I run into all kinds of systems that supposedly produce referrals. One chap was paying $750 per month to a coach who was helping him put together a “board of advisors.” When I poked into this, I found one introduction, and zero referrals.

Some advice:

Do not sign up for a system that sells 44 different tools to ask for referrals.

Do not buy anything that promises a “referral flood” or “referral fountain.” Undoubtedly, there will soon be something promising a “referral tsunami.”

Do not attend referral boot camps, sign up for referral newsletters, and waste time on referral websites, or sign up for referral e-zines.

I do know of cases where organized networking groups have produced good business; BNI is one such case. But you have to allow time for it to work.

For the others cited above, none generates referrals. They do, however, generate tons of names and legions of annoyed clients.

It’s not hard to understand why asking for referrals does not work. Let me tell you of my own enlightenment.

In about July 1991, I became the first sales manager in world history to tell his sales force, “Quit asking for referrals. It’s killing us.” But until I saw the light, I fit the classic sales manager mold, constantly haranguing my sales force to ask for referrals. I actually taught people dozens of questions to get names, and then I called the names given “referrals.” In retrospect, those names were no more referrals than monkeys are gorillas. You can call names from the white pages referrals if you want. And you can call names you sweat out of your clients referrals. But that does not make it so. Here is “the rest of the story.”

It’s summertime, 1991. I had done an analysis of where my business was coming from. I found that 30 percent to 40 percent was coming from referrals. I thought, “If I can just get more referrals, I can cut out some of this expensive direct mail. We won’t have to attend as many trade shows. Blah, blah, blah.”

So I made up “Ten Referral Questions.” (Maybe I should have called these “Ten Referral Secrets” and sold them.) I had them laminated. Then I posted the sheet at eye-level. I hung a big chart in the front of the room, met with my computer operator to determine how we would track these referrals, had a big “rah-rah” meeting and off we went. My “referral graph” moved up sharply. “Smug” would define my state of mind.

In August, our sales turned down. My thought was, “summer vacation is coming to an end, it’s August, blah, blah, blah.” In September, our sales went into free fall. I started looking for what went wrong.

One of the things I asked for was a list of all the referrals we had developed from our “Referral Marketing Campaign.” My computer operator brought me an 11-page report. There were 50 names on each of 10 pages, and three names on page 11. We had generated 503 referrals.

Then I asked her, “Let me see a report of the referrals that have sold.” She brought back a one page report with three names on it. At first I thought this was page 11 because it is impossible to close only three out of 503 “referrals.” (We were closing one in eight direct mail leads.) Further investigation convinced me that we had not generated 503 referrals. We had generated 503 cold call names, whereupon I became the first sales manager in history to say, “Quit asking for referrals.”

What WorksThis led to even more research. Thirty percent or 40 percent of our business was coming from referrals. Detailed checking, however, showed that referrals that became clients were “unsolicited referrals.” They were referred by happy clients.

The final blow to my old life as a sales manager happened one night as I was just drifting off to sleep. I bolted upright when I remembered a chance conversation some years earlier. An advisor had told me, “Bill, I have this little old lady client who owns a hundred shares of a dog stock she inherited from her grandfather. She calls me every morning when the market opens to find out what it did yesterday. I tried everything I could think of to get her to stop calling. Finally, every time she called I would ask her for a referral. She quit calling.”

Whoosh. It had sailed right by me. Asking for referrals does not work. Worse, doing it can damage the client relationship. It puts clients on the spot. You know that in your heart. And to the extent you have refrained from asking for referrals, well done. You were right.

To verify that what was true for me had broader application, I then called 30 or 40 advisors and verified that the people opening new accounts that were referred were unsolicited referrals, not solicited.

Obviously, this raises the question: How can you increase referral business without asking for it?

Referrals HappenReferrals happen when a satisfied client recommends you to a friend or associate who needs financial advice. Here is my precise definition of “referral:”

“A name volunteered of someone in need of, or wanting to know about, your product.”

This definition makes it clear why an actual referral cannot be solicited.

A referral is a name volunteered. To ask for a referral is to get a name, not a referral.

How Referrals Do Not HappenYou are sitting with a client. We’ll call him Bob.

You have recently signed up for a 12-step program and learned a script which you decide to try.

You: We are looking for __________ (Describe your Ideal Prospect). Who do you know who fits this description?

Bob: Uh. Well, you could call my Uncle Farnsworth.

Come on now. Did you get a referral? Or did you just extract a name?

Here’s another gem:

You are in Bob’s office.

You: Let me explain to you exactly the kind of client I am looking for. Like you, he or she is a successful business owner. They’re looking to retire in the next 5-10 years, and they need a plan to get the equity in their business into a retirement account. Let’s go through your contact list. You tell me a little bit about each of your associates. And then we’ll settle on two, but not more than three of what we call “preferred recommendations.”

Bob: (Obviously uncomfortable. Sweat is running down his sides and back) Well … uh … hmm …. I guess you could call Adam Ames. He’s my lawyer. He owns his own business. But he might be a little younger than you want. You could call him.

Why Doesn’t Asking for Referrals Work?It’s not because Bob is not a happy client. He is.

It’s not because he doesn’t know people. He does.

If asked, he would be among the 80 percent or so who are willing to provide referrals.

So why is he uncomfortable? And why are you among the 99 percent of advisors who hate asking for referrals?

Answer: Bob wants to help but doesn’t know anybody right now who needs your service. And he does not want to turn a salesperson loose on friends or associates who do not need your service.

Let’s put the shoe on the other foot — your foot. You are sitting in your doctor’s office.

Doctor: Do you know anyone with a similar disease that could use my service?”

You: (Stunned silence)

Or try this shoe on for size:

Doctor: I’m putting together a patient advisory board to help us improve our practice. Would you like to join? Every two months I buy dinner.

You: (Hmm. He needs help on running his practice? The business part? Or the medicine part. I need this?) You know, Doctor Grynd, I spend all my spare time with my wife and family. I would love to but I just can’t do it. (I’m done with this guy.)

How Referrals HappenBob and Adam are having a monthly lunch, client and attorney.

Adam: I’ve been managing my money myself but I’m at a point where I think I need some help. Are you happy with your financial advisor?

Bob: Absolutely. She does great work. I want you to call Sue Brokerman at 801-555-2346. As soon as I get back to my office, I’ll shoot her an email and tell her to expect your call.

That’s a referral!!!

Please understand this: Referrals happen when a satisfied client learns about a situation requiring your help. To make that referral, the client needs, obviously, to be a happy client. You need to have provided good investment advice, great service, and stayed in touch. The client has to regard you as an expert financial advisor, a caring, trustworthy, well-mannered individual, as well as a good citizen. And you have to promote, not solicit, referrals.

For more help, go to www.billgood.com/real_referrals.

Bill Good is chairman of Bill Good Marketing Systems in Draper, Utah; see www.billgood.com