[June 2006]

A common misconception among advisors is that when asking for referrals, they should not put any pressure on clients. The key is not to eliminate pressure entirely, but rather to contain it to an acceptable level.

Hans Selye, who spent many years in the faculty of medicine at McGill University in Montreal and was a pioneer in the field of stress management, wrote a book called Stress without Distress. In it, he talked about his research into the role stress plays in helping us all function on a day-to-day basis. Without some level of stress, none of us would get out of bed in the morning.

If you want to eliminate stress for clients, don’t bring up the subject of referrals at all. But if you want your clients’ assistance in securing introductions to prospective clients, you will need a modest level of pressure — enough so that your clients will be motivated to act, but not so much as to harm your relationship with them.

The shattering of the myth that advisors should not put pressure on clients is one of the final lessons of an in-depth, six-month study of what it takes to make referrals happen. Here are five more myths — and the evidence that refutes them:

> Myth one: The best referral conversations are spontaneous and arise from the give and take of client conversations.

There is an element of truth in this — you can’t be mechanistic in client conversations. That said, in working with 24 advisors over six months, there was a clear connection between spending five minutes preparing for a meeting and having a successful conversation on the subject of referrals. In those five minutes, you should review what you know about the client, identify your referral objectives for the meeting and script out how you plan to make the request.

That five minutes of preparation pays big dividends in expanding the probability that a referral conversation will happen — and in increasing the odds that it will be successful when it takes place.

> Myth two: There is one best way to ask for referrals.

Many advisors strive to find the “silver bullet” for asking clients for referrals — that magic combination of words that, if you just string them together, will unlock referrals from all your clients.

The hard reality is that there is no panacea when it comes to asking for referrals. To be effective, advisors need a variety of approaches to the referral conversation that they can adapt to each specific client and his or her circumstances.

Just as Major League Baseball pitchers need to have a roster of pitches they feel comfortable throwing, advisors also need a range of methods to draw upon when it comes to asking for referrals.

> Myth three: The best time to ask for referrals is at the end of the meeting.

Advisors typically ask for referrals at the very end of a client meeting, often as the client is standing up and getting ready to leave.

All too often, advisors are like Peter Falk in the 1970s TV show Columbo, holding up a finger as the client is on the way out the door and saying, “Just one more thing before you go.”

In some measure, that’s because advisors want clients to feel that the clients’ issues are paramount in a meeting. More to the point, many advisors’ discomfort with the whole issue of asking for referrals often leads to avoidance behaviour, putting off the request until the last possible moment.

In fact, the worst possible times to ask for referrals are at the very beginning of a meeting and at the very end.

The right time to bring up the subject is in the body of a meeting — anywhere from one-quarter to three-quarters of the way through it.

One approach to consider is saying to clients when you schedule their meetings: “When we meet, I’d like to start by talking about any changes that have taken place in your life in the past year. At the same time, I want to bring you up to date on some of my plans to expand my business, and fill you in on the clients I’m looking to add.”

By raising the subject at the time the meeting is set up, you have jumped the hurdle of bringing up the subject and you have made it more probable that a referral conversation will take place during the body of the meeting with your client.

@page_break@> Myth four: When talking to clients about referrals, you should be clear about your account minimum.

As your business grows, you may no longer have the ability to take on small clients. Some advisors deal with this by telling their clients they will only accept new clients with assets above a certain level — whether it is $20,000, $100,000 or $1 million.

There are problems with this.

First, it sends a signal to your clients that all you care about is their money. If you’re going to have this conversation, the asset level should be one of three or four attributes that you are looking for in new clients.

Second, research with clients indicates that most don’t know their friends’ financial status — and, furthermore, they don’t want to know.

If you are going to have this conversation, be sure to treat the asset minimum as a guideline only and convey your flexibility, so that your clients don’t feel constrained from making introductions because they don’t know their friends’ financial positions.

> Myth five: The only important thing in getting referrals is how you ask for them.

How you ask is a critical factor in your success in getting referrals— but there are five additional elements that go into maximizing referrals. Referrals begin with a foundation of client satisfaction. You then need to have clear objectives and consistent processes for framing requests for referrals. As well, accept referrals when they are tendered; remind clients of referrals after the initial conversation; and thank clients when they provide referrals, perhaps even with a gift.

Only by firing on all these cylinders will you maximize your referral opportunities. IE

Dan Richards is president of Strategic Imperatives Ltd., a Toronto-based consultancy that trains financial advisors. He can be reached at richards@getkeepclients.com. For other columns in this series, visit www.investmentexecutive.com.