To jumpstart centers of influence referrals, think outside the CPA

For financial advisors seeking client leads through referrals from professionals in other fields, approaching someone they have never met to pitch them on that collaboration is awkward. 

And any type of cold reachout carries "a high failure rate," according to Mike Byrnes, the founder of advisory practice growth strategy firm Byrnes Consulting. So he usually presents a couple other strategies, with an emphasis on the potential stakes to advisory firms' businesses.

The first point of connection could come from a "happy client" who is friends with that other professional, so that the proposal represents "a transfer of trust, and you're not coming at them as a stranger," Byrnes noted. The second touches on the questions of, "How are you going to help them?" and "What's in it for them?" as a fellow entrepreneur and professional, he said.

"One of the best ways to start a conversation is, 'I think I've got a lead for you,'" Byrnes said. "Creating strategic alliances and maximizing the existing ones is probably the quickest way to increase organic growth. As a consultant, if I had to come up with one way that, most of the time, is going to lead to the most success with growth, it's strategic alliances."

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Centers of influence are more influential

Byrnes prefers that term — strategic alliances — over the more commonly used one across the industry for referrals from certified public accountants, lawyers or other professionals known as "centers of influence" who send clients to advisors and vice versa. Obtaining those leads and converting the prospective customers into clients is becoming more important to advisory practices' growth, according to a report released earlier this month by research and consulting firm Cerulli Associates. 

However, the study and experts suggest that many advisors miss out on referrals from outside professionals by thinking solely about the traditional sources of them among CPAs and tax lawyers or focusing too much on garnering recommendations from clients to their friends and loved ones as the perennial No. 1 fount of new clients.

None of them argues that advisors ought to ignore the need for those client referrals, of course. But they point out that customers usually only have so many relatives and acquaintances who they could refer to an advisor. And those centers of influence represent a "more discerning referrer" who likely knows "a lot of your competitors" in a given region and restricts their recommendations to the best of them, said Raj Bhattacharyya, CEO of San Francisco-based registered investment advisory firm Robertson Stephens Wealth Management.

"Centers of influence are a big part of our organic growth, no question," Bhattacharyya said, citing lawyers and insurance agents as the biggest sources at his firm, which has its own in-house CPAs for tax services. "We do end up getting a large number of referrals from centers of influence that we work closely with."  

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A key business growth strategy

More than 60% of practice management professionals view centers of influence or strategic alliances as "highly effective marketing strategies," and they rate joint meetings with the prospect, mutual hobbies or passions such as golf, wine or art, or the referral itself as the top three methods for setting up those collaborations, according to Cerulli's research. 

Over the past four years, the share of new incoming clients to advisory practices from centers of influence referrals has expanded to 13.9% from 12.4%, noted Andrew Blake, an associate director in Cerulli's wealth management practice and the lead author of its study.

That small but notable uptick reflects how customers and "especially younger clients are increasingly expecting to have all of their financial questions answered in one place," and they're "not willing to do it in 10 different spots," Blake said. It also displays the rising level of industry competition for new client leads amid so much M&A and recruiting activities. So answering a query on, say, taxes or the cost of a wedding or childcare pays off for RIAs.

"Organic growth is incredibly difficult right now in the industry," he said. "Advisors are understanding that, if they're not offering that in-house, they better have a good partner that they can refer clients to. Otherwise, they may not bring those clients in-house to begin with."

And that requirement will only gain more urgency during the "next correction" in stock values, when the asset gains that have buoyed the industry's business will vanish and advisory firms will "have to do a deep dive and some analysis of why they aren't growing," Byrnes said. All too often, "the industry doesn't think creatively" about outside referrals, and advisors "don't think about their target markets" enough when considering the possible leads, he said. 

Moreover, the traditional sources come with some important caveats. For example, lawyers who arrange an estate plan for a family may see them once every five, 10 or 15 years. So they don't cultivate a close enough relationship to refer a lot of clients. And CPAs may charge a high, recurring price for referrals or even decide to launch their own wealth management business. 

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The referral world is your oyster

To expand the circle beyond those basic sources, Byrnes helps advisors "drill down on the target market" of their ideal client base, he said. "You start to figure out what they do, where do they spend their money, where do they spend their time?"    

For many advisors, then, the possible referrers could include yacht dealers, high-end realtors or travel agents, private jet businesses, country club golf pros, executive directors of philanthropic organizations, interior designers, luxury contractors or fancy getaway resorts. 

Byrnes' suggestion of religious clergy like priests or rabbis may sound radical, until advisors consider the reach of Dave Ramsey's referral network or faith-based advisor credential programs. Even local politicians could send potential clients to advisors, although Byrnes warned that such a relationship risks alienating half of the customer base. Another layer of fertile possible relationships stems from life milestones, like retirement communities, wedding planners, divorce attorneys, grief counselors or funeral homes.

In terms of the financial aspect of these possible referral relationships, advisors must obtain solicitor agreements in line with compliance rules if there will be money changing hands. But they should also think about, "How do you continually make them feel appreciated?" and how they could pay the referrers back in nonfinancial ways such as a video series, space on the firm website or speaking invitations at company events, Byrnes said.

"You need to figure out what you can and can't do, and, even if you don't give leads back, there are other things you can do in that 'You scratch my back, I'll scratch yours' approach," he said. "Part of it is the marketing exposure, so you don't necessarily have to give them a client, but you can help them from a marketing perspective."

He and Blake each cited the importance of advisors' hat tips to the other professional in cultivating those leads over time. Whether they come from any of the fields listed above or further professions that Blake mentioned (like mortgage lending, event planning or chambers of commerce), advisors should communicate why the leads are so valuable and open up a bit with the referrers about how tough it is to find new clients, he said. The advisors may want to think about those referral relationships in the same way they try to deepen their ties to clients.

"The gratitude component is really key, and that goes beyond just saying 'Thank you,'" Blake said. "It can be an effective driver of repeat referrals."