Two referral strategies

Here’s how these advisors did it:

– Taking a load off clients’ minds

This initiative began when a significant client passed away, leaving his financial records in a shambles. The advisor, working with his former client’s daughters and his other professionals, spent many hours creating order out of the mess.

The advisor resolved to pre-empt a replay of this scenario with his other large clients. He began calling his top clients, offering to prepare a spreadsheet with all of their financial information in one place: the institutions at which they held money, account numbers, account balances and contact information. All his clients had to do was come into his office with their statements and, in 30 minutes, he was able to summarize all this information on an Excel spreadsheet for each client, which he then emailed to the relevant client. Once clients had this document, he encouraged them to add passwords and to file it with their lawyers. Clients were universally appreciative.

This advisor didn’t expect a reward beyond thanks and a deeper relationship with his best clients. To the advisor’s pleasant surprise, two other benefits emerged.

First, as his clients reviewed their consolidated summary, some suggested that they could transfer more assets over to him. The advisor hadn’t made this suggestion himself for fear of watering down the positive impact of this exercise; but as these clients looked at accounts that had sat dormant for some time, some raised the issue. The largest of these transfers was $500,000.

Second, some clients asked if this advisor would be willing to help their friends and families through the same exercise. As a result, the advisor ended up meeting with 10 referrals, then converting three of those into clients. Investing five hours to net three new clients is an efficient and effective use of time.

– Solving a major problem

In my second example, a veteran advisor had contacted his retired clients last September with the suggestion that they meet. The meeting had one simple goal: to lay out detailed monthly cash-flow forecasts for the period ahead, matching funds coming in with cash going out.

The response was well beyond anything this advisor had expected. Clients he’d had difficulty getting into his office suddenly made meeting with him a priority. The response afterward generally was relief. Even clients who had had absolutely no concerns about cash flow expressed appreciation for his time and the peace of mind they felt as a result of their meeting.

The good news is that most clients were fine, although there were a few cases in which income didn’t cover expenses. In those instances, the advisor talked about the two alternatives: curtail spending or reallocate some of the client’s portfolio into investments that provide more income. In one case, the advisor agreed with the client that the client would temporarily eat into capital, with the proviso that client and advisor would revisit this decision in a year’s time.

At the end of each meeting, the advisor asked his clients whether they’d felt it was time well spent. Without exception, they said it was. Retired couples were especially effusive. A number said they’d been worrying about cash flow but hadn’t known how to bring it up. Another client, with assets of $5 million, said he had been wondering whether he could afford to offer to cover the university tuition for his three grandchildren.

This advisor, after hearing his clients out, mentioned that he would be happy to meet with the clients’ family or friends, should they have similar circumstances to the clients and be interested in going through a similar process.

This advisor started getting calls right away, as his clients talked to friends about their experience. He saw a notable bump in calls in early January, after clients had gotten together with friends and family during the holiday season.

– Tapping into hot buttons

Why was the response to these meetings so positive? Many retired clients worry about their finances. Historically, underspending has been a bigger problem than overspending among retired clients, although that may change with the next generation of retirees.

With all the uncertainty about the economy and stock markets, it’s understandable that clients – particularly retirees – worry. This advisor’s strategy works because it addresses a preoccupation and concern for many retired clients, warranted or not. Quite simply, the strategy gives these clients certainty; and clients love certainty – especially clients getting on in years.

The exercise provides context for discretionary decisions. In preparing cash-flow forecasts, it provides a framework within which to make decisions on large expenses such as a new car, vacations and gifts to charity or to children and grandchildren.

It also consolidates everything – income as well as expenses – into one place. The advisor had asked his clients to bring in their previous year’s tax return as well as statements for any investment accounts outside of his firm. By putting everything onto one piece of paper, it clarifies exactly

Creating peace of mind for clients where the clients stand. In some cases, it also has opened the advisor’s eyes to accounts clients hold elsewhere.

“There were two lessons for me from this experience,” the advisor says. “First, seeing how much clients without a clear cash-flow forecast were worrying – even those who had nothing to worry about. And, second, discovering how much some clients, with whom I was positive I had all their money, held elsewhere. There were a few ‘Holy s#*t!’ moments.”

This advisor, like many of his peers, historically had shied away from focusing on client spending. While he had provided cash-flow forecasts to clients in the past that show income from dividends and interest payments, getting into conversations about expenses has been a new experience for him. To help in this area, the advisor has selected a good financial planning software package.

When clients had asked for the budget documents beforehand, the advisor had sent them out in advance of the meeting. More often, he had asked clients to bring their bank and credit card statements along to refer to if needed and then worked through the budget together with his clients. Once he had done about 10 of these, he began compiling averages to give his clients some perspective about their spending habits compared with others. He has found that starting with a point of reference speeds up the process significantly.

He also has learned to book longer sessions for these meetings – two hours instead of one – to accommodate often lengthy conversations about certain items.

– Solving clients’ problems

There are a few common links between the initiatives by these two advisors that has led to their success:

These advisors already were doing all the right things, in terms of constructing appropriate portfolios, conducting regular reviews, responding quickly to client queries and building solid relationships. So, these new activities build on a strong foundation.

Both initiatives provide concrete solutions to tangible problems and concerns.

These advisors have gone beyond what clients had expected. Another challenge for advisors is that much of what you do, while appreciated, falls into the category of things clients believe they’re paying for.

These initiatives facilitate referrals. Because these activities are specific and solve concrete problems, the clients find it easy to talk about them with their friends. All they have to say is: “You know, I had a really thought-provoking conversation with my financial advisor the other day.”

I understand that getting into the details of clients’ financial affairs or spending is not every advisor’s cup of tea. But this type of strategy does represent an opportunity to create peace of mind and add value for your clients. And if you do not choose to do these kinds of things for your clients, there is always the risk that another advisor will.IE

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

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