Why requesting referrals for business growth is "a terrible idea"

New findings from InvestmentNews Outlook 2024 survey revealed advisors are focused on requesting referrals to drive growth at firms but as it turns out, that might be the wrong course of action.

Results from the survey found that 57 percent of advisors are requesting referrals to drive business growth. Strategic partnerships with centers of influence (e.g. lawyers, accountants) came in second place at 45 percent and social gatherings with high-potential prospects and high-value clients came in third at 38 percent.

John O’Connell, founder and CEO for The Oasis Group, asserts advisors who rely heavily on requesting referrals to drive growth at their firms are making a mistake.

“Requesting referrals is a terrible idea unless you are really targeted on what you're looking for,” he says.

O’Connell argues that this approach of just asking clients for any referrals is flawed, as the referred clients may not actually fit the advisor's ideal client profile.

He sees it as the advisor essentially outsourcing their sales responsibilities to their existing clients, which he calls "fiscally irresponsible."

“It's staggering that there’s 57 percent of people who are ignoring their sales responsibility in running a company, and they're expecting to outsource their sales to their existing clients,” asserts O’Connell.

“How fiscally irresponsible is that I'm so shitty at sales that I want to outsource my sales to my existing clients?”

Rather, he believes advisors should be focused on finding a niche that serves a specific clientele, like divorced women or a nurse anesthetist.

“If they immediately start with an investable asset, I say you're full of crap,” he added. “You don't know who you're looking for.”

When it comes to the third option outlined in the findings, however, O’Connell highlights that should be more of a priority.

“[Social gathering] is touching on real sales,” he says. “Why do people go to conferences to meet tons of other people? Because one out of 20 is going to be a viable breathing lead that I get to leverage.”

He asserts if an advisor goes to a conference and meets at least 100 industry leaders, “I’m going to come away with five leads that could actually make a difference,” he explains.

Amanda Muse, director of advisory at Bogart Wealth, highlights a few ideas of the gatherings the firm is already working towards.

“We’re doing dinners with our Client Advisory Council, starting back up in-person seminars, which we're very excited about, and then we do webinars as well on an ongoing basis,” she says.

Instead of referrals, Mike Watson, senior vice-president and head of RIA Custody at Axos Advisor Services, underscores the importance of referring to the data that advisors already have through their CRM.

“It’s kind of a gold mine for them to be able to use that,” says Watson. “It starts with data mining and really understanding the types of clients that have historically been attracted to their organization.”

While Watson does agree on having a program to request referrals, do events and bring prospects to said events, he believes the digital marketing has to be moved up for these firms.

Only 36 percent of respondents cited marketing as a primary growth option.

“It’s not being prioritized the right way,” he says.

Meanwhile, Tony D’Amico, founder, CEO and managing partner of Fidato Wealth, suggests providing servant leadership as an opportunity to grow, citing it’s his number one guiding principle.

“If I serve someone in their best interests, whether it's a client or team member and if I do what's right not only for them, but for the bigger picture as well, things just tend to work out.”