Illustrative case study

The referral nobody mentioned

An introduction from a trusted accountant who was paid for it, discovered a year later: nothing wrong with the claim, and a question that would have brought the payment out before signing.

Illustrative case study. The business, people and figures are invented to show how a situation can unfold. Any resemblance to a real business or adviser is unintended.

Fee type: Percentage fee
Company type: Small businesses

The situation

A small business with about 20 staff asked its accountant of many years whether it should look at an R&D claim. The accountant said yes and introduced an adviser. The business signed with the adviser on a 20% fee of the benefit received, the claim was $250,000, the fee $50,000, and the claim went through without difficulty. Illustrative figures.

What was signed

A clear engagement letter with the fee on the amount received, review support included, and records returned on request. Nothing in the letter, and nothing said in the meetings, mentioned any payment between the adviser and the accountant.

What happened

A year later, discussing the next claim, the owner learned in passing that the accountant received a referral fee from the adviser for each client introduced. The accountant had not hidden it, exactly; the subject had never come up. The claim had been sound and the fee had been fair, so nothing was lost that the owner could point to. What was lost was the owner's confidence that the introduction had been made with the business's interests alone in mind, and the owner spent some weeks wondering whether another adviser would have charged less.

What it cost

Nothing measurable. The business kept the adviser, whose work it was happy with, and asked both the adviser and the accountant to set out in writing what was paid for the introduction. It then asked for proposals from two other advisers at renewal, compared them on the same basis, and chose to stay, this time knowing why. Illustrative figures.

How it unfolded

The introductionA trusted accountant introduces an adviser. The business signs on a 20% fee of the amount received.
The claimA $250,000 claim goes through without difficulty. The fee of $50,000 is paid.
A year laterThe owner learns that the accountant receives a referral fee for each client introduced.
RenewalBoth sides set out the payment in writing. Two other proposals are compared on the same basis. The business stays, knowing why.

Illustrative figures.

The sum

Illustrative

ClaimSound, and upheld: $250,000
Fee, 20% of the amount receivedFair for the work: $50,000
Benefit kept after the feeNothing measurable was lost: $200,000
Cost of asking the referral question before signingOne email to each side: $0

Illustrative figures. Same claim and assumptions as the rest of the site.

What would have helped

One question, asked of both sides before signing: do you pay or receive referral fees? The script for asking about referral fees has the wording for the adviser and for the person who introduced them. Professional rules in some countries allow referral fees where they are disclosed to the client,1 and a disclosed introduction fee is not a reason to walk away; it is a reason to compare the proposal with one other. The confidentiality clause page notes that introductions are also a question of what was shared with whom. The case ends well because the owner asked, late rather than never.

Sources

ICAEW, "Commissions and fees: fully informed consent" (United Kingdom); AICPA Code of Professional Conduct, ET section 1.520 "Commissions and Referral Fees" (United States). More detail on your country page. Back

KnowYourFees.org is published by Swanson Reed, an R&D tax advisory firm that competes with other advisers. This site does not recommend any adviser, including Swanson Reed.