Referrals are really money in motion

Ask any seasoned financial adviser over the decades where the majority of his or her new clients came from and they will tell you that roughly 7 out of 10 originated from a referral. Today, that ratio still holds true as confirmed by the recent IN/Moss Adams Performance Study of Advisory Firms, which shows that 67% of new clients and new revenue come from either a client or center of influence referral. Yet despite this tried-and-true fact in the advisory industry, less than a third of advisers have a formalized process for cultivating referrals, according to the same study. (By the way, those firms that do have a formal process are growing at a much more substantial rate than those firms who don’t.) Why is this, then, when over 80% of clients, according to Pershing Advisor Solutions LLC, are willing to refer their adviser to their friends and family? In our research with advisers, it often comes down to the fact that advisers as a species are a shy bunch. They are often hesitant to reach out in fear that they will come across as “sales-y” and not as a professional investment and financial planning practitioner. Other reasons we see are the fact that they have had no real training in how to market or conduct business development for their firm. Their calling card always has been to “deliver outstanding service and let the new business take care of itself.” However, in these more complex, competitive and interesting times, that passive approach to “wait for the phone to ring” may not be sustainable. Evidence for that trend also has been documented in the IN/Moss Adams study, which shows that advisory firms are not bringing on as many clients as they have in the past. So how can advisers find ways to recharge their growth through their No. 1 strength, the referral? One key way is to take a look at what the definition of a referral really is. Top-performing firms have not only defined what a referral is, they have also built a consistent and systematized approach to be proactive in generating and managing the referral process. To be considered a true referral, the prospect must have an immediate need for financial advice and counsel; otherwise, trying to peel a wealthy investor off another adviser is an uphill, time-consuming battle that is rarely won. Therefore, it is critical to focus on situations or life events that trigger a liquidity event or a life transition that creates financial advisory opportunities at that point in time — where “money is in motion.” Advisers can follow up only on those leads that have a single point of contact to help those who need financial advisory services. Therefore, in order to create a true referral system from a trusted source, advisers need to prompt their client’s or center of influence’s memories to help them think of someone who needs advice and guidance. Clearly, the burden is upon the adviser to prompt these recommendations, as clients typically do not wake up every morning with a burning desire to brainstorm five millionaires to refer. And therein lies the secret to referrals: Advisers need to ask. Yet asking directly can be to some advisers an uncomfortable approach. However, when asked in a straightforward and intentional way, most people are more than happy to engage in a conversation about someone they know who needs help — particularly when advisers have educated that person ahead of time in how they treat their confidential information, as well as what type of prospect they are looking for in terms of assets, personality and needs. To start that process, advisers simply need to help jog their memory by asking a very specific question to uncover a financial services need, such as, “Among your friends, colleagues and family, who is the one person most likely to be selling a business?” Or, “Who is the one person most likely to be retiring next from your company?” In the case of the first question, you are looking for a liquidity event that will create the need for investment services, and in the latter, you are looking for a retirement-planning opportunity and/or an individual retirement account rollover. Additional questions you can ask can center on other liquidity events, such as selling real estate, or people on their own financially for the first time, such as widows or divorcees who will be in a transitional phase and will need financial advice and management. Advisers can follow up with, “Is XYZ someone I should be in front of?” which is a graceful way to let that person off the hook if he or she isn’t completely comfortable in going further and also a very quick way for advisers to qualify their answer as a promising new lead or not. The very natural answer from that person will be, “Yes, XYZ has no idea what to do next. Let me give you his contact information and I’ll make sure he reaches out to you.” Now, that is a referral you can put into your follow-up process, using your customer relationship management to ensure that communications happen in the right sequence and timing to close the business. All of the advertising and unlimited marketing budgets in the world cannot defeat the personal referral. Almost all people need a personal referral to a professional that is respected and who has expertise about personal financial planning and investing. So please do ask. You might be more than pleasantly rewarded. Timothy D. Welsh (tim@nexus-strategy.com) is president and founder of Nexus Strategy LLC, a leading consulting firm to the wealth management industry.