“Referrals are a transfer of trust” said Julie Littlechild, President of Advisor Impact.  She added, “They are an expression of everything you do with your clients.”

Littlchild spoke to a full room of advisors during the final day of the Schwab Impact conference in Boston on October 29, 2010, in which she shared survey results of 1,030 advisors from across the country.  Here is some of her data and analysis.

Who provides referrals?

Advisor Impact’s survey results showed:

  • 93% of clients are somewhat or extremely likely to continue working with their advisor.
  • 91% of clients are comfortable providing a referral.
  • 77% of clients gave their advisors an average satisfaction rating of 8 out of 10 or higher.
  • Yet only 29% of clients provided a referral.

 
The reason many advisors didn’t see a lot of turn over during the market turmoil is because of “behavior loyalty”, where clients use advisors because it is easy (e.g. they might have a local office.)  This was supported with results that showed:

  • 60% of clients said they don’t know if they would do better with a different advisor
  • 28% of clients said they don’t know how to find a better advisor

The analysis showed four groupings of clients:
 

  • Complacent = 39%
  • Content = 25%
  • Engaged = 24%
  • Disgruntled = 12%

Of these four groups, 100% of the engaged groups gave referrals… and they often gave more than one referral.   Another interesting point was that engaged clients are some of the most expensive relationships, a problem worth having, especially if they are giving more referrals.
Why do engaged clients refer?

The study showed fees and performance were not a main driver of referrals.  One surprising fact was that “a quarter of clients didn’t even know how much they paid advisors.”

The fundamental reason clients gave referrals was because of “the law of reciprocity.”  The study showed that 58% of clients gave referrals just because the advisor had done a good job and the client wanted to repay the favor.  The next most popular reason was that the client had a friend that had a financial need and the client wanted to provide a possible solution.

The study showed that engaged clients are focusing on having a plan for the future.  Julie stated, “I would suggest it is the conversation.  It is the digging process that supports engagement.”  This group expects and receives more direct contact.  However, it is not just the number of contacts – it is that they have more meaningful meetings.  Interestingly enough, as a result of these interactions they care about the advisor’s business more.

The engaged group also likes to be heard.  The study showed that 72% of these clients thought a feedback mechanism makes a difference in the client experience.

When do they refer?

Maybe one of the most important pieces of the study showed the respondents provided a referral because a friend

  • had a financial challenge (57%)
  • asked for a recommendation (48%)

Interestingly, only 2% gave a referral because the advisor asked for a name.
Take aways

Advisors should do a client audit to know who their engaged clients are.

Advisors should gather feedback from their clients, whether it is by creating an advisory board, focus group or client survey.  Then in one-on-one client meetings, dig a little deeper on the results.

Advisors should craft their stories and educate their clients on two main things:

  • What problems they solve
  • How they work with clients to meet their specific needs

Clients that understand these points are more apt to give multiple referrals, not just one.

Julie Littlechild finished with a strategy that it is better to “turbo charge the engaged clients” than to save or fix the disgruntled clients, or even work to shift the content clients to engaged clients.

Schwab’s Director of Advisor Services, Nancy Allen, closed the session, stating, “There really is a big difference in the levels of client satisfaction.  There are a lot of things advisors can do to drive deeper levels of engagement to generate greater levels of referrals.”

Mike Byrnes founded Byrnes Consulting to provide consulting services to help advisors become even more successful. His expertise is in business planning, marketing strategy, business development, client service and management effectiveness, along with several other areas. Read more at www.byrnesconsulting.com.