Recent conversations with advisors and clients have convinced me that we are in the midst of a significant shift in our business when it comes to how we attract new clients. This change is sounding the death knell of mass prospecting as we have historically
known it.

This has little to do with the market decline of 2008 and everything to do with a consumer who is much more informed and skeptical than in the past.

Over the past 20 years, we have seen a steady and precipitous decline in the response rates to the traditional forms of mass prospecting. As a result, we are in the midst of a dramatic — and, in my view, permanent — shift in what it will take to attract new clients. The essence of this change is that the traditional divide between communication with clients and communication with prospects will disappear. Advisors will have to start treating prospects like clients from the moment the advisors start talking to the prospects.



> The Past

As recently as the 1960s, the 10-3-1 rule prevailed in the insurance industry. That rule stated that if you spoke to 10 prospects, you would get three appointments and had a high likelihood of making at least one sale.

In the late 1980s, mail drops offering free research reports garnered return rates of 10%-15%; if you mailed out 500 letters offering a research report, you could expect 50 to 75 responses.

In the mid-1990s, hotel meeting rooms across Canada were packed with prospects attracted by newspaper ads offering free seminars featuring media celebrities such as Brian Costello, Jerry White and Garth Turner. Many advisors built their businesses based on the turnout at those seminars.

In the words of young-adult cult novelist S.E. Hinton, “That was then, this is now.”



> The Present

Even before the market events of last year, response rates to mass marketing of all forms had been declining dramatically. A conversation I had last spring with a Toronto advisor from one of the bank-owned brokerage firms drove this home.

That advisor had been in the business for about six years. During that time, he had focused his prospecting on running dinner seminars at elite restaurants in high-end neighbourhoods, featuring an after-dinner talk about his firm’s managed-money program. With financial support from that program, his strategy was to conduct twice-monthly dinners in private rooms at the highest-end restaurants he could find. His goal for each dinner was to attract 10 households, either single decision-makers or couples. He was targeting communities in which investible assets were likely to be $1 million.

The managed-money program took care of all the details — booking the restaurant and mailing out embossed wedding-style invitations to people living in the affluent areas close to the restaurants. All the advisor had to do was to show up, deliver his talk and follow up with the attendees.

What I was most interested in learning was how many of these invitations it took to get 10 households willing to avail themselves of this free dinner.

The answer was 1,000 — a response rate of 1%. And how many sales did he make to the 10 households who typically attended?

His goal was to make one sale. Occasionally he made two, but not infrequently he got no new clients from the dinner.

This example illustrates just how dramatic the drop in return rates for mass prospecting has become. Also, this took place before the spike in skepticism that resulted from the market excitement that began last September.

And here’s the real killer: not only are response rates way down, but also, even when you do get a response, prospects have their guards up because they’re afraid of being “sold.”



> The Future

My conclusions are simple: every form of prospecting has ultimately been a numbers game and always will be. That is as true of focusing on referrals as it is of focusing on mass marketing. The big change lies in what those numbers look like. The return on high-trust activities such as referrals has been stable and, in some cases, has improved, while the return on mass prospecting has plummeted.

The bottom line? Falling response rates will make the economics of mass prospecting less and less attractive.

One important implication of this is that the traditional divide between the way you communicate with clients and the way you communicate with prospects will disappear.

@page_break@Given the growing level of skepticism on the part of the investing public, the most compelling way to communicate with prospects will not relate to prospecting breakfasts, lunches, dinners and workshops. It will not feature special offers advertised in the newspaper or offered via direct mail. Nor will it focus on cold calls to business owners, offering a second opinion on their situations.

It’s not that these approaches can’t work — anything within reason will work if you do it enough. The problem is that the response rate to anything that investors see as a “sales pitch” is already low and will only decline further.

So, if mass prospecting won’t work, what will?

Consider this: when you ask investors who have just chosen a new advisor what the key factor in their decision was, they will answer: “I felt I could trust this advisor.”

That’s why high-trust approaches based on referrals are consistently the most effective. Whether it be referrals from clients, professionals or other parts of the financial institution for which you work, the reason referrals work is that they’re fundamentally a transfer of the trust that a person has in you to a friend, a colleague or a client. (And the more assets someone has, the more critical referrals tend to be.)

That’s why a focused effort to become the trusted “advisor of choice” against a defined target community will continue to yield results. (Without pushing this parallel too far, this is why Bernie Madoff got so many of his assets from retired Jewish businessmen in New York, Florida and Southern California; he built a position as the trusted, go-to resource for this community and was the beneficiary of word-of-mouth among that group.)



> Merging Client And Prospect
Communication

In the new paradigm, successful advisors will not have one stream of communication for prospects and one for clients. Instead, advisors will integrate their communication with clients and prospects.

So, rather than telling prospects that you would like to send them an information package on your services, you will say: “I’d like to put you on the distribution list for the material I send to my clients, so that you can get a sense of the communication my clients receive.”

Rather than spending money on brochures and audio and video business cards, advisors will build client-friendly websites packed with useful information and resources, and invite prospects to browse the site, giving them a sense of what life as a client would be like.

And rather than inviting people to prospect-only workshops or lunches — and having these prospects waiting for the sales pitch with their defences up — advisors will say: “I run a regular series of sandwich lunches in my boardroom for interested clients in which we talk about what’s happening in the markets. If you’re interested in sitting in, I’d be happy to have you join us.”

It would be wrong to suggest that this approach is entirely new.

In the late 1990s, I talked to an investment advisor who focused on high-end investors with $5 million-plus about how he had built his client base. What had worked best for him were monthly lunches at a private club to which he belonged for any existing and prospective clients interested in attending. Some clients attended two or three times a year; others never attended. In his view, the key was that all clients had the opportunity to attend.

These lunches were very informal. Typically he spent no more than 20 minutes highlighting recent market developments and his outlook for the period ahead, then opened the floor to questions and discussion. He limited attendance to 12 people — if there was more demand than that he held another lunch.

He had tried many ways of bringing new clients on board before arriving at this approach, and this was far and away the most successful. His focus when talking to prospects was to get them to come out to one of these lunches. And, over time, he found that clients became comfortable inviting friends to attend with them.

All of this assumes, of course, that advisors have client communication to which they can point prospects — whether it be an accessible website, sending articles on a regular basis, offering conference calls or hosting client luncheon roundtables and presentations. (If you’re interested in learning more about some of these tactics, take a look at the Winning Strategies in Challenging Markets video interview series at tv.investmentexecutive.com. )

The good news is that for advisors who do invest the time and effort to ramp up client communication, extending it to prospects is both an effective and efficient method of maximizing the return you get on that investment. It will allow you to get past the downward spiral in response rates to mass prospecting. IE

Dan Richards is president of Strategic Imperatives Corp. in Toronto. For other columns and to access Dan’s blog, go to
www.investmentexecutive.com.