From the August 2013 issue of Research Magazine • Subscribe!

Getting Referrals Your Own Way

To be effective in seeking referrals, advisors are trying a personal, customized approach

Illustration by Pete Ryan. Illustration by Pete Ryan.

It’s the industry’s dirty little secret. Almost 90% of advisors did not ask for one referral last year—even though they say that they did. Consultant Scott West has a name for it: the “giant liar’s box.”

“There’s not a branch manager out there that’s not pounding on his people to get referrals. And no one’s doing it,” observes West, managing director of Chicago-based Invesco Consulting. “Yet it’s never been more important.”

Most major firms, hoping to ramp up net new client growth, are giving bonuses to advisors who bring in big assets. One broker-dealer this summer even ran what amounts to a sweepstakes, offering a deluxe vacation to the client who produced the most valuable referrals.

And still advisors cringe at the R-word.

“A lot of it is fear of rejection. They’re afraid, basically. It’s a lack of confidence,” says Bill Cates, who heads Referral Coach in Laurel, Md. His new book, Beyond Referrals, was published in April. “They don’t want to look pushy or seem needy. They’re afraid of looking salesy, and for good reason. Referrals are borrowed trust.”

Invesco, with partner Prince & Associates, recently researched the three most common proactive referral strategies used by advisors: the free offer, obligation and the promise of exclusivity. As Invesco Consulting director Brett Van Bortel puts it: “There are, literally, hundreds of consultants on this subject and thousands of different approaches with slight variations. When you get under the hood, you discover they are virtually identical with modest variations in the verbiage they use.”

With the free offer, an advisor tells a client that he will provide a free financial plan, for example, to anyone the client refers. The Invesco/Prince study showed that while the free offer approach doesn’t damage the advisor-client relationship, it does damage the advisor’s value proposition. “You’re my client and you pay for the plan but your friend gets it for free,” says Van Bortel. “It doesn’t wash.”

The other two approaches, according to the study, did actually damage the relationship. In the case of obligation, the advisor basically says: “I’ve done something for you, now you do something for me.” In appealing to exclusivity, an advisor might say: “Do you have any other friends or colleagues at the level my practice is designed to serve? Can you make an introduction?”

Van Bortel calls the three approaches “very car lot like—uncomfortable for the advisor and for the client,” yet these are the strategies that advisors have been trained on. Earlier this year, Invesco launched a program called “Preferrals,” a framework originated by Tim Ursiny, CEO of Advantage Coaching & Training in West Chicago, Ill., and refined by Invesco.

With Preferrals, there’s no one-size-fits-all script but, rather, a personal appeal that emphasizes an individual advisor’s genuine thoughts, feelings and concerns. Ursiny said one advisor he coached recently got two referrals, one worth $10 million and the other $30 million, the first time she used it. “Advisors get so tied up in learning a specific script. I don’t think you can use someone else’s script or you’ll never be you,” he said. “You’ll never come across as authentic.”

Invesco launched its Preferrals training program earlier this year.

“It’s a way to stop the advisor from asking for the client’s help. Instead, the advisor is offering help to the client. It also incorporates the genuine concerns of the advisor,” says Van Bortel. “One, it’s giving them the race track and, two, it’s giving them the race car to run around the track.”

All of the “preferrals” begin with a line that says something like this: “You have probably noticed that I don’t often ask you for introductions. That’s because I never want to make you feel uncomfortable, or seem like I am more concerned with my business than your family’s financial well-being.”

An advisor from Michigan put his personal stamp on his “preferral” by referencing the fiduciary standard and his concern about local advisors who were going after oil and gas windfalls. (The advisor lives in an area where fracking has created new wealth.)

Here’s part of what he tells clients: “Given all of the upheaval in the industry the last few years, I see some things that concern me. I see advisors who don’t live up to the fiduciary standard, who make decisions that are more likely to benefit them than their clients. I also see advisors that are ill-equipped to manage oil and gas royalty windfalls for the benefit of children and grandchildren…. For those reasons, if there is anyone that you care about, who you think could benefit from another pair of eyes, I would be glad to help them.”

West says the strategy works because it doesn’t upset the equilibrium of the advisor-client relationship. “It’s incredibly disarming to say to a client: ‘You notice I’ve never asked for a referral. I’ve never upset the applecart about what’s worked so well for us. I’m not going to start now.’ The second step allows the advisor to express genuine concerns. It’s cleansing,” he adds. “It’s saying: ‘I’m concerned like you are.’ It puts you on the same side as the client.”

Morgan Stanley Wealth Management advisor Mark Fujiwara has tested several referral strategies over the years—including an industry classic he would practice during his hour-long commute to his office in Sacramento, Calif.

“It was a ‘Hey, I want to remind you of my referral process’ script that I was never really comfortable with. It was over two minutes, a monologue. I tried talking faster but it never felt like anything other than a canned response,” says the 44-year-old Fujiwara, who manages $100 million in assets. “I could tell with clients when I was talking, I was losing them. Yet coaches would say this was the best thing to do. It wasn’t. It never felt like me.”

In 2011, Fujiwara began working with Ursiny and created a tailor-made approach that emphasizes the importance of communication, his own continuing education and client satisfaction.

“Some advisors aren’t attentive enough. This is a top reason clients leave their advisor. This is something we as a team take very seriously,” he tells clients at quarterly meetings, where he has made what he’s come to call “Concerns of the Industry” a standing agenda item. “If there’s someone you know that you think we can help, please let us know.”

In the first year of using the system, Fujiwara received 32 referrals—including several who became “spectacular Triple A clients.” The end result: 12 months, 10 new clients, $15 million in assets.

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