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Advisors: What If “Referral Only” Was Really a Strategy?

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Many financial advisory firms, even most, indicate that referrals are there single most important source of new clients.

Some firms even tout that they are “referral only.” But what we find when we dig deeper is that referrals are not the most successful among different marketing strategies firms have undertaken but, rather, what’s left when there is no other marketing plan. As Michael Kitces has observed, “an increasing number of studies are showing that a significant portion of growth-by-referrals is not really through any proactive referral marketing strategy, but instead is merely the result of passive referrals that show up on their own.” Megan Carpenter, CEO of FiComm Partners, observed this week at the RIA Summit that advisory firms are “basically spending nothing on marketing.”

I have spoken with advisors who proudly announce that they are a “referral only” firm. Unfortunately, that can often be translated into “we don’t do marketing.” For many firms, referrals win out because there is no competition from a marketing strategy. In the land of the blind, the one-eyed man is king.

What if a firm undertook “referral only” as an affirmative marketing strategy? What if referrals was not just what happened, but were systematically pursued?

Here are some of the things we might expect to see.

Who to refer – if a firm wanted to promote referral behavior they would need to let everyone know who they hoped would be referred. A sharp focus on a well-defined target market would form the foundation of the messaging running through the campaign.

A tailored process – knowing who they wanted to be introduced to, a forward thinking firm would offer something special those target clients were looking for that would distinguish the firm from other advisors. A distinctive process would be a reason to mention the firm to someone in the target market and provide motivation for that ideal prospective client to make contact.

Talk about referrals – a firm focused on a strategy to attract referrals would find ways to bring up the idea in conversations. They might develop and practice references to other clients recently referred to the firm that could be casually dropped into discussions with clients and centers of influence. They might regularly make offers to clients to spend a few minutes with no obligation to anyone they know who had questions about an issue the firm helped the client address. Advisors and staff would be trained and practice how to raise the topic. In her book generating business for referrals without asking, Stephanie Brown Randall lists 11 examples of moments of truth where scripted and practiced language can be employed to remind clients about referrals.

Related: How to Handle Referrals Outside Your Target Market

Teach clients how to refer – the firm would help clients articulate what distinguishes them from other advisors.

Track referrals – firms serious about referrals would capture information about anyone recommended to them and monitor their progress toward becoming a client. When I asked Danilo Kawasaki of Gerber Kawasaki how many referrals the firm receives an average month he could tell me specifically, week by week, with a few mouse clicks. This is probably one reason the average 10 referrals per advisor per week.

Reward referral sources – in my study with Julie Littlechild, we found one characteristic common among firms that receive the most referrals is that they spoil their referral sources. It might be special recognition, getting a special level of service, more some other different kind of treatment. It certainly would include a prompt and personalized thanks for any referral as soon as it is discovered whether or not the person referred becomes a client. So that firm would also record and track who made how many referrals.

In short, a firm serious about pursuing referrals as a marketing strategy would have a referral marketing system. It would employ a process with programmed activities, monitoring, in periodic review and analysis. There may be more than this short list of characteristics. An advisor taking this approach to being a “referral only” firm would also receive far more referrals than one simply making the claim.

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