If 90% of Clients Are Satisfied, Why Do Only 35% Make Referrals?

Nine in 10 clients say they are inclined to continue working with their current financial advisors, according to a survey released Thursday by Absolute Engagement. 

At the same time, the survey, which was developed in conjunction with the Investments & Wealth Institute, found often-overlooked opportunities for advisors to bridge the gap between client sentiment and the level of service their clients receive. The survey found that only 35% of clients make referrals.

“Traditional metrics have been the cornerstone of advisor performance evaluation for decades, but they are based on lagging indicators,” Julie Littlechild, Absolute Engagement’s founder and chief executive, said in a statement.

“To deepen relationships and improve advice engagement, our industry must prioritize understanding and supporting client needs as the true measure of success. Advisors who prioritize supporting clients’ life goals, not just financial goals, are poised to thrive in the coming decade.” 

Researchers collected investor data between April 20 and May 1 from 1,000 respondents, all of whom work with a financial advisor, meet specific household investable asset thresholds and have some involvement in financial decision making.

A Warning Light

The survey findings identified key factors that clients deem important, but which receive lower performance ratings. 

Eighty-two percent of respondents said feeling financially secure was very important to them, but only 52% strongly agreed that they were indeed financially secure.

Similarly, although three-quarters of respondents said feeling in control when it comes to reaching their financial goals was very important, just half strongly agreed that they actually were in control.

And 74% of clients stressed the importance of confidence in reaching their financial goals, yet just 53% said they are confident they will do so.

Absolute Engagement’s proprietary Self-Confidence Index, which is integral to its annual survey, provides the industry and individual advisors with a snapshot of how clients are feeling about their financial future and where they may need support. 

The survey found that 31% of clients currently have low to moderate confidence, in large part influenced by market performance and concerns about risk. 

Focus Beyond Finances

Advisors who focus on boosting client confidence can boost traditional metrics and increase client satisfaction, according to the survey. “Client self-confidence is an insidious form of risk because it is tied to satisfaction, loyalty and Net Promoter Score,” a measure of how likely clients are to make referrals, Littlechild said.

Advisors can bolster client confidence, satisfaction, loyalty and NPS by extending their focus beyond finances. Notably, 43% of clients said gaining a clear vision for the life they want in retirement is the greatest benefit of working with an advisor. 

However, only about half of clients said that their advisor has helped them strategize or plan for non-financial goals, such as health, fulfillment after leaving the workforce, quality time with family and friends or new experiences.  

“The research makes it clear that the advisors will need to deliver an experience that goes beyond providing good — or even great — service,” Tim Whiting, chief revenue officer for the Investments & Wealth Institute, said in the statement. 

“We believe that means getting inside the heads of clients to understand their true needs, delivering the services that respond to those needs and securing the certifications and designations to do so credibly.”

Who Gives Referrals?

Absolute Engagement noted that consistent with its previous surveys, the latest one indicates a considerable gap between the 93% of clients who are satisfied with their advisor and the 35% who take the additional step of referring their advisor to other potential clients. 

Age and financial acumen appear to play a role in driving referrals, according to the survey, with younger clients and those with higher financial literacy more likely to recommend their advisors. Further, clients who are inclined to express their concerns to their advisors tend to make more referrals, underscoring the importance of deepening relationships to reveal client worries. 

“While 35% is a very high number, the reality is that advisors typically report receiving referrals from fewer than 5% of their clients,” Littlechild said. “This highlights another gap and an opportunity to translate referrals into introductions.”

Pictured: Julie Littlechild