Advisors who are sticking to a culture of reciprocity may be losing out on significant revenue-making opportunities, research reveals.

Many financial advisors are too reliant on traditional ways of working, which could be costing them up to an extra £100,000 ($155,000) worth of potential revenue each year, according to new research by FBA.com.

The management of client referrals was identified as an area with particular room for improvement, based on FBA.com's research among 251 UK-based financial advisors and wealth managers. One third of independent financial advisors annually refer between £25-000-£100,000 worth of business and 61 per cent do not get paid for making such referrals.

There appeared to be a lack of knowledge about how referrals could be leveraged to generate more income, with 36 per cent of advisors claiming that while they had previously considered boosting income from referrals, they had either done nothing about it or tried and been unsuccessful. 

“Changes affecting the industry have caused significant disruption to the way in which IFAs run their businesses and build profits from their client portfolios. The lack of awareness around alternative ways of working is indicative of a knowledge gap that is preventing IFAs from increasing their revenue through new money-making techniques,” said the managing director at FBA.com, Ash Patel.

Over half of advisors refer business to an external professional advisor due to a lack of specialist know-how, according to the research. Other reasons include workload pressure, for 15 per cent, and the need to reciprocate by referring a case to a professional advisor who provides leads from time to time, for 11 per cent.

“The financial advice industry is currently wedded to a culture of reciprocity when it comes to managing case referrals - ‘you scratch my back and I’ll scratch yours’. While this has been effective in the past, it is now holding IFAs back,” Patel said.