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

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.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


Children of AI, and when they are coming to financial advice

Technology reporter Ryan Neal talks about the tremendous progress in artificial intelligence in other industries, and how its applications are slowly making headway in the advice sector.

Latest news & opinion

SEC advice rule hearing updates

Commission says a lot of work ahead, public will have 90 days to comment.

SEC advice proposal unveiling: Here's what to expect

Chairman Jay Clayton will initiate momentous action Wednesday, as the commission meets to debate a rule on broker and adviser standards.

How active are the largest actively managed funds?

Active-share measures for the 15 largest actively traded mutual funds.

Morgan Stanley's success looks long in the tooth to analyst

Sanford C. Bernstein & Co. analyst Christian Bolu, concerned over stalled adviser growth and what it means for lending and deposit growth, believes the stock will "under perform."

Retirement coverage gap, 401(k) rollovers are big emerging threats for plan advisers

Proliferation of state retirement programs approaching the 'tipping point' where it will lead the federal government to step in.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print