to the client in the Credit Proposal Disclosure document.

Requirements for the Referral Partner:

  • Must conduct business from a standard premises and referrals are to be incidental to their business.
  • Must provide the clients contact details within 5 business days of their consent to be contacted.
  • They are able to advise a client that you provide credit assistance and no more
  • They can provide you the client’s name, contact details and a short description of the purpose for seeking finance.
  • Is not permitted to charge the client a fee in relation to the referral.

Source: NCCP Act Regulations 9AB and 25(5)

Contact the Compliance Team with any referral partner questions.

Building referral partnerships is important to the success of your business. In most cases, referral partnerships work really well and add to the depth and quality of the service you provide to your customers, as well as offer a cost-effective way to attract new ones. If you follow the steps outlined above, you will be better able to build long term relationships with your referral partners and avoid the risks and pitfalls.

More information about our requirements for Connective Credit Representatives with regard to referral partnerships can be found on Connective Wiki here. However, if you have any questions, the Compliance Team will be happy to help. Get in touch by clicking on your help icon in Mercury or email us at