When it comes to attracting new clients, every financial advisor knows that nothing beats referrals from satisfied clients. And the statistics bear this out: a U.S. study by Boston-based Cerulli Associates Inc., for example, indicates that more than half of clients who selected a new financial advi-sor in 2009 did so on the basis of a referral from someone they knew who worked with that advisor.

But despite the desire for new clients, most advisors hold fundamental misconceptions about what it takes to get referrals. Here are five common fallacies about referrals, and the realities that you need to understand if you’re going to maximize the chances of obtaining referrals in 2011:

> Misconception No. 1: Referrals happen only if you and your clients initiate them.

Fact: A substantial number of referrals happen not at the initiative of your client but by the people they know. Clients are asked by friends if they have an advisor they could recommend. These are “reactive” referrals. All your client has to do is respond.

These are the best kinds of referrals — no pressure on your client, with a prospect who’s ready to move.

Because a friend has initiated the referral process, the satisfaction threshold for clients to say “yes” here is lower than for proactive referrals. As long as you’ve done a good job and the client is reasonably happy, all that most clients have to know is that you’re open for business.

> Misconception No. 2: Your goal should be clients who are satisfied.

Fact: Research commissioned by Univeris Corp. and conducted by Advisor Impact Inc. (both based in Toronto) demonstrates that for clients to initiate referrals, they have to be more than satisfied; they have to be engaged.

Among the keys to engaged clients are a full discussion of clients’ financial needs, a written plan and strong, ongoing communication, as well as a connection between advisor and client that goes beyond a mere business relationship.

> Misconception No. 3. If you’ve done a good job, clients will feel an obligation to reciprocate with referrals.

Fact: Most clients take the view that the reward for you doing a good job is that they’ll remain your client. They feel no obligation to refer people they know to you.

The reason clients provide referrals is to help their friends, not their advisors. As a result, using phrases such as: “I’d like to ask a favour” or “Please don’t keep me a secret!” is unlikely to be successful.

> Misconception No. 4: Asking for referrals should happen spontaneously, at the conclusion of a meeting.

Fact: When meeting with clients, it’s clear that their needs have to be dealt with first.

The difficulty is that to the extent referrals are mentioned at all, they’re often left as a passing request at the very end of the meeting, as clients are on the way out the door.@page_break@To be effective, conversations about referrals should be incorporated into the body of a meeting. The best way to achieve this is by adding a discussion item when setting up an agenda for an upcoming meeting. Here’s how this conversation might go:

“There’s one more thing I’d like to talk about when we meet. In the next year, I have capacity for 15 new clients. At the end of our meeting, I’d like to spend three minutes talking about the profile of clients that I’ve found I can help the most — in case you’re talking to someone who is considering making a change and who might be a candidate for one of those spots.”

Your goal here is not to “ask for referrals.” It’s to initiate a short conversation about the kinds of people who would benefit from working with you, and to bring up a way for clients to introduce you to people they know.

> Misconception No. 5: Your goal should be to get meetings with your clients’ friends and family.

Fact: The biggest obstacle to clients providing referrals comes down to one word: risk.

For many clients, asking friends to meet with you entails more risk than they’re comfortable with. They’re worried that it may put friends under pressure. Suggesting that friends meet with you may be a stronger endorsement than your clients want to make. And, if things don’t work out, the friendships between your clients and their friends may be jeopardized.

The best way to overcome this fear is to ask for something that is less risky for clients to provide.

Let’s suppose you’re doing a good job of supplementing face-to-face and telephone conversations with other forms of communication, such as regular newsletters or articles, quarterly conference calls or invitations to luncheon roundtables or evening updates.

You then have the opportunity to demonstrate patience and focus on providing real value to your clients’ friends by saying something like:

“While the main reason that I email the monthly articles you’ve been getting from the New York Times, Fortune and similar publications is to keep you up to date, I’ve also found them a comfortable way for potential new clients to get to know me. So, feel free to forward those emails to people you know who might find them of value.

“And should your friends wish to receive these directly, either they or you can send me a quick email and we’ll add them to the mailing list.”

Many advisors harbour the fantasy that there’s a silver bullet when it comes to referrals, some magic combination of words that will unlock the door to a flood of eager new clients.

I’ve spent more than 20 years looking for that magic combination of words — and, as far as I know, it doesn’t exist.

What does exist, though, are some core principles that — if implemented consistently and with patience and discipline — can lead to a significant increase in referrals and in new clients as a result. IE

Dan Richards is CEO of Clientinsights (www.clientinsights.ca) in Toronto. For other columns by this sales expert, visit www.investmentexecutive.com.