Want referrals? Don't pester clients

If they trust you to walk them through problems, they'll bring you business

Mar 3, 2013 @ 12:01 am

By Liz Skinner

+ Zoom

Despite conventional wisdom, clients almost never give referrals to their financial advisers because they have been asked to do so.

New research shows that the top reason for making a referral is because clients want to help friends who are in financial difficulty, and they trust the skills of their adviser.

Understanding the referral process is important because advisers report that most new clients come to them through existing client recommendations.

“There are psychological reasons that people make referrals, and that's what advisers need to understand,” said Stephen Wershing, president of The Client Driven Practice, a consulting firm. “When we can show a friend a solution to a problem he or she has, then our esteem goes up in their eyes.”

In a survey of 1,200 clients that attempted to find out what motivates them to make referrals, about 28% reported having recommended their adviser to a friend or family member in the past year, according to Julie Littlechild, founder of consulting firm Advisor Impact.

Only about 11% of the clients who made a referral said that they did so because their adviser asked for a name, according to Ms. Littlechild.

That works out to about 3% of an average adviser's total client base.

Half of those referring clients said that they offered their adviser's name after a friend described a financial challenge that they were facing, and 45% said that they referred their adviser because a friend of theirs asked for a recommendation, the survey found.

The advisory industry has been slow to accept the concept that referrals need to be more about the psychological boost it offers clients and less about the adviser “getting it out of clients,” said Mr. Wershing, author of “Stop Asking for Referrals” (McGraw-Hill Cos. Inc., 2012).

Advisers interested in crafting a strategy to benefit from this new understanding of referral motivation should drop approaches that focus on asking clients to “help them build their business” or “help them work with more people like you,” Mr. Wershing said.


Instead, advisers should focus on making the client recognize situations that the adviser could help solve. For instance, if a client's friend starts to bemoan his or her tax bill, a lack of college savings or inability to manage finances following a spouse's death, the client should think of the adviser as someone who could help.

“Advisers have been asking clients to do the prospecting for them, and that's not fair and it's not what they signed up for,” Mr. Wershing said. “It's time to learn how to be a solution that clients and their friends are looking for.”

This puts clients at the center of the process, and not the advisers.

For instance, advisers might describe to clients how they have worked with women who are struggling through a divorce and who come from a generation that wasn't used to handling household finances.

“This isn't easy for advisers to do, because it's like working a new muscle,” Ms. Littlechild said. “They traditionally think about the complexity and technical details of what they do, and we're asking them to think about the emotional impact.”

Mitch Walk, founder of Retirement Wealth Specialists Inc., has increased his business to $200 million in assets under management, from $60 million, in the past five years by focusing his efforts on building his clients' trust in him.

“Just by asking people for a referral and making that the magic question at the end of a meeting isn't going to bring in referrals,” he said. “Once you get clients saying, "Thank you for taking care of us,' then you'll have people referring you all day long.”


For adviser Beth Blecker, chief executive of Eastern Planning Inc., the formal referral process that she put in place about a year ago doesn't include asking clients for names or introductions. Mostly, she focuses on making sure clients have the best experience possible with her firm and that they understand the skills that her team brings to their problems.

Eastern Planning, which has attracted about 15 referrals over the past year, compared with one the previous year, also sponsors client events and asks them to bring friends.

“It's mostly about how you treat your clients, the services you give, how much knowledge you have — and do they understand the kind of knowledge that you bring?” Ms. Blecker said.

Sheila Bunin, 78, a client of Ms. Blecker's for about 15 years, has referred her adviser to about a dozen friends and family members, including her own mother.

Ms. Bunin recalled how worried she was years ago when she was trying to decide whether she could afford to leave her job as a teacher.

Ms. Blecker set up a retirement program for her and walked her through the entire process, she said.

After that, Ms. Bunin recommended her adviser to several fellow schoolteachers who were considering retirement.

“She's not just wise with money, she's wise with people,” she said.


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