(April 2007)

Client referrals are involved in about half of the instances in which meaningful clients — those with more than $100,000 in assets — se-lect a new advisor.

And few advisors dispute the importance of referrals in bringing new clients on board. Despite that, most advisors fail to introduce the topic with clients on a regular basis.

When I chaired a recent conference attended by many successful advisors, I asked attendees to fill out a short questionnaire on the topic of referrals. One question asked was: “In how many of your past 10 client meetings did you bring up the issue of referrals?” The most common answer, by an overwhelming margin, was zero.

There’s a paradox at work here. Most advisors want new clients. They know that referrals are instrumental in the client acquisition process. And yet, most fail to raise this topic on anything approaching a regular basis.

There is a broad range of reasons why advisors shy away from talking about referrals. In some cases, they aren’t sure they have really earned a referral. In other instances, they are apprehensive about rejection or don’t know how to ask. Other advisors say they “forget” to ask. (I am a bit skeptical about this. I agree with Sigmund Freud’s observation that “there are no accidents”; I think that we forget the things we want to forget.)

Dwarfing all of these barriers, however, are two other big issues.

First, many advisors shy away from broaching referrals because they are concerned that it will undermine their image of professionalism in their clients’ eyes and position themselves as “salespeople.”

The second obstacle is advisors’ apprehension that introducing the topic of referrals will put clients under pressure and do damage to the client/advisor relationship.

Both of these concerns are legitimate and understandable. Historically, after all, many of the strategies around asking for referrals to which advisors were exposed were based on putting clients under pressure.

Think, for example, about the classic approach of asking clients if they’re happy at the conclusion of a meeting, and then, when clients say yes, replying: “Terrific, who among your neighbours or colleagues at work might I be able to help in the same way I’ve helped you? I can take their names right now.”

As one successful advisor said to me: “If this is what I have to do to get referrals, count me out.”

It’s clear that a fundamental rethinking about the issue of referrals is necessary. We need to stop using the phrase “asking for referrals.” Asking implies a one-way flow and positions the advisor as a supplicant. Instead of “asking for referrals,” we need to reframe the process as “initiating referral conversations.”

Advisors also need an arsenal of approaches to let clients know they are open for business — the more successful you are, the more likely it is that clients will believe you are not taking on new clients — and to elevate the referral issue to clients’ top-of-mind awareness. For these approaches to be useful, advisors have to be confident that clients will not feel pressured and that the client/advisor relationship and the advisors’ image of professionalism will not be at risk.

To achieve these goals, here’s a short conversation that you might want to consider having with clients.

Toward the end of your next client meeting, think about saying something along the lines of: “Before we wrap up, I wonder whether we could take three minutes on one other matter.

“Recently, I’ve spent some time thinking about the kinds of clients with whom I work most effectively and have found I can help the most. I’ve identified three qualities, and I’d like to run through those with you in the event you’re talking to somebody whom you think I might be able to help.

“The first thing that’s important is that, like you, people take the long view on their investments and aren’t looking to jump into and out of stocks. I find I can’t really bring much value to those folks with a short-term view.

“Second, people need to be open to an in-depth relationship with an advisor they can trust. Not everyone wants that, and I’ve found that unless someone is really willing to open up about their long-term goals and we spend the time at the outset to get to know each other, I can’t really help them.

@page_break@“And, third, for me to provide the level of ongoing communication and service that I do, clients need to have investments in the ballpark of $250,000. This is not a hard and fast rule and I do make exceptions, but this is the guideline I use.”

Now, these criteria may not apply to you. You need to think through the two or three key attributes that describe the clients you are striving to attract — and share these with your clients.

One way to make this conversation happen is to position it as part of the agenda when you call to set up the meeting. (If you currently aren’t using meeting agendas, you may want to take a look at my February column on this subject at www.invest-mentexecutive.com. ) After discussing the items to be covered, you might say: “One of the items we’ll be covering is an update on things that have changed in your life since we met last. When we meet, I’d like to take a few minutes to bring you up to date on some developments in my practice, including a profile I’ve put together on the kinds of new clients whom I’ve found I can help the most.”

Advisors who have begun using an agenda for meetings report that it has made meetings more efficient and productive. In the case of a referral conversation, putting it on the agenda will increase the odds that it happens in the body of the meeting rather than as an afterthought as clients are on their way out the door.

Talking about the profile of new clients that you’re targeting will raise client awareness around referrals and is a good first step. To translate that conversation into referrals, a few things need to happen.

Depending on the client, after reviewing the list of attributes, you might want to consider asking if the client has any questions. Then say something along the lines of: “By chance, is there anyone among your friends or colleagues at work who meets these criteria and has indicated that they might be looking for a new advisor in the next while?”

You also need to think about sending clients a follow-up note after the meeting, summarizing the next steps that will be taking place and reiterating the qualities that you’ve outlined in the meeting.

Finally, you need to accept that it is unlikely that only one conversation will be enough to do the job. To keep referrals top of mind among your clients, you need to be prepared to bring this subject up at regular intervals.

The key is not to sound like a broken record but to find different ways to boost the awareness of your desire for referrals and willingness to help your clients’ friends. In a future column, I’ll talk about other ways to initiate referral conversations. IE



Dan Richards, president of Strategic Imperatives Ltd., can be reached at richards@getkeepclients.com. For other columns in this series, go to www.investmentexecutive.com.