“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:
- Your referral attitude
- Your clients’ referral readiness
- Quality of your relationships with your clients
- 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.
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.