According to Julie Littlechild, the president of Advisor Impact, it’s time we de-mystified referrals.  Littlechild addressed the topic at the FPA Business Solutions conference, which was held in Boston last week.

In an interview following her presentation, Littlechild said, “We’ve been talking about referrals for years in this industry and yet we haven’t really cracked the code.  I think we’re collectively guilty of applying rather simplistic tactical responses to a very complex issue.  Referrals are a transfer of trust.  They are a reflection ofeverything that you do for your clients.  It’s no wonder that increasing referrals is a difficult task.”

1000 Investors Weigh In

To crack the referral code, Littlechild’s firm, Advisor Impact, went to the one true source of insight on the topic: the client. The firm’s latest research report, the “Economics of Loyalty: Anatomy of the Referral,” was released based on input from more than 1,000 investors across the country.

According to Littlechild:

  • 77% of clients gave their advisor an average satisfaction rating of 8/10 or higher
  • 93% of clients are somewhat or extremely likely to continue working with their advisor
  • 83% of clients are comfortable providing a referral
  • But only 29% of clients provided a referral

She was quick to point out, however, that satisfaction and loyalty are poor indicators of a likelihood to refer.  Instead, the presentation provided a glimpse into the profile of the “Engaged Client,” those incredible relationships who are not only satisfied and loyal but who also help you toactively build the business through referrals.
Advisor’s Behavior, Ability to Demonstrate Leadership is Key

One of the key differentiators of the engaged client was how they responded to their advisor’s behavior during the recent market downturn.  Littlechild said the last two years were less about the frequency of communication and more about the ways in which advisors of engaged clients helped them through a difficult periodthat mattered. The market downturn that began in 2008 provided an ideal environment for advisors to demonstrate leadership to their clients.

Specifically, engaged clients are much more likely to provide more positive feedback on the extent to which their advisors:

  • Helped them understand the impact of turbulence on their ability to reach financial goals
  • Helped to keep their long-term plans on track
  • Helped to keep clients focused on the long-term, and
  • Added value beyond market performance

Asking for Names Not Effective

What is striking is that in only 2% of the cases did clients say they referred because their advisor asked them for the name of her friend. If motivation to help an advisor was the only driver of referrals, then asking for a referral should work. The irony is that one of the most popular tactical approaches to increasing referrals among advisors has been to ask clients for the name of a friend. Perhaps this is the reason that about 82% of clients report that they have never been asked for a referral. Could it be that advisors have known all along that asking clients for the names of their friends, co-workers and family members is not the most effective tactic?

Creating Your Own Referral Code

Sam Richter, SVP at Actifi, also addressed the subject of referrals and how to (a) know more about clients and prospects and (b) land more business during his presentation at FPA Business Solutions 2011.

The keys to exceptional referrals, according to Richter are:

1.     Ask from a position of strength. Saying “I need your help to build my business” is weak.

2.     Feel good about asking forreferrals. You provide value.

3.     Create an identity. Build and nurture it.

4.     Know whom you work best with and find prospect that meet the profile.

5.     Know your clients before you ask.

6.     Know the prospect and understand their world as well.

To the above list I would add:

1.     Respond quickly whenever there’s a problem, even if you didn’t cause it.

2.     Admit when you’ve made a mistake, and make things right.

3.     Err on the side of over-communicating during difficult times.

4.     Empower your team and help them embody your brand. Make sure everyone on the team knows and embraces the company mission statement.

5.     Find simple ways to show your clients that you truly care about their total wellbeing (for example, my advisor continues to call and gently nag my husband for missing documents, to schedule important planning meetings, and to ask how sick family members are).

6.     Create and practice a sincere statement of service such as, “You know, Jim, I really do care about your overall wellbeing. It is a real honor for me to work with you and Jane. I want you to know that if there are friends and family members who could use a little help, I’m never too busy to speak with them on the phone or meet for coffee.”

7.     Give your clients a quick glimpse into your personal life from time to time. For instance, occasionally mention your charitable work, family activities, business milestones and personal passions.

8.     Find out what they value. Show your support.

9.     Never, ever, fake it. Sincerity and right motivates are key. Most people can all smell a phony a mile away.

10.  Ask what they think. Form a client advisory board. Send out a survey. Let them know the score. Implement the suggestions that make sense. Personally explain if you elect not to implement a suggestion.

11.  Pick up the phone or send a handwritten note. In a world full of flying bits and bytes, a personal touch can interrupt a busy life for just the right amount of time and create a lasting bond.

12.  Be consistent. Do what you say you’re going to do.

Economics of Client Loyalty: Anatomy of the Referral a “Must Read” for Advisors

Julie Littlechild has provided the financial planning and investment advisory community with the best research and professional commentary on the issue of building client trust and garneringreferrals. The 2010 Economics of Loyalty report is a “must read” for every financial planner and investment advisor.

To download the full Economics of Loyalty report click here

To read an article about Sam Richter’s Know More! presentation, click here.

Marie Swift is president and CEO of Impact Communications Inc.  Swift also spoke at the FPA Business Solutions Conference, joining a panel of experts who spoke on social media and building your online presence). Readers can purchase session recordings and corresponding Power Point presentations ($25 each or $225 for the entire conference) from the FPA at


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