How to Succeed at Referrals (Without Even Asking)

Of all the ways to build an advisory practice, referrals probably rank highest on the list. A good referral costs nothing to create, and a referred prospect is usually much likelier to become a new client than the average semi-qualified sales lead. So why don’t we do a better job of generating referrals?

Stephen Wershing, a Rochester, N.Y.-based marketing coach, thinks we’re not going about it the right way. Starting as a registered representative almost 25 years ago, Wershing became an independent rep with a hybrid commission/fee model, and then was a broker-dealer executive. Realizing that what he most enjoyed was helping advisors build their practices, he started his own business, The Client Driven Practice, in 2010.

When I read Wershing’s new book, “Stop Asking for Referrals,” I was intrigued by his approach. It made so much sense, in fact, that I asked him if he would share his views with IA.

Olivia Mellan: What makes the information in your book valuable to advisors?

Stephen Wershing: The most valuable thing about it is that it corrects the misinformation about getting referrals, because everything people say about getting referrals is wrong.

Asking for referrals totally disrespects the reasons that clients give us referrals; and it makes the process about the advisor, rather than the client.

Let’s take the way we have done it historically and put it in a different context. Say you go out to a restaurant and you have a wonderful time. The next day a friend of yours asks, “Do you know of any good places to take my wife out to dinner?” and you tell him about the restaurant.

Now let’s rewind that and play it back as if it were in the financial advisory business. You go out to a restaurant; you have a wonderful time. As you’re getting ready to pay the check, the waiter comes to the table with a pad and pencil and says, “Would you write down the names of three people you know who eat out periodically and their phone numbers?” How are you going to feel about that?

That’s what we do to our clients when we ask for referrals. People give referrals all the time. We have a need to give referrals. It’s social currency. It’s a way of extending influence. It’s networking. And that’s true for financial advisors as well. If we can learn why people give referrals, we can build a system to enhance that natural process.

When I was building my consulting practice, I found a couple of reports that started me in this new direction. One was the brilliant work of Julie Littlechild, whose latest report is “Anatomy of a Referral.” Another person whose findings inform my own work is Scott Degrafenreid, who studied referral behavior through social network analysis. And here’s what it comes down to: People refer because it increases their standing in the eyes of their peers. When they are helpful, other people esteem them.

One of the eye-opening things for me was Julie’s question, “What were the circumstances of the last referral you gave your advisor?” Over half the people said, “Because a friend asked for one.” Almost half of them said, “Because a friend described a financial challenge.” The number of people who said, “Because my advisor asked” was 2%. That’s statistically insignificant!

So if we can create a scenario where passing our name along to somebody else solves a problem, then our clients get all those rewards and they will refer.

How do you create that scenario? It starts with the concept of target marketing. You need to identify your ideal client.

OM: Aren’t many advisors already doing target marketing?

SW: In a way, but the approach is too shallow and often doesn’t even use the right criteria. For example, advisors may say they specialize in people who have over $1 million in assets. There’s little or nothing meaningful you can say about those people as a group.

On top of that, I, as a prospective client, don’t define myself by my bank balance. I’m a lot of things: I’m a dad, a cook, a dancer. I don’t think of myself as a guy who has $1 million in investable assets. To use that as your target market criteria is equivalent to a doctor who says, “I’m a specialist in people who have really generous health insurance.” It’s another way of saying, “I work for people who can afford me.” True target or niche marketing focuses on a group of people with shared values or needs.

Even when we try to get specific, our definitions may still be way too broad. One advisor I coached told me, “I target women.” Well, I defy you to say anything meaningful that applies equally well to my 18-year-old daughter, a 35-year-old corporate executive, and an 87-year-old widow. They’re all women, but they have dramatically different needs and wants.

When we took a look at his client base, we realized that he really specialized in women who have recently taken control of the family finances, or are just about to, because their husbands either had Alzheimer’s or had recently passed away. That group of women had specific and consistent social needs, as well as financial needs. So he tailored his practice to make sure he could line up appropriate resources to serve these women well. For example, we put together teas and coffees where they could come together and support each other. In essence, we built a community. That’s outside of the financial advice that his firm offers, but it’s deeply meaningful to these clients, and it really sets this advisor apart. True differentiation often involves something that may not traditionally be associated with a financial advisor.

If you’re not sure you have a good definition of a target market, it can be useful to fill in this sentence: “People like _____ come to me for _____.” From there, you can begin elaborating to differentiate yourself.

OM: What about advisors who like to work with a variety of different audiences?

SW: Having multiple well-defined targets is better than not having any well-defined niches at all, but trying to do more than one thing will dilute your brand and will compromise your referrability. You need to own a spot on the client’s brain. That means becoming so closely associated with a particular solution or experience that anytime someone hears it described, they instantly think of you.