A Driver of Referrals That May Surprise You

A Driver of Referrals That May Surprise You

I love it when data surprises me and that’s exactly what happened this week.

As you may know, I’ve spent more than a few years researching the drivers of referrals, translating that into a referral model and sharing that information through this blog and the presentations I deliver.

For the most part, the focus has been on the stunning missed referral opportunity that exists simply because:

  • we don’t meet most of the people whom our clients believe they have referred,
  • clients don’t know who to refer, and
  • we don’t do a great job of helping clients refer.

For what it’s worth, I believe that there’s still a massive untapped opportunity to increase referrals and it’s supported by our latest research. More to come on that in future posts.

A New Referral Connection

Today I wanted to put the spotlight on a different referral driver and it’s one that I haven’t examined in the past.

Based on our most recent investor research (barely out of field and still being analyzed) we can see a clear connection between how knowledgeable a client feels about investments and his or her propensity to refer.

The more comfortable and confident clients are in understanding their investments, the more likely they are to refer you to others.

It’s also the case that there’s a connection (although not quite as strong) between knowledge and satisfaction. I think these are two sides of the same coin.

The Research

Before I jump in on the findings, I want to tell you a little more about who we talked to for this study. If you’ve followed our investor research in the past, the sample is a little different, which will impact the findings. The data I’m going to share today focuses on 575 higher net worth clients in the United States, all of whom work with a financial advisor. Thirty-six percent have household assets between $500k – $999k, 47 percent between $1m – $4.9m and 17 percent have $5m plus.

Does Understanding Breed Referrals?

Here’s what we know about these clients, based on their self-reported level of investment knowledge.

  • Forty-four percent of clients who referred their advisor in the last year, reported very high investment knowledge.  That dropped to 14 percent for those who did not refer.
  • Thirty-six percent of clients who provided a satisfaction rating of 5 out of 5, reported very high investment knowledge. That dropped to 13 percent for all others.

My metric of choice is engagement, which combines referrals and satisfaction into a single metric. Using that measure, you can see quite a startling connection between engagement and self-reported knowledge.

Q: How would you rate your current level of knowledge with respect to investing? 

Referrals and Knowledge_Absolute Engagement

Note that clients rated themselves on a scale from 1 (not at all knowledgeable) to 5 (very knowledgeable). The first category is a 1-3 rating, the second is a 4 out of 5 and the last is a 5 out of 5.

So the connections are strong, but we don’t know why (at least not yet).

Does the connection exist because those who consider themselves more knowledgeable:

  • talk about investments more (and to anyone who will listen) and that happens to lead to referrals?
  • are more likely to value advice?
  • work with an advisor who has invested more time in helping them understand their finances, creating a deeper connection?


Related: How to Turn Referrals Into Introductions

It’s one thing to understand investments. However, another signal of deeper knowledge, for clients, is understanding how much they pay for the services provided by an advisor. I’ve long been perplexed that such a high percentage of investors report not knowing what they pay (and that many of the others are, quite frankly, wrong).

Among this sample of high net worth investors, here’s what we know:

  • Nine percent of clients who referred their advisor in the last year, said they didn’t know how much they paid their advisor, increasing to 33 percent for those who did not refer.
  • Twenty percent of clients who provided a satisfaction rating of 5 out of 5, said they didn’t know how much they paid their advisor, increasing to 28 percent for all others.

Clearly there’s a tighter connection between knowing what you paid and referrals than there is between knowing what you paid and satisfaction. If we bring those two things together and focus on engagement, here’s what we see.

Q: How much did you pay your primary financial advisor in fees, commissions or other forms of compensation in the last 12 months? Shows percentage of clients responding ‘I don’t know’.

Referrals and understanding fees_Absolute Engagement

What Does This All Mean?

While this topic likely demands some additional research, the data is very clear. There’s a connection between self-reported investment knowledge and both referral activity and engagement. It’s dangerous to assume, however, how you should help clients improve their knowledge levels.

For now, I think the data should lead us to asking more and better questions of our clients regarding their knowledge gaps. To that end, here is a set of questions you may want to ask of your clients, either in the form of a poll or as a follow-up to your next review meeting.

  • How would you rate your level of understanding of investments/ finances/financial planning?
  • How comfortable are you with your current level of understanding of investments/finances/financial planning?
  • Which of the following topics would you be interested in learning more about? Create your own list, but here are some examples:
    • Maintaining sufficient assets to meet lifetime income needs
    • Dealing with the rising costs of health/long-term care
    • Leaving a financial legacy for my children
    • Leaving a financial legacy for a charity
    • Coping with a significant market downturn
    • Ensuring my partner/spouse is taken care of should I pass away first
    • Helping my children make financially sound decisions
  • How do you prefer to receive education?
    • I prefer live events (e.g. group seminar or webinar)
    • I prefer one-on-one discussions (e.g., during a review meeting)
    • I like to read (e.g., articles)
    • I like to listen (e.g., podcasts)

Sometimes data gives us all the information we need and other times it simply raises more questions, but more pointed questions. It’s a start and it’s valuable.

Julie Littlechild
Client Experience
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Julie Littlechild is a speaker, author, researcher, and founder of AbsoluteEngagement.com. She helps successful professionals and entrepreneurs design businesses that support ... Click for full bio

Here’s Why Bitcoin Won’t Replace Gold So Easily

Here’s Why Bitcoin Won’t Replace Gold So Easily

What a week it was.

First and foremost, I’d like to acknowledge the horrific mass shooting that occurred in Las Vegas, the deadliest in modern American history. On behalf of everyone at U.S. Global Investors, I extend my sincerest and most heartfelt condolences to the victims and their families.

