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Retirement Planning > Retirement Investing

FPA Retreat: Littlechild Offers Research on Referral Strategies That Work

By James J. Green

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Sessions on how to get client referrals are a mainstay of advisor conferences. “At most conferences,” said Julie Littlechild on Wednesday at the FPA Retreat, “you can’t swing a dead cat without hitting a referral session.”

The problem, said Littlechild (left), is that the advice you get at said sessions is not backed up with hard data on what actually works, and doesn’t, when it comes to referrals. Specifically, it’s important to know how advisors should speak to clients about referrals, and what motivates clients to provide referrals.

Littlechild, founder and president of Advisor Impact, the multinational research firm that specializes in plumbing how clients actually feel about their advisors, particularly through its Client Audit program, discussed the findings in the 2011 Retreat session of her 2010 “Anatomy of the Referral” paper, an update of Advisor Impact’s ongoing research on “The Economics of Loyalty” first published in 2008.

The study found that while 83% of clients said they would be comfortable providing a referral, only 29% actually had done so. That reticence, she says, is understandable, since “a referral is a transfer of trust.” The most engaged clients, she says, are the ones who are more likely to refer. The most engaged clients are satisfied with the service they receive from their advisors and give their advisors the highest loyalty scores.

Many consultants will tell you the secret to referrals is to “just ask” your clients, but Littlechild says her data shows that approach doesn’t necessarily work. Thinking that client loyalty is an indicator of their likelihood of referring, she warns, could be misleading as well. Many people are “loyal” to a company or a person, but that loyalty could be a misnomer for complacency or feeling that they don’t have another viable option. Instead, she says there does seem to be a “law of reciprocity,” where if you as an advisor do a good job for clients, they will want to do something for you in return. But just providing good service isn't enough, either.

To maximize the referral opportunity, Littlechild’s data suggest that advisors must work with the right clients, with whom they have the "right” conversations, and with whom they ask the "right" questions. These most engaged clients, which she found tend to have worked on a comprehensive financial plan with their advisors, are those who feel they’ve been listened to by their advisors.

Clients, she says, are more likely to refer a friend who is facing a clear financial challenge of their own. That is what, she says, closes the “motivation gap” between a client who appreciates the service she receives from her advisor and actually making a referral. To help motivate them to close the gap, those clients must understand what kind of problems “you solve, for who, and how.” That can be made clear in the ways you communicate with clients both directly and on your website and in your marketing materials.

Understand, she says, that your clients will not use the language that many advisors use in their "value proposition" or mission statements. Instead, clients tend to talk about the fears they might have over losing a job or concern about taking care of their children or being ready for retirement. Consistently position yourself, she recommends, as a firm that understands those fears and take steps to ameliorate them.

So getting referrals in many ways hearkens back to the onboarding process of how and whom you add as clients to your firm, those who "fit" well with what you offer and who you are, she suggests. Make sure your message to existing clients keeps them engaged, make sure your message to prospective clients uses their language, and you’re more likely to see those referrals.

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