Connect with us


One Reason Why “Referrals” Are the Dominant Source of New Clients for Financial Advisors



Written by: Cliff Campeau

We’re all familiar with the statistics regarding the dominant role of “referrals” when it comes to client acquisition for Financial Advisors (FAs). Whether such referrals emanate from clients, strategic alliances or institutional partners, they are and have been the number one source of new clients for FAs for decades.  

Without belittling the importance of referrals, one might ask the question; “Is referral marketing that powerful? Or is it the fact that a majority of independent FAs do little else to market their firms, thus indirectly propelling referral marketing to the top of the heap when it comes to client acquisition?” There is clear evidence to suggest that the latter is likely the case. 

Consider that a high-percentage of firms don’t engage in business planning, let alone go through a formal marketing planning process.  In 2011, Multi-Financial Securities Corporation conducted an advisor benchmarking study which found that among all advisors surveyed; 

  • 40.2% did not have a documented business plan 
  • 38.2% had only a partially documented business plan 

Thus it comes as little surprise when we consider FA Insights 2014 bi-annual “Growth by Design” research study, which found that only 43% of the survey’s participants identified business development activities as a “primary factor” in achieving their growth. This finding prompted the following observation from the research team; “All too often, firms passively rely on client referrals and market tailwinds to mask their lack of bona fide marketing capabilities.” 

The obvious question to be raised is; “Why haven’t more advisors made a concerted effort to embrace marketing as a bona fide means of developing their practices?” Is it because those advisors aren’t committed to growth? Do they doubt the efficacy of marketing and its role in distinguishing and growing their firms?  Or do they simply lack the knowledge required to formalize a practice development program? 

In our Advisor Marketing practice, we have found the latter to be a primary inhibitor to firms conceiving of, funding and implementing marketing programs to support their growth objectives. However, few firms are willing to acknowledge that they don’t have the requisite experience or core competencies in this area represented within the firm. Often times, when queried these firms will offer a range of reasons to support their lack of a tangible marketing program rather than simply stating that that they need assistance in this area. 

The irony is that for an industry, which has come to rely so heavily on referrals, study after study have shown that advisors as a whole haven’t even fully embraced this important marketing tactic. In a study released in July, 2014 by SEI, Scorpio Partnership and NPG Wealth Management it was determined that “47% of investors surveyed said that they would actively refer” prospects to their advisors and another 47% would do the same “if prompted.”  Yet, the survey found that less than one-third of respondents “reported being asked by their wealth managers at least once a quarter” for a referral. 

This lack of marketing acumen represents a risk for advisors seeking to achieve sustainable growth, but it is not an insurmountable challenge. As the noted twentieth century author, inventor and consultant, Edward de Bono once intoned: 

“Creativity involves breaking out of established patterns in order to look at things in a different way.” 

One of the most expedient and efficient ways to break out of an established pattern would be to engage an independent marketing consultant to help guide the firm’s efforts in this area. For an industry that is rife with choices, distinguishing one’s firm for competitive advantage is a pre-requisite for client acquisition. According to Envestnet’s 2014 “Compendium of Industry Trends” report, there are over 300,000 advisors active today. While the number of advisors has been contracting over the course of the last several years, a 1.0% to 2.0% annual attrition rate doesn’t demonstrably reduce the level of competition for investors. 

Marketing is a process, not a silver bullet.  To be effective in this area requires patience, consistency and, yes, investment spending for firms to achieve their positioning and growth objectives. Part of the reason for this is the consideration process which investors go through when considering an advisor. 

Advisor Impact recently released findings from their “Economics of Loyalty Survey” which identified that the following items most influenced investors’ decisions to work with an advisor: 

Influencing Factors / % of Respondents 

  1. Demonstrated that they understood my needs (69%)
  2. Helped me understand the value they could bring (57%)
  3. Educated me about investing  (45%) 

It should be noted that the aforementioned factors considered by consumers prior to selecting an advisor reinforce the fact that this is not a one-meeting close industry. Advisors must earn the trust of prospects, regardless of the source of a lead, establishing a relationship prior to being able to convert those prospects to clients.  

A well conceived marketing communications program can greatly assist in both developing and maintaining meaningful relationships from the point of initial contact between an investor and the firm and over the course of what can be a long and mutually beneficial relationship.

Continue Reading