What's the best way to generate referrals: asking for them or earning them?

Thomas Fross of Platinum Advisor Strategies said, “If you want to make a client uncomfortable, you should ask them for a referral,” Thursday at the Platinum Top Producers Boot Camp. 

Ron Carson, the Prosperous Advisor, disagreed and offered a rebuttal, now Fross rebuts that rebuttal:

I read Ron Carson’s rebuttal to our position on generating referrals with great enthusiasm. Ron is an individual I highly respect, and whom I believe deserves a lot of credit for the good he has done in our industry. While the majority of the things he said are spot on, there is one area where we vehemently disagree. In addition, while Matt Ackermann did a wonderful job capturing the highlights from my presentation, there are some points that need to be expounded upon.

Mr. Carson and I both agree on the fact that it is vital to lay the foundation for getting referrals in advance by forging strong relationships with your clients, delivering world-class service, hosting client advisory boards, and the like. What we disagree on is where you go from there.

In his rebuttal, Mr. Carson states that "clients are motivated to share referrals with you for two primary reasons: 1. Reciprocity, and 2. because they want to help someone else." We, on the other hand, believe they are motivated to give referrals because: 1. They want to help someone else, and 2. Reciprocity. While the motivations are the same, I believe Mr. Carson has them in the wrong order. What this means is that the way in which you go about having a “referral conversation” with your clients should be focused, not on the fact that they should help you by providing referrals, but that they should help their friends by referring them to you. This may seem like mere semantics, but it makes a big difference. We actually tested Mr. Carson’s method some years ago, but it didn’t work as well as what we’re doing now. I will share our exact strategy with you in a moment.

Another problem we have with asking for referrals is that it can easily make you appear desperate. How can you say “we’re very selective and only accept a limited number of clients” on one hand, and then turn around and say, “please send us more people to work with” on the other? The two messages are contradictory. For this reason and many others, we follow a different formula from Mr. Carson. This formula has worked so well that we have quadrupled the number of referrals we receive by using it, and many financial advisors who follow our method have experienced similar success.

1. Lay the Groundwork

Before we tell a client we will accept their referrals, we focus our energies on turning them into a personal friend and a raving fan of our business first. We do this by having new clients to our home for a meal soon after they join our firm, by surprising and delighting them with acts of kindness, and by creating a pleasurable experience when they visit our office; among other things.

2. Have the Referral Conversation

Contrary to what Mr. Carson inferred in his rebuttal, we do seek referrals; we just don’t ask for them. Instead, we inform our clients that we are willing to accept their referrals. Typically we will say something like: “As you know, I am very selective about the clients with whom I choose to work, and I only accept a limited number of new clients each year. So while I am not a miracle worker and can’t help everyone, I do leave a few spots open in my schedule for the friends, family members, and colleagues of existing clients. So if you know anyone who could benefit from the services I provide, please let me know and I will gladly see if I can help them. I also want you to feel comfortable bringing friends along to any of my social or educational events.”

3. Facilitate an Introductions

In some cases, the conversation described above is all it takes to open the referral floodgates, but frequently, more effort is required. A practice we strongly advocate is that of facilitating introductions through intimate social events, by inviting clients to educational meetings, and through a variety of other means. (You can read more about some of the strategies we recommend here) In this way, you can make it fun and convenient for your clients to introduce people to you in a non-threatening setting that benefits everyone. We frequently encourage our clients to bring guests by printing it directly on the invitations we send out.

You may be further helped to appreciate the value of our approach by imagining you are friends with the most sought after and capable attorney in your city. If another friend suddenly needs legal assistance, what will you do? Will you not call this high-powered attorney and ask them to accept your friend’s case? Will you not be grateful for their willingness to do so? Similarly, we desire to position ourselves as the most capable and sought after financial advisors in our area. We want our clients to know that our first desire is to help their loved ones - not to grow our own business. Graciously accepting their referrals, rather than asking for them, sends this message in a powerful way.

In conclusion, I would like to cite the findings of another industry leader, The Oechsli Institute. According to their recent research, 83% of affluent investor-respondents to their study said they had a negative feeling about being approached for referrals. Why on earth would you ever do something to make 83% of your clients feel uncomfortable?

Asking for referrals may work for some people, some of the time, but the approach described above is working better for us and the hundreds of financial advisors who belong to our Platinum Advisor Strategies program. We are confident it can work for you too!

What do you think? How are you generating referrals?

Thomas Fross is co-founder of Fross & Fross Wealth Management and president of Platinum Advisor Strategies, a marketing and practice management program for financial advisors. He also co-authored the practice management book "Members Only - A Powerful New Way to Grow Your Practice."

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