In my discussions about referrals, I have looked at misconceptions that prevent financial advisors from getting introductions. Here are five more referral fallacies.

> Misconception: You should discuss referrals at every opportunity. You need to mention referrals frequently to keep them top of mind with clients.

Fact: You sometimes hear that there’s a direct connection between how frequently you talk to clients about referrals and the chances that referrals will follow as a result.

While the “more the merrier” approach applies to some aspects of the client/advisor relationship, that’s not true of referrals.

The reason is quite simple. As I have pointed out before, clients provide referrals to help their friends, not their advisors. And if referral conversations become a recurring part of your dealings with clients, you risk being seen as a pest rather than someone committed to helping your clients achieve their goals. You’re seen to be operating from your agenda, not theirs.

The focus of referral conversations should be quality, not quantity. Here’s a useful rule of thumb: unless clients raise the topic, you should bring up referrals no more than once every three meetings or every two years, whichever comes first. That means if you meet with clients annually, you would raise the topic of referrals in every second meeting.

The exception is if a client has provided a referral, which gives you an opportunity to thank them and update them on the progress of that referral.



> Misconception: You should provide lots of low-key reminders of referrals. Subtle reminders help keep referrals top of mind.

Fact: In my work with advisors, I see lots of cases in which referrals are mentioned indirectly. Recently, I received an email from an advisor that included a reference to referrals being welcomed beneath the signature line. Other advisors talk about referrals in newsletters or have signs in their offices saying referrals are the “most sincere form of appreciation.”

Not only are these mentions wasted effort, they actually can be counterproductive.

In my more than 20 years of working with advisors, I’ve seen few cases in which advisors got referrals as a result of these low-key mentions. In today’s noisy world, subtle mentions fly beneath the radar.

And even if they are noticed, they operate from the advisor’s agenda, not those of their clients and their friends. These sorts of reminders can undermine rather than enhance your image of professionalism.

When it comes to client communication, I like to invoke the “private banker’s rule”: advisors should communicate in the same way as a high-end private banker. And I have difficulty visualizing a private banker’s office with a sign saying, “Referrals are the most sincere form of appreciation.”



> Misconception: Be indirect about your goals in getting introductions. You should mask your objectives in getting referrals to your clients’ networks.

Fact: Many advisors feel awkward about telling clients that they’re looking for new clients. As a result, they have difficulty bringing this subject up directly, concerned about being seen as needy.

In a previous column, I suggested telling clients that you have capacity for 15 new clients (or whatever your number is) in the next 12 months, should they be talking to someone looking to make a change whom you might be able to help.

Or, here’s another tack that you could take. It ranked first out of 30 referral approaches tested with affluent clients:@page_break@“I’m glad you can join me on Jan. 15 for the Board of Trade lunch with [U.S. Federal Reserve Board Chariman] Ben Bernanke. The table I’m hosting is primarily for clients, but I do have one extra spot. I wonder if someone you work with would like to come along, someone who might be interested in meeting me and whom I should get to know. You’ve mentioned your chief financial officer, Patricia Barnes; do you think she’d be interested in attending?”

> Misconception: You must ask broad questions. When it comes to referrals, open-ended questions are best.

Fact: From Day 1, new advisors are trained that open-ended questions are good; closed-ended questions are bad. If you want to get an existing or prospective client talking, you need to ask questions that can’t be answered with a simple “yes” or “no.”

That is generally true, but not when it comes to referrals.

The good thing about closed-ended questions is that they require minimal effort and are easy to answer.

Let’s replay the conversation above, in which an advisor is using a Ben Bernanke lunch presentation to trigger an introduction:

“I wonder if someone you work with would like to come along, who might be interested in meeting me and who I should get to know. You’ve mentioned your CFO, Patricia Barnes; do you think she’d be interested in attending?”

This question is easy for your client. The typical response you can expect is: “Quite possibly. Let me check with her.”

Suppose instead you’d asked the open-ended question: “Who among the people you know might be interested in attending?” By asking via a specific closed-ended question, you reduce the client’s effort and stress, and increase the likelihood of a positive response.



> Misconception: All clients are equally good candidates to provide referrals. Every client is a potential source of referrals.

Fact: Having spent a great deal of time over the years having in-depth conversations with investors, I’ve identified something called “referral DNA.” Quite simply, clients vary dramatically in their comfort with providing referrals. This has nothing to do with their advisor; it’s purely a function of their personality type.

Some advisors get frustrated when they’ve done a great job and referrals fail to follow. That’s the wrong mindset. We should value all clients for the opportunity to work together. Simply value the clients who provide referrals a bit more.

As an example, one advisor hosts an annual dinner for clients who’ve given him referrals in the past year, telling them it is his opportunity to say “thank you” for their confidence. His observation is that he sees the same faces at the dinner each year. The best predictor of the clients who’ll provide referrals in the next 12 months are those who provided referrals in the past 12 months.

No silver bullet

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.

As a consequence, just as 17th-century Spanish explorers spent decades searching for El Dorado, the rumoured lost city of gold in South America, so some advisors spend their careers searching for a referral panacea.

I’ve studied client/advisor dynamics for decades and, as far as I know, this magic bullet 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.