Everyone likes referrals, but most financial advisors don’t realize the true value of referred relationships and how they can leverage their own data to generate more, high-quality referred clients.
THE VALUE OF REFERRALS
Referrals are more than just “nice-to-haves” when it comes to new business. New client relationships should always be a high priority.
Of the advisors with whom I spoke, the average time spent on new prospects account for about a quarter of their total working hours. Referrals tend to close at a much higher rate than other introductions, with one advisor telling me that he has closed about 90% of referrals over his 25-year career, compared with about 50% using other methods.
In fact, he said that “advisors who reach scale with their business are getting 100% of new business from referrals from that point forward.”
Assuming a 50-hour work week, that difference in closing rate means that this advisor can save six hours each week and still have the same rate of new clients as his competition. I would sure like an extra six hours to get back every week.
Another advisor with whom I spoke, who runs one of the country’s largest registered investment advisors, spends about three hours of preparation for every hour of client interaction. Every non-closed prospect can mean 20 or 30 hours of total lost time for his firm.
Increasing the closing rate of new prospects by just a few percentage points by finding more friendly referrals would save his firm hundreds of thousands of dollars a year.
USING THE DATA
So how do advisors find referrals without emailing all their clients with a “please tell your friends about me” message? Get smart about the firm’s data, and make it work.
Aggregate 100% of the practice’s clients’ accounts together, what the firm manages and what isn’t part of the current relationship, and use this new insight to find the best source of referrals, such as:
- The client with a small account is actually very wealthy, but she has most of her assets somewhere else. Her peers are actually a great fit for the firm’s high-net-worth practice.
- One client has a 401(k) that the firm has never seen before at a local business, which can pave the way for an introduction to manage the full plan for the sponsor.
- A quiet, conservative client actually holds a personal brokerage account nicknamed for his investing club, a group of people with investing philosophies that fit well with the practice.
These are just a handful of the referral possibilities that can come from client data, to say nothing about how this information can improve active relationships with existing clients.
Don’t overlook the information that is already there. Instead, think of ways to analyze and repurpose it for the benefit of clients and the practice.
Lowell Putnam is the co-founder and chief executive of New York-based Quovo, a platform for data science.
This story is part of a 30-day series on how to generate the best referrals.
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