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.