It’s the industry’s dirty little secret. Almost 90% of advisors did not ask for one referral last year—even though they say that they did. Consultant Scott West has a name for it: the “giant liar’s box.”
“There’s not a branch manager out there that’s not pounding on his people to get referrals. And no one’s doing it,” observes West, managing director of Chicago-based Invesco Consulting. “Yet it’s never been more important.”
Most major firms, hoping to ramp up net new client growth, are giving bonuses to advisors who bring in big assets. One broker-dealer this summer even ran what amounts to a sweepstakes, offering a deluxe vacation to the client who produced the most valuable referrals.
And still advisors cringe at the R-word.
“A lot of it is fear of rejection. They’re afraid, basically. It’s a lack of confidence,” says Bill Cates, who heads Referral Coach in Laurel, Md. His new book, Beyond Referrals, was published in April. “They don’t want to look pushy or seem needy. They’re afraid of looking salesy, and for good reason. Referrals are borrowed trust.”
Invesco, with partner Prince & Associates, recently researched the three most common proactive referral strategies used by advisors: the free offer, obligation and the promise of exclusivity. As Invesco Consulting director Brett Van Bortel puts it: “There are, literally, hundreds of consultants on this subject and thousands of different approaches with slight variations. When you get under the hood, you discover they are virtually identical with modest variations in the verbiage they use.”
With the free offer, an advisor tells a client that he will provide a free financial plan, for example, to anyone the client refers. The Invesco/Prince study showed that while the free offer approach doesn’t damage the advisor-client relationship, it does damage the advisor’s value proposition. “You’re my client and you pay for the plan but your friend gets it for free,” says Van Bortel. “It doesn’t wash.”
The other two approaches, according to the study, did actually damage the relationship. In the case of obligation, the advisor basically says: “I’ve done something for you, now you do something for me.” In appealing to exclusivity, an advisor might say: “Do you have any other friends or colleagues at the level my practice is designed to serve? Can you make an introduction?”
Van Bortel calls the three approaches “very car lot like—uncomfortable for the advisor and for the client,” yet these are the strategies that advisors have been trained on. Earlier this year, Invesco launched a program called “Preferrals,” a framework originated by Tim Ursiny, CEO of Advantage Coaching & Training in West Chicago, Ill., and refined by Invesco.
With Preferrals, there’s no one-size-fits-all script but, rather, a personal appeal that emphasizes an individual advisor’s genuine thoughts, feelings and concerns. Ursiny said one advisor he coached recently got two referrals, one worth $10 million and the other $30 million, the first time she used it. “Advisors get so tied up in learning a specific script. I don’t think you can use someone else’s script or you’ll never be you,” he said. “You’ll never come across as authentic.”