Pre-nuptial agreement essential for referral relationship
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Financial planners would be wise to draw up a kind of ‘pre-nuptial’ agreement with other service providers they are keen to engage in a joint venture, according to Gold Seal’s Claire Wivell Plater.
Wivell-Plater said while some planners are happy to engage in a straightforward referral type arrangement with trusted accountants or lawyers, others might want to include them under their Australian Financial Services Licence or even engage in a joint venture.
While the joint venture arrangement would enable both the planner and referrer to share in the benefits brought by the client, Wivell-Plater warned that with time the relationship could become more complex and things could get messy should it ultimately break up.
“Business relationships are like marriages — easy to get into and hard to get out of,” she said. “Unless the rules are laid down in advance, when negotiations and discussions are easy because goodwill abounds, significant and sometimes irretrievable problems can occur after the relationship has broken down and communication is poor.”
She said that is why it is a good idea to have a Shareholders Agreement in place from the start, which acts as a kind of pre-nuptial agreement for the business.
“A Shareholders Agreement sets out the pre-agreed rules which govern the manner in which the joint venture operates and the rights and obligations of both of the parties, both during and after the life of the joint venture,” she said. “For less complex arrangements, a Referral or Authorised Representative Agreement can be used in a similar manner.”
She said the kind of issues that the agreement would help manage include the scope of the services each party will provide, how profits will be distributed, what financial accounts will be kept, ownership of intellectual property, liabilities and indemnities, how decisions are to be made and deadlocks resolved, what happens when one party chooses to exit the joint venture, and client ‘ownership’.
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