March 17, 2009
The present
Even before the market events of last year, response rates to mass marketing of all forms had dramatically declined. A conversation last spring with an advisor from one of the large wirehouses drove this home.
This advisor had been in the business about six years and focused his prospecting on running dinner seminars at elite restaurants in high-end neighborhoods, featuring his firm’s managed money program in an after-dinner talk. With financial support from that program, his practice was to conduct twice-monthly dinners in private rooms at the highest end restaurants he could find. His goal for each dinner was to attract ten households, either single decision makers or couples.
The managed money program took care of all the details – booking the restaurant and mailing out embossed “wedding style” invitations to affluent areas close to the restaurants, targeting communities where investable assets were likely to be at least $1 million. All the advisor had to do was to show up, deliver his talk and follow up with the attendees.
The question I was most interested in was how many of these ”wedding style” invitations it took to get out ten households willing to avail themselves of this free dinner.
The answer was 1,000 – yielding a response rate of 1%.
And how many sales did he make to the ten households who typically attended?
The answer: His goal was to make one sale – occasionally he made two, but frequently he did not get any new clients from the dinner.
This conversation illustrates the dramatic drop in response rates to mass prospecting --- and this was before the spike in risk aversion as a result of the market volatility since last September.
And here’s the real killer. Not only are response rates way down, but when you do get a response, prospects have their guard up, afraid of “being sold.”
The future
My conclusion is simple: Every form of prospecting has always ultimately been a numbers game – and always will be. That is true of focusing on referrals just as it is of mass advertising. The big change is in the magnitude of those numbers – the return on high trust activities such as referrals has been stable and in some cases improved, while the numbers on mass prospecting have plummeted.
The bottom line: Dropping response rates will make the economics of mass prospecting less and less attractive.
One important implication of this is that the traditional divide between communication to clients and communication to prospects will disappear.
Given the growing level of skepticism on the part of the investing public, the most compelling communication to prospects will not relate to prospecting breakfasts, lunches, dinners and workshops. It will not feature special offers advertised in the paper or offered via direct mail. Nor will it focus on cold calls to business owners, offering a second opinion on their situation.
It’s not that these approaches can’t work – anything within reason will work if you do enough of it. The problem is that the response rate to anything that investors see as a “sales pitch” is already low and will only decline further.
So if mass prospecting won’t work, what will?
The answer relates to what you hear when you ask investors who select a new advisor what the key factor in their decision was. The answer: “I felt I could trust this advisor.”
That’s why high trust approaches based on referrals consistently show up as the most effective prospecting approaches. Whether it is referrals from clients, professionals or other parts of the financial institution where you work, referrals work because they’re fundamentally a transfer of the trust that someone has in you to their friend, colleague or client. (And the more assets someone has, the more critical referrals tend to be.)
A focused effort to become the trusted “advisor of choice” within a defined target community will continue to yield results. (Without pushing this parallel too far, this is why Bernie Madoff’s got so many of his assets from within the Jewish community in New York, Florida and Southern California. He built a position as the trusted, go to resource for this community and was the beneficiary of word-of-mouth referrals among that group.)
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