The memory of the shooting was still fresh in people’s minds during last Tuesday’s Hollywood premiere of Blade Runner 2049, which nixed the usual red carpet and other glitz in light of the tragedy. Before the film, producers shared poignant words, saying that in times such as these, the arts are crucial now more than ever.

I had the distinct privilege to attend the premiere. My good friend Frank Giustra, whose production company Thunderbird Entertainment owns a stake in the Blade Runner franchise, was kind enough to invite me along. Despite the somber mood—a pivotal scene in the film even takes place in an irradiated Las Vegas—I thought Blade Runner 2049 was spectacular. Even if you’re not a fan of the original 1982 film, it’s still worth experiencing in theaters. Hans Zimmer and Benjamin Wallfisch’s synth-heavy score is especially haunting.

CNET recently published an interesting piece examining the accuracy of future tech as depicted in the original Blade Runner, from androids to flying cars to off-world travel read the article here.

Still in the Early Innings of Cryptocurrencies

Speaking of the future, I spoke on the topic of the blockchain last week at the Subscriber Investment Summit in Vancouver. My presentation focused on the future of mining—not just of gold and precious metals but also cryptocurrencies.

Believe it or not, there are upwards of 2,100 digital currencies being traded in the world right now, with a combined market cap of nearly $150 billion, according to Coinranking.com.

Obviously not all of these cryptos will survive. We’re still in the early innings. Last month I compared this exciting new digital world to the earliest days of the dotcom era, and just as there were winners and losers then, so too will there be winners and losers today. Although bitcoin and Ethereum appear to be the frontrunners right now, recall that only 20 years ago AOL and Yahoo! were poised to dominate the internet. How times have changed!

It will be interesting to see which coins emerge as the “Amazon” and “Google” of cryptocurrencies.

For now, Ethereum has some huge backers. The Enterprise Ethereum Alliance (EEA), according to its website, seeks to “learn from and build upon the only smart contract supporting blockchain currently running in real-world production—Ethereum.” The EEA includes several big-name financial and tech firms such as Credit Suisse, Intel, Microsoft and JPMorgan Chase, whose own CEO, Jamie Dimon, knocked cryptos a couple of weeks ago.

To learn more about the blockchain and cryptocurrencies, watch this engaging two-minute video.

Understanding blockchain in two minutes

Will Bitcoin Replace Gold?

Lately I’ve been seeing more and more headlines asking whether cryptos are “killing” gold. Would the gold price be higher today if massive amounts of money weren’t flowing into bitcoin? Both assets, after all, are sometimes favored as safe havens. They’re decentralized and accepted all over the world, 24 hours a day. Transactions are anonymous. Supply is limited.

Have gold and bitcoin peaked for 2017

But I don’t think for a second that cryptocurrencies will ever replace gold, for a number of reasons. For one, cryptos are strictly forms of currency, whereas gold has many other time-tested applications, from jewelry to dentistry to electronics.

Unlike cryptos, gold doesn’t require electricity to trade. This makes it especially useful in situations such as hurricane-ravished Puerto Rico, where 95 percent of people are reportedly still without power. Right now the island’s economy is cash-only. If you have gold jewelry or coins, they can be converted into cash—all without electricity or WiFi.

Finally, gold remains one of the most liquid assets, traded daily in well-established exchanges all around the globe. Every day, some £13.8 billion, or $18 billion, worth of physical gold are traded in London alone, according to the London Bullion Market Association (LBMA). The cryptocurrency market, although expanding rapidly, is not quite there yet.

I will admit, though, that bitcoin is energizing some investors, especially millennials, in ways that gold might have a hard time doing. The proof is all over the internet. You can find a number of TED Talks on bitcoin, cryptocurrencies and the blockchain, but to my knowledge, none is available on gold investing. YouTube is likewise bursting at the seams with videos on cryptos.

Bitcoin is up 350 percent for the year, Ethereum an unbelievable 3,600 percent. Gold, meanwhile, is up around 10 percent. Producers, as measured by the NYSE Arca Gold Miners Index, have gained 11.5 percent in 2017, 23 percent since its 52-week low in December 2016.

Related: Gold and Bitcoin Surge on North Korea Fears

Look Past the Negativity to Find the Good News

The news is filled with negative headlines, and sometimes it’s challenging to stay positive. Take Friday’s jobs report. It showed that the U.S. lost 33,000 jobs in September, the first month in seven years that this happened. A weak report was expected because of Hurricane Irma, but no one could have guessed the losses would be this deep.

The jobs report wasn’t all bad news, however. For one, the decline is very likely temporary. Beyond that, a record 4.88 million Americans who were previously sitting out of the labor force found work last month. This helped the unemployment rate fall to 4.2 percent, a 16-year low.

Have gold and bitcoin peaked for 2017

There’s more that supports a stronger U.S. economy. As I shared with you last week, the Manufacturing ISM Purchasing Managers’ Index (PMI) rose to a 13-year high in September, indicating rapid expansion in the manufacturing industry. Factory orders were up during the month. Auto sales were up. Oil has stayed in the relatively low $50-a-barrel range, which is good for transportation and industrials, especially airlines. Small-cap stocks, as measured by the Russell 2000 Index, continue to climb above their 50-day and 200-day moving averages as excitement over tax reform intensifies.

These are among the reasons why I remain bullish.

One final note: Speaking on tax reform, Warren Buffett told CNBC last week that he’s waiting to sell assets until he knows the plan will go through. “I would feel kind of silly if I realized $1 billion worth of gains and paid $350 million in tax on it if I just waited a few months and would have paid $250 million,” he said.

It’s a fair comment, and I imagine other like-minded, forward-thinking investors, buyers and sellers will also wait to make huge transactions if they can help it. Tax reform isn’t a done deal, but I think it has a much better chance of being signed into law than a health care overhaul.

Frank Holmes
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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm ... Click for full bio