Expert Q&A: Stephen Wershing

The president of The Client Driven Practice on what advisers need to know about gaining client referrals

Feb 13, 2013 @ 12:01 am

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Stephen Wershing is the president of The Client Driven Practice and spent 14 years as a broker-dealer executive, chief operating officer of a national independent firm and president of a regional firm.

He coaches financial advisers on how to make client referral marketing plans and is the author of “Stop Asking for Referrals: A Revolutionary New Strategy for Building a Financial Service Business that Sells Itself” (McGraw-Hill, 2012).

Q. What is the biggest mistake advisers make when it comes to referrals?

A. The biggest mistake is asking for them. The most important thing to keep in mind is that clients make referrals because they get benefits from that. Scott Degaffenreid [of N2Millennials Inc.] published a social-network analysis that studied referral behavior, and what it comes down to is that the reason people make referrals is because it improves their standing in the eyes of their peers. They want to be the resource guy and help them. What's unusual about financial advisers is that we're the ones who don't know that, and we need to know it more than most people in other businesses do. We are an event-driven industry … with events that happen only once in a long while. The fundamental concept of referrals is preparing your clients to refer you when that event occurs. So that depends on how well you can define niche and service that niche.

Q. How should advisers build a niche?

A. When we think about a niche, we tend to think in terms of demographics and profession and investible assets. Fundamentally, those aren't niches. My favorite one is women, which is really popular right now. That is not a niche; that's a population. When we start looking at ages and demographics, it leads us off the track. We should think about niche in terms of a need felt by a small portion of a population. Once you understand what that is, it may be applicable to a certain profession or age group, but you have to back your way into there. For instance, corporate executives have peculiar needs the rest of us don't have: large stock option rewards, complex employment agreements. But rather than say your niche is corporate executives, talk about those other needs.

Q. From your experience coaching advisers, do you think they find it difficult to resist asking clients to refer them to family or friends?

A. Most advisers say it's a huge relief not to do it. It's uncomfortable for them and not fair to the client, because it's not part of the deal. The deal is: “You give me advice, and I pay you.” Most people are willing to help, but rather than force them, just communicate the special skills you have, and over the course of time, they get it. They will remember you when someone they know tells them they have a need and it matches something you've told them about.

Q. You mentioned that most advisers are relieved to learn they shouldn't ask for referrals. Why do they ask if they don't like doing it?

A. They don't know that they shouldn't, and they're told over and over again by the gurus that you have to. Abraham Maslow once said that if the only thing you have is a hammer, everything looks like a nail. When I started in the advisory business, everybody knew that you had to cold-call. If you were serious, that's all you would do. We didn't know back then that wasn't a good way to get clients, but now we do.

One important development for me was that I happened upon the client feedback thing. The advisory board is hugely important for an adviser to do. But … you can't be satisfied with the first answer. Dig below that.

Q. Do you think advisers are hesitant to build a niche because they feel they could lose out on clients?

A. Most advisers can't talk special needs since they're all over the place. The other part of that is that they don't want to exclude anybody. But who are the highest-paid people in every profession? The specialists. The problem is that if a client comes in with 3 million bucks, [advisers] can't help but do everything possible to bring that guy in.

Q. What is one of the biggest challenges advisers face as they try to secure referrals from clients?

A. It used to be that the financial adviser is where we went to get [investment] information. Now we have the Internet. The broker held all the cards in terms of knowing investment management, but that's not true anymore. So you need to have something different to attract clients, because you can't just be the answer man. There has also been the trend toward the independent model. It was a different world when the majority of assets were with a handful of firms. Now we are differentiated at a company level and at a practice level. You really have to set yourself apart.

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