From the April 2004 issue of Investment Advisor • Subscribe!

April 1, 2004

Keep Those New Clients Coming

Rely on passive referrals for many new clients? Prepare for a shock: That well is drying up

My five Ranger teammates and I were hunkered down on a mountain ridge near the Laotian border with an enemy base camp less than 500 meters away. I had a sick feeling that something bad was about to happen. Our team leader signaled the radio operator to call in our position. As he keyed the handset, our world exploded around us with a blinding flash of light. I regained consciousness face down 30 feet from where I'd been crouching and it seemed to take hours to drag my legs back up the muddy hill to locate my team. No, it wasn't enemy fire, it was lightning.

The other men were in about the same or worse shape. Only two of the guys had found their weapons; the lightning stroke had destroyed everything else. The only thing that kept me from panicking was knowing that, in the Army, there is a practiced procedure in place for every contingency. And since we had missed our scheduled radio report, it would only be minutes before HQ would dispatch a helicopter to search for us. We all made it out that day.

When I talk to advisors who have no marketing procedures for gathering new prospects in the midst of one of the biggest attacks on their market share, I get that same premonition. Your vulnerability is evidenced by the high percentage of your new business that previously came as passive referrals, as depicted in the pie chart on the right. But these are not passive times. You can expect to lose those referrals in the near future to industry competitors.

The demographics of an aging, affluent U.S. population are attracting an onslaught of competitors who are not playing by the old rules. Marketing tactics of building "Centers of Influence" and strategic alliances with attorneys, accountants, and brokers have been discarded as these same professionals step onto the field of battle prepared to offer their own financial advisory services. As pricing competition with industry giants lowers your margins, you are under more pressure to turn more prospects into clients.

Meanwhile, the stream of prospects you grew accustomed to during the long bull market has dried up. If you are not spending time building a proactive marketing system to attract prospects, you could end up a casualty.

You can probably identify with Nick Hamilton's problem, who says, "I don't worry about sales; whenever I talk to a new prospect, I get their business. Only lately, I haven't been talking to very many qualified prospects." Nick, a successful 49-year-old independent advisor for 20 years in Phoenix, has two employees and over $60 million under management, but he has recently watched his asset growth slow to a crawl.

Nick followed the advice of all the top consultants and established strategic alliances, built a center of influence, cloned his best clients, and even "fired" his weakest clients. However, the professionals Nick was aligned with are offering everything Nick does, plus everything he doesn't. As a knee-jerk reaction, Nick considered renaming what he does and calling himself a Life Coach, but he would still be acting and looking like every other financial advisor in his community.

Although Nick's clients say they are satisfied, there's really nothing they can say about him that would give anyone else a reason to choose to do business with him over any of his look-alike competitors. And why should they? What's in it for the referring client? Once the client has signed the closing documents and transferred their assets, and the advisor has delivered on his or her sales promise, both parties have fulfilled a basic reciprocal agreement. As soon as the advisor asks for a referral, the relationship is thrown out of balance. The client didn't sign on to become the advisor's marketing agent.

The best referrals come without prodding--usually from having done something that is so impressive the client can't wait to tell others. But even in that environment, the advisor is still up against human nature, like the dissuasive factor of perceived liability. Most people are afraid that something beyond their control will negatively affect their relationship.

The challenge is to manage your client relationships in such a way that clients see that helping your business grow and prosper is also in their best interests.

The good news is that you don't have to wait helplessly for referrals. Rather, you can implement a proven marketing procedure that attracts qualified prospects (see "Building Credibility" sidebar, right).

Credibility Marketing

Here's how one advisor marketed his way to success. In 2000, Don Schreiber, CEO of Wealth Builders Inc., in Little Silver, New Jersey, saw that conventional marketing methods weren't giving his financial planning and advisory firm any competitive advantage. He already had a solid value proposition and successful systems in place, but no method to accelerate growth. "We were typically drawing only 10 to 15 new clients a year," recalls Don. "We had to do something radical that would pull in qualified prospects."

If he could increase his visibility and establish credibility, Don knew it would be hard for his competitors to imitate him. To become known in his marketplace, he wrote a book and developed strategic alliances with the media as their industry expert resource. He continues to publish articles and conducts seminar programs. "Familiarity and expert status translate into trust and accessibility--the very things that attract wary prospects," says Don. "In 2003, we got 38 new clients representing $42 million in new assets. In January 2004, we closed $10 million of new business."

Rather than tossing out his weakest clients, Don recruits recent college grads at financial planning conventions to handle those clients with the goal of growing their assets into "best client" status.

A classic study on how to get a job by sociologist Mark Granovetter found that 56% of jobs were obtained through personal connections. That's not news, but the "Ah-ha" of his findings was that most jobs don't come from close friends or business associates. Just the opposite; of those jobs, 55% came from mere acquaintances, or what are known as "weak ties."

Friends, after all, occupy the same world you do, but acquaintances are much more likely to know someone you don't.

People want role models, icons, and experts, particularly when it comes to financial matters. As your already crowded marketplace becomes aggressively competitive, visibility and expert-status recognition will become the critical ingredients that differentiate the most sought-after from the ordinary. Getting your ideas, strategies, and solutions published is the way to jumpstart your visibility campaign. Still, marketing your credibility is not an overnight endeavor. If you plan on staying in this business for the next 10 or so years and client referrals have evaporated, how else do you plan on competing for new business?

Larry Chambers spent 10 years as a broker before becoming an independent coach and writer. In addition to his 30-plus investment-related books, he has helped high-profile industry spokesmen gain expert-recognition status. He can be reached through www.competitiveforce.com.

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