Why You Aren't Getting Referrals - And What to Do About It (Part 2)

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.Dan Richards

In my last column, I discussed seven misconceptions that prevent advisors from getting referrals.  Today, I conclude with eight more referrals fallacies.

Something that puzzles and frustrates marketing managers of every advisory firm is why more advisors don’t ask clients for referrals.

After all, research indicates that 85% of investors say that if asked they’d be willing to provide referrals … yet less than 15% of advisors ever raise this topic.

This is one of life’s great mysteries … advisors want new clients, know that the best source comes from referrals … and yet fail to introduce this in conversation. What’s going on here?

Here are two explanations for this apparent disconnect.

First the notion that 85% of clients would provide a referral if asked by their advisor is simply wrong.

In last week’s column, I wrote that there are two kinds of referrals – the ones that advisors initiate (“Who among the people you know should I talk to?”) and the ones initiated by investors’ friends and family (“Do you have an advisor you could recommend?”).

Quite simply, when 85% of clients say they’d provide referrals if asked, they’re talking about being asked by a friend or work colleague, not their advisor.

But there’s a second reason that most advisors don’t bring up the topic of referrals … because many methods that are recommended for talking about referrals are uncomfortable and create stress for both advisors and clients. To make the referral conversation more productive, advisors need approaches that are fully professional and comfortable for both parties. 

Here are examples of bad advice that advisors get on referrals … and what you should be doing instead.

Misconception 8: You should discuss referrals at every opportunity

You need to mention referrals frequently to keep them top of mind with clients.

In fact:

You sometimes hear that there’s a direct connection between how frequently you talk to clients about referrals and the chances that referrals will follow as a result.

For example, suppose you raise the subject of referrals on the phone to a client in the morning. If you happen to speak to that same client the next day, you would never say “Since we spoke last, have you run into anyone I should be talking to?”

While the “more the merrier” approach does apply to some aspects of the advisor-client relationship – that’s not true of referrals.

The reason is quite simple. As I pointed out in my last column, clients provide referrals to help their friends, not their advisors. And if referral conversations become a recurring part of conversations, you risk being seen as a pest rather than someone committed to helping clients achieve their goals. Clients will think you are operating from your agenda, not theirs.

As a result, the focus of referral conversations needs to be quality, not quantity.  Here’s a useful rule of thumb. Unless clients raise the topic, you should bring up referrals no more than once every three meetings or every two years, whichever comes first. That means that if you meet with clients annually, you would raise referrals on every second meeting.

The exception is if a client has provided a referral, which gives you an opportunity to thank them and update them on progress on that referral … more on this below.

Misconception 9: You should provide lots of low-key reminders of referrals

Subtle reminders help keep referrals top of mind

In fact:

In my work with advisors, I see lots of cases where referrals are mentioned indirectly. Recently I received an email from an advisor who had a message that referrals were welcomed beneath the signature line. Other advisors talk about referrals in newsletters or have signs in their offices saying “Referrals are the most sincere form of appreciation.”

Not only are these mentions wasted effort, they can actually be counterproductive. 

In over 20 years working with advisors, I’ve seen few cases in which advisors got referrals as a result of these low-key mentions. In today’s noisy world, subtle mentions fly underneath the radar.

And even if noticed, they operate from our agendas, not those of our clients and their friends and can undermine our image of professionalism rather than enhance it.  When it comes to client communication, I like to think about “the private bankers rule” – advisors should communicate in the same way as a high-end private banker.  And I have difficulty visualizing a private banker’s office with a sign saying “Referrals are the most sincere form of appreciation.”