How to become a more referable adviser

Client referrals are a vital component of growth for all businesses, especially financial advisory practices. If a client likes a product or service and believes in the company behind it, he or she will probably tell someone else. However, clients need to fully understand the benefits of a product or service and how it can help others before they spread the word — and it isn’t easy for most people to internalize and explain the advantages of a financial planning approach or asset allocation strategy.

To maximize client referrals, financial advisers need to make sure their clients comprehend what they do, why they do it and how they are different from other wealth managers.

(More: How to develop advocates for consistent, ideal referrals)

Dan Allison of Feedback Marketing Group spent 18 months conducting interviews and focus groups with investors who fit the ideal client profiles provided by advisory firms and broker-dealers he consults with — and the results were eye-opening.

The top reasons investors gave Mr. Allison for not referring their advisers included, “I don’t understand who my adviser wants to work with,” “I don’t know how to explain what they do” and “I don’t know how to make the introduction.”

Changing this reality is much less expensive and time-consuming than you may think. All it takes is an effort to make the procurement of referrals a more prominent aspect of advisers’ workflow processes.

A BETTER WAY TO LEVERAGE FEEDBACK
Many advisers already ask clients for feedback, but to fully harness the referral potential of their client bases, advisers need to alter the method and frequency of requesting that feedback. Instead of giving clients a questionnaire or survey to fill out at their leisure once a year, advisers should hold meetings with clients on at least an annual basis to solicit and discuss feedback about their overall practice experiences.

Since these meetings are designed to uncover details about their long-term, holistic relationships with clients, they should be held separately from annual investment reviews. This gives advisers enough time to flesh out potential areas of improvement with clients, and also educate them about their practices’ goals, suite of offerings and ideal client profiles.

By updating clients on their firm’s growth objectives, products and services — as well as the type of client that would most likely benefit from those offerings—during face-to-face meetings at set intervals, advisers provide clients with the expertise, insight and confidence they need to make referrals. The in-person aspect of the meetings enables advisers to take the next step by helping clients facilitate introductions to referrals. Establishing specified times for asking clients about referrals and discussing the practice’s full suites of offerings is also helpful. (Advisers know how awkward it is to ask for referrals or advertise other products and services during account-related client meetings.)

FAST (AND IMPRESSIVE) RESULTS
A firm that implements regular client feedback meetings to solicit referrals can grow significantly in a short amount of time.

(Numbers game: Most advisory firms don’t have a strategy for landing client referrals)

For example, let’s say an advisory practice with $200 million in assets under management holds meetings with 50 of its most influential clients over the course of a year. If each client provides one referral with investable assets of between $500,000 and $1 million, and all the referrals become clients, the firm would add between $25 million and $50 million (one-eighth or one-fourth of its AUM) in only a year. Furthermore, the annual cost to the firm would amount to only 100 hours (one hour for every feedback meeting with an existing client, and one hour for every introductory meeting with a referral).

To demonstrate just how quickly this process can yield tangible results, one adviser my firm works with called me to report that after his first meeting with a client to solicit feedback and referrals, he ended up with eight prospects.

REFERRALS ARE ALWAYS A PRIORITY
Charles Schwab & Co.’s 2014 RIA Benchmarking Study revealed that, unsurprisingly, the majority of advisory firms view growth and the acquisition of new clients as top priorities. However, according to the study, “despite widespread agreement that referrals are the main driver of growth, many firms do not dedicate the time and resources required to create a formalized [referral] initiative.”

You can’t grow your businesses if you don’t attempt to increase the number of referrals you receive from clients. The best referral-generating initiatives for advisory firms are those that become important parts of their workflow processes and cultures, leading to long-term asset and practice growth.

Jerry Murphey is co-founder, president and CEO of FolioMetrix, the adviser to the RiskX Funds and creator of the Referable Advisor.