RIAs need to get past their fear of asking for referrals

Brett Van Bortel of Invesco Global Consulting addressing the DeVoe Elevate conference

Research shows most new clients come directly from referrals from existing clients, yet most advisors are reluctant to ask for referrals.

When it comes to client referrals, the answer is always no until you ask. And unfortunately, for the majority of financial advisors that means the answer is always no.

“Most advisors have a fear that asking clients to make referrals will turn an advocate into an adversary, so they won’t ask their clients to make referrals,” said Brett Van Bortel, director of consulting services at Invesco Global Consulting.

Speaking Thursday in Nashville as part of the DeVoe Elevate conference, Van Bortel highlighted the irony of advisors not feeling comfortable asking for referrals, while also offering a few tips to make it easier.

For starters, according to his research, advisors attribute about 88% of their new business to referrals from existing clients. What makes this so amazing is that 88% of advisors also say they’re not asking clients for referrals.

Asked about their reluctance to hit clients up for referrals, Van Bortel said many advisors associated the act with words and phrases that include “cheesy, sleazy and car-salesy.”

“They don’t want to harm the golden goose of the annual fee,” he said.

But Bortel said that if growth is the goal, not asking for referrals from the people already paying for your services is missing a major opportunity.

In addition to the research he has conducted on advisors’ reluctance to ask for referrals, Van Bortel has also studied the way requests for referrals are perceived by clients. The key, it turns out, is in the way the request is presented.

In the most basic sense, he said clients are generally turned off by the idea of being asked to do something for their advisor because it puts them in a position having to either do it or find a reason to not do it.

The alternative is as simple as the phrasing of the request, which should steer clear of any statement that ends with a question mark.

One example presented by Van Bortel includes wrapping up a client meeting by first referencing the strength of the advisor-client relationship, then transitioning into a few points about specific risks and opportunities in the current market cycle and how some investors are without adequate financial advice.

The non-sales sales pitch’s conclusion goes along the lines of encouraging the client to think of any friends or family members who might be in such a position of needing financial advice.

The situation is similar in many ways to establishing relationships with centers of influence, which have become a rich source of new business for those advisors willing to put in the time and effort to build a network of COIs.

The appeal of COI referrals can also be broken down to basic math.

Doug Johnson, managing director at DeVoe & Co., presented research showing that 17% of new clients are coming via COI referrals and that those new clients represent 23% of new assets.

That percentage of assets relative to the percentage of new clients illustrates the quality of the client being referred by COIs.

“COIs are typically trying to refer a client your way to solve a problem, and typically the level of complexity is going to be higher,” said Russ Corby, managing director in the RIA and bank trust channel at AllianceBernstein.

Of course, as with asking clients for referrals, the answer is always no until you ask. And when it comes to COIs, it can be a long and slow process that starts with building a relationship.

“You already have it in front of you,” Corby said. “Just ask yourself how well you know your best 30 clients’ CPAs and attorneys.”

One point Corby underscores is that there shouldn’t be any pretense of compensation to a COI in exchange for a referral.

“Typically, the type of person expecting financial compensation or quid pro quo is not the kind of person who is going to refer to you,” he said. “From what I’ve seen, compensation for a referral is not necessary. What is necessary is being the destination to solve the problem. As a fiduciary, you want to make sure your clients are really well taken care of. If that’s happening, that’s compensation enough.”