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Industry Spotlight > Women in Wealth

Where are the Referrals?

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It is difficult to grow again. Most firms desperately need to grow their revenues back to their 2007 levels, but the level of business development activity is just not there. Conceptual and theoretical opportunities exist, but, realistically, most firms are finding it difficult to turn that theory into reality.

The roots of the business development struggles we face are deeper than merely reactivating the referral channels that were frozen during the crisis. The issues are fundamental: we need to collectively convince clients that we as an industry have effective solutions for their financial issues, that we can be trusted as professionals and that we can get past our own tangle of contracts, regulations and products. This seems like an overwhelming task for a single firm and a job better suited for an industry association or a large organization. However, I believe that there is an opportunity for every firm to become the standard-bearer for the entire profession. Those firms that can carry the positive message to clients will grow once again.

It is difficult to generate business today. If your firm is finding it pretty easy, or at least not more difficult than last year, then the rest of this article is probably of little interest to you. We know that approximately 20% of all firms in the industry are experiencing growth in 2009 relative to 2008. That’s the number of Fusion firms that have grown this year and I have seen similar numbers in statistical surveys. We will also see a statistical update in our PULSE survey in less than a month. More importantly, what I hear consistently in conversations with advisors is that the number of leads (prospective clients) is low and referrals are slow to come despite vigorous marketing efforts. The common lament is that “things are better than the first quarter but we are still not where we were…”

In theory we should be seeing a tremendous opportunity–wirehouses should be losing clients following their mergers, acquisitions, undone mergers, compensation scandals, IRS tax fights and general havoc. Considering that they held more than two-thirds of the market, even a 10% loss of market share should generate a $1 trillion or more in AUM for independent wealth management firms. What is more, there were regional firms that simply ceased to exist, banks that went down, acquisitions that were unconsummated and variety of other smaller events that should contribute to a large number of clients losing confidence in their current advisor and seeking a new relationship. So where are those clients?

The problem we face is that while some of our competitors may have disappointed their clients, we have all lost the confidence of all consumers, both current and potential. Imagine a small tourist town with three restaurants. If a tourist couple visiting for a week has bad experiences in the first two restaurants they visited, this will not create an opportunity for the third restaurant. On the contrary, this will destroy just about any chance that they will visit the third restaurant. They might drive to another town or eat in their hotel room, but they are not going to that third place, no matter what the concierge says (he was the one who recommended the first two to begin with). Bad experiences destroy the desire of consumers to use a service in general, not just that specific provider. That’s why Paris has hundreds of thousands of restaurants and they are all full and your average airport has two and they are both empty. Unfortunately, as an industry we just served some pretty lousy meals.

For any wealth management firm to see an opportunity, a consumer has to go through some kind of process like this:


  • The client realizes that they have a problem or an opportunity
  • They recognize that the problem is serious enough that they have to act on it
  • They believe that a solution exists and that they should research it

Solution Search

  • The client starts looking for potential solutions
  • They gather information on general types of solutions: self-directed options, products, wealth managers, different types of firms
  • They may ignore or omit many alternatives–and their search may or may not be extensive
  • They solicit referrals from people they trust–CPAs, friends; brothers-in-law are critical, too

Vendor Evaluation

  • Once they have researched a solution, clients start evaluating specific vendors who offer it
  • In other words; once they have decided that they will work with a wealth management firm, they start comparing firms
  • The list may be long or short, depending on the client, their experience and the nature of their problem
  • This is the step where you compete with other firms


  • The client has pretty much made up their mind but they may perform some final due diligence or negotiate price and other characteristics of the service (sale closing)

For example, a client recognizes that their wealth has shrunk by 40%, and they believe that this is more than they were prepared to lose. Further they believe that somehow this should not have happened and that if they change the service they use, perhaps they can recover faster–or at least not live through this again. This is the recognition step. As a result, the client checks out what their friends are using, they read a few Web sites, and they may listen a little more closely to the TV ads. They end up with recommendations for three firms, and they call all three. They meet with two (one guy did not return the call) and get proposals. They really like firm A but they spend some time keeping option B open while they negotiate the fee.

Where we get stuck today is the “Recognition” stage: clients either do not recognize the problem they have, they do not want to act on it or they do not believe that a solution exists.

How is it that clients do not recognize the problem? Don’t they watch the news? How can they still work with that firm? Reality is a relative thing. After visiting the two bad restaurants in town, our couple may actually go back to the one that was slightly less lousy rather than visiting the third restaurant. They may just assume that such is the quality of restaurants in this place and just resign themselves to using the lesser evil.

Clients may recognize the problem but not want to act on it. How could that be? Well… I was a smoker for 20 years–I knew it will kill me someday but today was just not the right day to quit. It takes effort and energy to act, and we all only have so much of that. How many people do you know who have not confronted a significant problem they have–relationships, jobs, houses, etc. The key here is how difficult is the solution perceived to be. Just because a client recognizes that their advisor is not doing a good job does not mean that they will change it.

Clients may not believe that a solution exists either–they may believe that their advisor is not doing a good job for them but how would they know a different advisors would be any better?

