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How to Succeed at Referrals (Without Even Asking)

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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.

To get consistent, ongoing referrals, you need to be the person who presents a particular solution or gives a particular experience.

OM: But doesn’t the advisor need to control the process of getting referrals? Isn’t letting clients refer when the opportunity arises just leaving the whole thing to chance?

SW: This is one of the big misunderstandings about referring. We feel we have to “hunt” our prey—stalk it, shoot it and drag it home to eat it. The problem, especially in our business, is how does the prey feel about all this?

I like to think that generating referrals is more like farming. The farmer prepares the soil, plants the seeds and nurtures the field. He doesn’t obsess over every seed. Some aren’t going to come up. But if he takes care of that field, he’ll have a nice big crop.

OM: What can advisors do if a client refers a prospect who is outside their target market?

SW: A lot of advisors think that if their best client sends them a referral, they have to take it. Actually, they don’t. They do, however, have to honor the referral by sending the prospect to the best possible person to meet their needs.

So when you realize that this person doesn’t fit your target, you say, “People like _____ come to me for _____. But that doesn’t describe you, so I don’t think we would be a very good match. But I know a lot of very good advisors in our area. Let me come up with the names of a couple of people who would be best at helping you.”

Then you call your client and say, “Thank you for sending me your friend. What we specialize in is people like _____ who come to us for _____. That’s not what your friend needed, so we set him up with a few people we trust who are a better match for him.”

You’ve accomplished a couple of things there. You told somebody new your value proposition. You also reinforced that value proposition with your client, and you’ve taken more ownership of that spot on his brain. So next time he refers, it’s a little more likely that he’ll send you the person you’re looking for.

OM: How can an advisor use these ideas to cultivate centers of influence?

SW: The key is to become known for a particular experience or solution and to use that when you communicate to centers of influence such as accountants, attorneys, estate planners.

One good way of approaching it is not to ask for referrals, but to ask who you can introduce to them. You might say: “People like _____ come to me for _____. Doing that work, I routinely get requests about accountants. Could you tell me who your ideal client is, so when someone asks, I can understand who to refer to you?” Since you’re looking to help them, it’s easy to get permission to talk about what you do and what you offer.

OM: What goes into a referral marketing plan?

SW: Step by step, it’s choosing a target market that is described clearly; asking your clients whether they see these targets as the kind of people you help and what they think you do that is really valuable; tailoring your service mix to the needs of the target client; and then developing a communication plan to promote that identity.

OM: How do you recommend promoting an identity?

SW: The message about who you are and what you do should be in every communication that comes out of your practice. It should be in conversations you have with your clients, the way your staff describes your business, in your brochure, on your website. It should be what you blog about. It should be what your presentations are centered around. Everything you do publicly should reinforce the solution or experience you deliver.

OM: What do you hope to accomplish with your work?

SW: Of course we want to help advisors be more successful. Beyond that, focusing a practice like this means clients get better outcomes.

Financial planning was originally born from “Who is my client, and what are his needs?” I think “What do I specialize in?” is the next step in sophistication. By becoming a specialist in a particular client or situation, we give better, richer advice. The client is better off; the advisor is more successful.


Olivia Mellan, a speaker, coach and business consultant, is the author with Sherrie Christie of The Client Connection: How Advisors Can Build Bridges That Last, available through the Investment Advisor Bookstore. She also offers money psychology teleclasses and facititates intregenerational retreats for wealthy families. Email Olivia at [email protected]