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Financial Planning > Behavioral Finance

Forget Asking for Referrals, Occupy Your Client’s Brain

By Gil Weinreich

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One of the big misconceptions in the advisory business is that clients refer new business because the advisor asks for the referral.

“But that’s not it at all,” says Stephen Wershing, author of “Stop Asking for Referrals,” newly released by McGraw-Hill. “As social beings we refer all the time, but we don’t appreciate [them] so we attempt to hijack the process for our purpose.”

Wershing, a CFP and former financial advisor and now principal of the financial advisor-oriented consulting firm The Client Driven Practice, cites social network research by Scott DeGraffenreid suggesting a more personal motive for referrals.

“We refer because it increases our esteem in the eyes of our peers,” Wershing told AdvisorOne in an interview. “We do it because we like to be the answer guy. It’s social currency. It expands our networking.”

While it is true that referrals are key to business expansion, asking for them is ineffective because it is not likely you’re asking precisely when the client’s friend is in need of your services. The better approach, Wershing says, is to prepare your clients for the opportunity to refer by taking up residence in the client’s brain.

“First, understand who your ideal client is—and we tend not to do that well. Second, satisfy a need that makes you different from the rest of the advisor population. When the client’s friend describes that problem that you solve, you’ll come to mind.

“It’s almost Pavlovian—you become the answer to the Ghostbusters’ question: ‘who you gonna call?’”

Finding that differentiation is one of the biggest challenges advisors face. Spending as much time as he does with advisors, Wershing says it’s impossible not to notice that most tend to give the same pitch. But if they specialize in say, helping corporate executives diversify a portfolio of concentrated illiquid securities, then by solving that problem they’ve earned the right to solve all of the client’s other problems.

It needn’t be a strictly financial problem that the advisor solves. The advisor can be an expert in grief issues that new widows face. Wershing cites an advisor whose website is a comprehensive resource for the financial, legal and emotional issues surrounding divorce. After a client seeks that planner’s help with a divorce, initially, the planner has earned the right to address the client’s other issues.

Perhaps the best, and often overlooked, way to discover the unique value an advisor provides to clients is through client advisory groups.

“We think all the financial stuff we do is important to clients. But it might be the kind of experience we provide to them. They might choose one advisor over another purely for service reasons because they assume the technical expertise [advisors provide] is all the same,” Wershing says.

“If you ask people what’s the most valuable service you provide, I promise you they won’t say rate of return,” Wershing adds. “Even if advisors have a good idea of what’s important to clients, it’s good to get it in their words. We tend to talk in jargon. If somebody asks, ‘Why should I hire you?’ it can be very powerful to say ‘Let me tell you what our clients say about us.’

With the feedback from a client advisory group, you can avoid making the same jargon-based pitches—“We follow a bottom-up approach that generates high alpha…”—that his competitors are making, answering instead that you invite meaningful client participation by inviting the whole family into the planning process, or whatever it is that distinguishes your service.

Vital to discovering your firm’s strengths is to have an experienced facilitator conducting your client advisory group meetings, which Wershing recommends take place two to three times a year.

If the clients like the firm’s great service, the facilitator will probe further to find out what constitutes great service: always calling back within 24 hours or providing a bottle of Perrier every time the client comes in the office.  Once you learn your strengths, you begin to be able to say things to prospective clients that differentiate you from competitors.

Many advisors brag about their great team, Wershing says. “But it’s not your people,” he says. “It’s what your people do.” If you can identify that, you can replicate it, and then if a trained member of your team leaves, his or her successor can be trained to do it too.

The facilitator can get meaningful answers by drilling down to significant details and, importantly, by being able to ask questions the advisor cannot. An advisor can’t ask his biggest client to shut up, for example, and there are questions that – if a facilitator asks – are seen as seeking information which, if asked by the advisor, can be seen as selling, Wershing says.

Thusly armed with vital feedback about the advisor’s key value to clients, the advisor’s task becomes one of creating a “learning plan to develop the expertise to solve the special problems that those clients have and then a communication plan to tell the world about it,” Wershing says.

While Wershing’s book advises advisors to stop asking for referrals, he says that doesn’t mean stop talking about referrals. The book provides advice on how to engage clients in conversation that can stimulate referrals, and explains how a “bad” referral can be a good opportunity to “own a spot in the client’s brain” (all the while not taking a client who is outside of your target market).

“You have to honor the referral, but you don’t have to take it,” he says. Rather, you train both the client and prospect what kind of problems you solve, while making a valued referral to the prospect you don’t take as a client.

Financial advisors are uniquely positioned to own a spot in the client’s brain, Wershing concludes, by virtue of the sensitive subject they help clients with.

“People would sooner talk about sex than they would talk about their money,” Wershing says. “People’s portfolios are in their hands; this is an important relationship for them.”

“The clients vaguely relate their advisor’s success with their own success,” he says. “They believe their advisor needs to do well.”

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