From the December 2007 issue of Investment Advisor • Subscribe!

Referrals Revisited

Start today on a better method to get better referrals

"If there is one thing that I could do for you, what would it be?" When posing that question to seasoned advisors, the response I usually hear is: "Get me in front of more prospects. If I can get in front of them, I can make them clients." When I hear that, I ask them to describe their referral strategy. Too often, the responses include:
  • I don't have a well-focused strategy.
  • My strategy needs to be more formalized.
  • I need to make a more conscious effort to ask for referrals.
  • My current approaches don't work.
  • I hate it, so I just don't do it.

Ironically, study after study states that the best way to build a business is through referrals and the most frequent way in which an affluent investor finds an advisor is through a referral. That raises the questions: Are we being lazy? Are we not well-informed? Why is it that so few have a formal plan for getting referrals?

To better understand why this is the case, we at JPMorgan set out to find out what lies beneath this enigma about referrals. Last year, we conducted a qualitative study of both affluent clients and their advisors. Our goal was to thoroughly examine the referral process to determine what was preventing advisors from maximizing their referral success.

The outcome offered good news and bad news. The good news: There is no silver bullet. The bad news: There is no silver bullet. In other words, there is no single approach that will maximize your success. It will be as unique as are you and your clients. Maximizing your referrals will depend on four elements:

  1. Your referral attitude
  2. Your clients' referral readiness
  3. Quality of your relationships with your clients
  4. Perceived value of services you deliver to your clients

This article will focus on the first two elements: your, as well as your clients', referral attitude.

Your Attitude

Before you attempt to put a referral plan in place, first determine if you are getting in your own way. Do you find asking for referrals easy or difficult? Then go beyond broad terms like "easy" or "difficult" by spending some serious time thinking about this issue. Could you be subject to emotional biases that prevent you from asking in the first place?

If you are similar to many of your colleagues whom we interviewed, the answer is "yes." We were told that the top five reasons advisors do not consistently ask for referrals are as follows:

  • Fear of jeopardizing client relationships
  • It seems "unnatural"
  • I don't want to appear desperate or unprofessional
  • I don't want to impose on clients
  • There is no way to repay referrers

When we probed even further, it became obvious that advisors' feelings about one client were often projected onto virtually their entire books of business. However, while some clients may have a negative reaction to a referral request, would all of your clients react negatively? No, different clients act differently and so must you: treat each client uniquely in terms of the referral process.

One of the greatest detractors to referrals is an advisor's own behavior. Think about your own referring habits. When was the last time you made a referral? Our study revealed that advisors who tend not to provide referrals rarely think to ask for a referral themselves because they project their own biases onto their clients. Therefore, opportunity may be knocking, but are you responding or are you leaving potential business on the table?

Sadly, most advisors are missing opportunities for success.

So how can you change a potentially detrimental course of action? It is fairly simple. Before you design a referral program, though, you need to understand your state of mind, determine if you are in your own way and, if so, how you need to change your thinking. In the words of the famous psychologist, Abraham Maslow, "What is necessary to change a person is to change his awareness of himself."

Your Clients' Attitude

Should you ask every client for a referral? Probably not. Think about your clients. Would you want to replicate each one? So before you set your strategy, determine your "ideal client." Is there a specific sector of the marketplace where you would like to work? Would these clients ideally have assets of a certain size or in a certain age group? If so, this group represents your "referral pool." Now, review your book to determine who might meet the "ideal client" criteria.

Once you have determined that group, should you ask everyone in your referral pool? Once again the answer is "probably not." You want to ask only those who have the right mindset and have recognized your value.

Through our interviews with affluent investors, we uncovered four investor referral mindsets or segments. These segments are distinguished by the depth of your relationship as well as the emotional currency it costs them to refer. Consider emotional currency to be the amount of unease or concern a client has with any possible negative repercussions of giving referrals--the higher their emotional currency, the lower their willingness to refer.

The Referral Confident Client: Strong Relationship; High Willingness

These are clients who comfortably and confidently make referrals without becoming emotionally involved in the process. These clients are often extroverted and decisive; well-connected and skilled at networking; own their own business or work in sales, consulting, fund-raising, etc. In other words, they use referral marketing in their own lives. These clients will most likely be your best source of referrals. Make a list of these clients and decide what your plan will be.

The Referral-Resistant Client: Surface Relationship; Low willingness

On the opposite end of the spectrum are Referral Resistants, who are not natural givers or networkers, and find it difficult to trust others or develop close personal relationships.

You most likely already know who these people are. In fact, these are often the ones who come to mind when advisors think about asking for referrals, which lead to such negative referral mindsets. Focus instead on clients with whom you are likely to have success.

The Low-Value Client: Surface Relationship; High Willingness

These are clients who tend to be natural connectors. In fact, you don't even have to ask; they proactively give you referrals. Sound too good to be true? Well, it is, because on the downside, these clients tend to lack a clear understanding of your service model and will, therefore, refer anybody and everybody.

These referrals are the ones that many advisors dread because you feel obligated to meet their referrals but, at the same time, you resent wasting time. These clients have the potential to turn into great referral sources, however, with a little work on your part. With education from you as to your business model, they can potentially become great sources for referrals. You may want to provide them with case studies to illustrate the types of clients as well as service needs you enjoy serving.

The Referral Undecided Client: Strong Relationship; Low Willingness

These clients really like you, but their emotional currency is high. The word we heard over and over again in our interviews was "repercussions." They worry about the advisor and the prospect being happy with each other. They would feel responsible if something went wrong with the relationship.

Are they lost causes? Not necessarily. Seek out their fears about referrals, which can often stem from their having had a bad experience in the past. You may be able to ease their concerns. Invite them to fun, interesting social outings and ask them to bring friends "just like them." Usually people are more than happy to introduce referrals in a social setting.

To summarize, the best way to get in front of more prospects is to segment your clients into one of these four referral groups. Once you have them categorized, you can identify your best referral sources--and the best way to approach everyone else.

Start today with the low-hanging fruit: those high-potential referrers. Often, your best sources of future clients are right in front of you. You just have to unleash them from your book.


Susan L. Hirshman, CFP, CPA, CFA, CLU, is a managing director for JPMorgan Asset Management in New York. In that position, she develops strategies to provide wealth solutions to the affluent market. She can be reached at susan.l.hirshman@jpmorgan.com.

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