When an association board receives a referral from its management company, it often means that the management company has knowledge of the advisor or firm and believes that clients could benefit from the connection and knowledge base. In fact, it would be unusual for someone to give a referral unless there was trust and credibility in the relationship.
However, a strong referral does not negate the board’s role in due diligence to ensure that the recommended advisor will be the right fit for the style and needs of the association. Here are a few things to consider when determining the right fit.
Seek other referrals.
When seeking a CPA or other advisor, send out a memo or RFP. Ask your colleagues for additional recommendations. Invite several firms to submit a proposal.
In addition to the management company referral, ask the advisory firm for more references. This will give you a better idea of the firm’s level of experience with CICs, the services they have provided and their satisfaction rating.
Determine niche or expertise.
There are advisors that name CICs as a strong niche practice and those that have only dabbled. Due to changing laws and requirements, a firm with only a few engagements in the last five years may end up costing more due to research time, hours to complete the engagement and the board’s own time in assisting the advisor. Firms that focus on CIC services are continuously updating credentials and knowledge of the industry, resulting in more efficient results, accuracy and relevant recommendations.
Test the "in appearance and in fact” rules.
Auditors have an ethical obligation through the American Institute of Certified Public Accountants (AICPA) to remain independent in appearance and in fact. This means that auditors are removed from any management company, manager or association. If an auditor is in any way related to a management company, manager or association, then the auditor’s firm must recuse itself from the engagement and supply the association with a referral to another audit professional.
Note any conflicts of interest.
If other advisors are associated with the management company beyond professional relationships (e.g. part owner, family) or have some personal stake in decisions made about the association, investigate the situation further. Ruling out any conflicts of interest, real or perceived, will support the board’s determination of the right fit.
Go with your gut.
Another level of the right fit relates to how the advisor or firm responds to questions and requests. Do they walk the talk of responsiveness and service? Do board members feel involved in the decision-making and recommendations? Is there a sense of collaboration in serving the CIC’s best interests? Adding an emotional gut check to the due diligence process can sometimes assist with choosing the right firm.
Ultimately, the board has an important role in choosing advisors who will support a CIC’s financial health and success. Appreciate and explore the recommendations offered by existing advisors. Then dig a little deeper to make a selection with confidence.