At the next stage of “Solution Search” we may have some problems, too. I suspect that some number of investors may be going back to a self-directed approach–not necessarily with all of their assets, but perhaps moving a significant portion of assets to self-directed accounts. Other alternatives are also gaining prominence–product solutions, electronic tools, etc. This may not seem like a significant source of competition but you have to remember that a lot of the growth in 2003 to 2007 was fueled by clients–including some high-net-worth clients–who went from being self-directed to using an advisor.

In particular, one dangerous alternative and at the same time opportunity that wealth managers face is alternative asset classes. The logic is simple: if the stock market will do things like this to us, we will leave it altogether in favor of other alternative investments. Imagination is the limit here. Some of the advisors that are experiencing growth in 2009 are precisely those that emphasize alternatives. While there is certainly an opportunity there, this is also a significant threat, at least to wealth management firms who use fee-only pricing. Simply put, most of these alternatives are not available on a fee basis, and require alternative pricing or business model from the wealth management firm.

Last, but not least, sources of referral may be very hesitant to make referrals because of the negative feedback they receive. The hotel owner may be thinking that “restaurants in this town are killing our business. We are better off sending our clients to the grocery store or telling them we don’t eat out.” He or she may not be hearing the positive reviews about the third restaurant because customers never made it there after poor experiences at the first two.

What is interesting about our hypothetical little town is that the customers of the third restaurant (the good one) may not be very aware how good they have it, and therefore they may not actually be raving about their experience. Chances are that they thought the place was “Pretty good. Yeah! The service was a tad slow but overall quite OK!” They probably will not think to recommend it to fellow tourists or to the hotel owner since they assume that others have had similar positive experiences.

So what does this all mean? So far I have been listing problems but have not suggested a single solution. The task of convincing clients that wealth management works, that there are good firms out there, that, while the damage is severe it can be repaired–or at least mitigated–seems too large. It almost seems like the tasks should be something that the SEC, FINRA and the National Restaurant Association should look into–and not something that a single firm can handle. Yet I believe that most macro solutions are made up of micro actions.

In order to restart growth, firms will need to address the fundamental problems we face at the Recognition Stage and the Solution Search stage. I believe that firms should:

Define success and make the definition clear: Clients are not sure what to define as “good” service this year. Help them define and understand what attributes they should consider. Losing less than the average is a success, but returns are also not the only factor. While gimmicky definitions of success can be dangerous (clients instantly recognize those), a well-thought-out and balanced definition of what was achieved can help clients recognize whether they had a good experience or a bad one.

Publish your standards of success: If your clients accept your standards of service, they might share them with others. This may help other potential clients recognize that they have problems.

Lead your marketing with the positive examples of success: Your task is to convince prospects that you can help where others have failed. They won’t listen if you tell them you are different. They might listen to your happy clients. Any advertising done by the third restaurant will fail–but if somehow the clients of that restaurant start talking, the outcome will be very different.

Educate your clients about what is going on in the industry: Your clients may not know how upsetting their peers’ experiences may be. People love helping other people. If your clients understand that their friends and associates have a problem and they may be able to recommend a solution, they will be eager to do it.

Bring your happy clients forward: Your happy clients are your biggest asset now. Their testimony and their honest feedback are just about the only credible marketing initiatives–and they will have quick impact on skeptical prospects that have been to the other two restaurants.

Do not market negatively: You are only exacerbating the problem with marketing that focuses on how, “They are bad and we are good.” That will only make the problem worse. Imagine the third restaurant marketing itself as, “The only good place in town.”

Make it easier to receive the solution – eliminate the barriers: The withdrawal of quitting smoking and the pain of dieting leave many people preferring the problem. Firms can help clients by eliminating barriers. This may include removing up-front planning fees, simplifying the initial data gathering to make it more client friendly, improving the proposal process and so on.

Change the game: Frankly, if my two competitors were giving restaurants a bad name, I would probably consider calling myself a “Brasserie,” or “Tacoeria,” for that matter. Again, being gimmicky is a danger, but after all, the very term wealth management did gain prominence as somewhat of a reaction and alternative to “asset management” or “investment management.”

Act unselfishly: At a time when clients question our integrity, an unselfish act can go a long way towards earning some trust. Refer a prospect to a competitor, help somebody who is not a client, publish free advice, and offer to meet with clients’ not-so-affluent family. Every unselfish act has a tiny probability of generating a return (by the definition of “unselfish”) but it is amazing how the accumulation of such acts can change your reputation.

Talk to someone: At the end of the day, there need to be changes at the macro level too. All firms should be active today in helping define the solution. This is the time where every firm should be active in its industry association and with regulators.

There are thousands restaurants in every Parisian neighborhood–from the unpretentious to the exquisite; they are all full, none are cheap and most are really good. My entire home town of 500,000 back in Bulgaria had five restaurants when I was a kid, and they were all empty. Not all of them were bad.

To fully recover as an industry, we will need a lot of collective action, including regulation, service standards, certification standards and good old reputation-building through years of good service. At the same time, the micro actions that every firm can take can create opportunity and help accelerate growth. Positive marketing that convinces clients that we, as an industry, can help them–that we have credible and effective solutions–will help the entire industry move forward and will define the winners of the recovery.

Philip Palaveev is President of Fusion Advisor Network. He can be reached at
[email protected].