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

There’s no shortage of ideas about how advisors should operate – which means you have to be discerning about whose guidance you take.  Recently, though, I disagreed with some advice from a top practice-management expert on the topic of referrals.

That expert is John Anderson, Managing Director and Head of Practice Management Solutions for the SEI Advisor Network, based in Pennsylvania.

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Helping clients identify your value

An article by Anderson described a referral by an insurance agent to a colleague. Based on that experience, Anderson recommended that advisors ask clients some questions to help highlight the value they’re receiving and to increase the chances of them providing referrals similar to the one that he’d just made. Here’s how he concluded his article:

The next time you have a meeting with one of your better clients, instead of the usual, “If you’re happy with my service, please refer me,” take five minutes at the end of the conversation and ask:

  • Why did you select me as your financial advisor?
  • If someone asked you to describe how I’ve helped you, what would you say?
  • What was the trigger that made you decide to get financial advice and/or change advisors? Was there a problem you wanted to solve?

By getting clients to answer these questions, you are helping them script answers that they may use with friends and family — and help them identify others that are in similar situations. More importantly, you are hearing from them what they value in their relationship with you. And that’s better than hearing “I can’t think of anyone right now; I’ll get back to you.”

What drives referrals?

I have a somewhat different view on referrals.

Let’s begin with the fact that your conversations with clients around referrals are much less important than you might think. My recent research with investors on this subject indicates that the large majority of referrals aren’t initiated by a request from advisors; instead, most come, as John Anderson’s did, when someone your client knows mentions a problem or asks for help. This is consistent with the 2008 research study on The Economics of Loyalty sponsored by Vanguard and conducted by Advisor Impact, in which only 6% of referrals resulted from a direct request by an advisor. (Click here for the full report.)

So what does lead to referrals, if not requests from advisors? When I talk to clients who’ve provided referrals and to advisors who’ve received them, the most common theme is that the advisor has gone the extra mile to provide concrete solutions to significant problems.