From the December 2004 issue of Investment Advisor • Subscribe!

December 1, 2004

From Friends to Clients

There's a wrong way to convert friends to clients. This is the right way

Does this scenario sound familiar? You are a financial advisor of solid standing with plenty of visibility in the community. For several years you have belonged to major organizations in the community, and have come to know the movers and shakers in those organizations and the community at large: local business and political leaders, and the heads of civic and cultural organizations. Those people may know what you do for a living, but have never approached you for business. You are hesitant to approach them because you don't want to risk your existing friendships, or you fear getting a reputation within that community of being a "pushy" broker type.

Transforming friends into clients is one of the greatest challenges investment advisors and financial planners face, but it's not impossible. Here are three strategies for overcoming that challenge, allowing you to approach friends for business without crossing the invisible but clearly defined line that separates trusted advisors from pushy stockbrokers.

Strategy #1: Educate Them

People have a tendency to make assumptions about certain professionals, to pigeonhole them based on vague and often incorrect preconceptions. For example, many people think accountants could never be financial planners, since they're only beancounters who wear green eyeshades and never write outside the margins. To counteract such misleading preconceptions, here's a strategy to improve how you are perceived by potential prospects with whom you are already friendly.

First, make a list of the friends, acquaintances, or family members you would like as clients or who could be good sources of referrals. Would you prefer not to approach family members? Fine. Only list people you would be comfortable approaching.

Next, meet them in a spontaneous way. For example, let's say you are entering the clubhouse after playing a round of golf. You see a couple having a drink, and you ask to join them.

Begin the conversation by addressing one of your acquaintances: "Bill, we've known each other for about five years. I know you work at that big pharmaceutical firm outside town and you do something in research. I've always been curious. What exactly do you do?" Then stop talking.

When you take this approach, three things happen. First, Bill will explain what he does and will usually highlight those parts of his job that he likes best. Second, you learn new things about Bill, such as that your information may be incorrect or dated--he may have started in research but is now in marketing. Third, since people enjoy talking about themselves, you put Bill in a good mood.

You may think that now it's your turn to explain what you do, but you'd be wrong. Years ago I heard a person use a great line in a similar situation: "Bill, you know I work at ABC Securities. When you tell your friends about me, what do you say I do?"

The question puts Bill in a box. He can't say, "John, I've never told anyone about you so I've never needed to know what you do," since that would be incredibly rude. Instead, Bill will give a short response such as "You're a broker who sells stocks and bonds. Right"

This gives you the opportunity to briefly expand on the answer and correct Bill's misperceptions. "Bill, that's part of what I do, but today I also...." or "Years ago that was what we did, but these days...." The crucial part of the interaction comes next: asking for Bill's business. To properly formulate that question, let's set the stage. We assume you have a planning-based business and use professional money management. Your target market is investors who have more than $500,000 in investable assets.

Start formulating your question by making another assumption. If Bill's friends use professional money management at a competitor and have size and style diversification, those friends probably have $500,000 on the table. "Bill," you might say, "now that you know what I do, if you know anyone who uses professional money management and is dissatisfied with the relationship, I would be interested in talking with him." A variation can be based around the phrase, "and is dissatisfied with their returns relative to the market," since most investor complaints revolve around fees or performance.

Notice you didn't say you could do any better. You just said you would be interested in talking with them. It's a very low-key approach.

Bill might then reply that he's not satisfied, and may ask what you could do for him. It's more likely, however, that Bill will be reminded of friends of his who complain that their advisor left the firm or that their portfolios' performance with their current advisor is poor. Maybe their advisor doesn't return calls. Psychologically, people who complain are already shopping around for alternatives, so it's a small step for a friend to suggest you might provide better service than their old advisor.

Strategy #2: Win Them Over

Bill now knows who you are and what you do, but now you need to take the time for him to understand why you are better than your competitors.

In social situations when people ask "How's business?" very often the reply is either "Great. Couldn't be better," or a qualified, "Things are picking up." Have you ever noticed that during an interview, when politicians are asked a question that they don't want to address directly, they just answer a totally different question? This strategy can work for you, too.

So if Bill asks you, "How's business?" respond as if he had asked instead, "How have you helped someone lately?" You can then tell Bill a short story about a person with a problem. Maybe you helped a client who hated her job to reposition her portfolio to produce income and take early retirement. Bill may get the message that you helped that person or made a difference in her life. But perhaps for Bill or for other listeners the message will be more personal: "She hated her job. He moved around her money. She doesn't have to work anymore. Hmm.... I hate my job. Could he help me retire early?" They may also think of people they know who have the same concern, and will recall that you provided a solution.

Of course, such dramatic success stories don't happen to most advisors on a daily basis. Instead, consider turning a negative into a positive: relate a story about one of the many people you helped by preventing them from doing something stupid with their money. It can have the same effect.

Strategy #3: Lend a Hand

The two previous strategies take time to implement because they are low-key, low-pressure approaches. If you want a strategy to get business immediately, identify a need and then offer to discuss a solution. Here's a seven-step process for doing so.

First, identify the need, which often may arise from a life-changing event. For example, the person may have a wealthy friend with parents in their 60s who live at a distance and are finding it difficult to live on their own. Second, discuss the issue and demonstrate understanding. The friend may feel she is the only person to have ever faced this problem and doesn't know where to turn for advice. You know she is very concerned about her parents' welfare; ask to talk about it.

Third, assess your friend's level of comfort. You may look like a life preserver to a drowning man--he didn't know where to turn and you appear. Alternatively, he may classify things in different categories--you may be a good friend but this is family and family matters are private.

Fourth, and assuming the friend is open to discussion, restate the situation and explain how you can provide an objective, third-party viewpoint. She may not see all the options because of emotional reasons. You can help.

Fifth, offer to do something free to help. But be careful. Your analysis of the situation may indicate, for instance, that a good solution would be buying long-term care insurance. Don't see this as an opportunity to sell something, which could be disastrous and ruin the friendship. Consider the "sell the firm" strategy instead. "Mary, this isn't the first time I've heard of this problem. In fact, you would be surprised how many people we have helped in a similar situation. There's a guy in New York who has helped lots of people with the same problem. He's a kind of specialist--Let me give you his number. Maybe he can help you,." After a moment's thought, you might add: "He comes to our town about once a month. I'd be glad to set up an appointment for you. If you want, I'd be glad to attend the meeting, too, if it would make you more comfortable." You have referred Mary to a specialist within your firm, but you haven't positioned the referral as looking for business for yourself.

Sixth, do a very good job. Provide a turnkey solution that addresses the solution's pros, cons, and costs. Include follow-up steps. Don't just provide a vague instruction for Mary to consider long-term care insurance.

Finally, do more follow-up. Mary probably won't act immediately, but she will have at least one solution where previously she had none. She's more likely now to approach you when she is ready.

This strategy looks attractive when a piece of business is visible. However, it works just as well when the issue has nothing to do with investing. You help people when they really need help and they remember. They know how to thank you with business of their own or referrals.

Look for Opportunities

You can increase people's understanding of "What you do" by using opportunities to ask people to talk about themselves and listening. You can also turn the common question of "How's business?" into an opportunity to explain why you're good at what you do. Asking for business is more a strategy of addressing a need than discussing portfolio management. Position yourself as someone who helps versus someone looking for business. You may find yourself doing well by doing good.

Bryce Sanders, a 20-year financial services veteran, is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania, which trains advisors to identify and meet high-net-worth individuals and transform them into clients. He can be reached at brycesanders@msn.com.

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