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How advisers can make referrals their most effective tool for growth

The solution to "If I think of someone, I'll let you know"

Jul 10, 2017 @ 5:31 pm

By Amy Parvaneh

In most professions, like medicine or law, a referral typically comes when someone actively seeks professional help. Someone breaks a leg playing soccer over the weekend, and starts actively asking around for a referral to an orthopedic surgeon. A woman needs a divorce, and she starts frantically asking around for the name of a matrimonial lawyer who can help. The task at hand typically cannot be solved alone, cannot be postponed or ignored, and is time-sensitive, resulting in an active search for someone who can help.

In those situations, the person seeking the expert is quite vulnerable, turning to those he or she trusts who have faced a similar predicament, or those who work within the industry. The referrer sees pain (a soccer player who cannot walk straight, or the divorce candidate who is hysterically grieving) and knows exactly what kind of a specialist to refer.

Not only is the referral straightforward, but the referrer also feels altruistic by helping their friend or loved one resolve a problem.

(More: 7 ways advisers are turning off potential clients)

The process is not nearly as straightforward in the wealth management industry. Since few people actively look for a new financial adviser, how can someone see with their own eyes when their friend needs financial advice and doesn't already have someone with whom they are happy? What would be the clear signs that someone would appreciate a second opinion on their portfolio? How can they know who is a good fit for a financial adviser's platform?

Furthermore, in what way does this make the referral source feel good about himself or herself? Research shows that the wealthier and the more private a person is, the less likely he is to make an active referral to his adviser, as he does not feel that another individual would benefit from incurring the fees he is being charged himself.

For all these reasons, when advisers uncomfortably and passively mention to their clients, "If you know anyone who can benefit from my services, let me know," they receive the common response of, "I can't think of anyone right now, but when I do, I'll let you know."

In most situations, advisers don't even bother asking their clients for referrals, either because they assume their clients are tapped from more connections, or they believe that one day their good job will be acknowledged with a referral.

(More: Hammering out succession plans that work for everyone)

In a highly-standardized world where mostly everyone does a good job, marketing budgets are in the multi billions at some of your largest competitors, investments and financial planning are going digital, and there is major fee compression, can you count on doing a good job as the lifeblood of your business model?

How can advisers enhance the most effective tool they have for growth — referrals —and build a process for their practice that will result in a predictable flow of highly-qualified referrals for their practice?

The solution is much closer in reach than you think. Rather than relying on serendipity to obtain referrals, advisers should prepare and research ahead of time in order to connect the dots for their clients, and pinpoint exactly who within their social network would be a good candidate with whom they should meet.

The Law of 250 states that each person knows at least 250 people. This means that behind every client or center of influence you currently work with, there is a list of 250 people, many of whom can be a good fit for working with you.

Doing your due diligence on your clients' network of 250 people will enable you to move from the typical, "If you know anyone who can be a good fit for us …" to an active ask: "Here is someone I saw you are on a board with. I know you know them and you like our practice, how can you help me set up a meeting with him?"

(More: How technology will amplify the humanity in financial advice)

The end result: Just as it is crystal clear for a referrer to spot a potential patient for an orthopedic surgeon, your clients will be able to get you in front of people you have predetermined can be a good fit for your advisory practice.

Amy Parvaneh is the founder and CEO of Referralytics, a research methodology and coaching program for advisers.

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