Effectively cultivating centers of influence is the most profitable way to build a significant book of new clients—especially affluent new clients. For example, the revenue differential between a referral from a center of influence and a client is about 20 to 1 or better over the financial advisor’s relationship with the client.
Although there’s little doubt about the business-building power of cultivating centers of influence, most financial advisors have had limited success doing so. The following are three interrelated major missteps:
• Not acting as if the center of influence is the client.
• Failing to develop formal action plans for each center of influence relationship.
• Not delivering meaningful value-added to each center of influence.
Let’s take a closer look at each of these missteps.
Not Acting As If The Center Of Influence Is The Client
When we ask financial advisors working to cultivate centers of influence, “Who is the client?” aside from identifying the referral made by the center of influence, nine out of 10 of them also cite the center of influence as being the client (Figure 1). This commonly held perspective is right on target. The center of influence needs to be treated and worked with as a client in the sense you need to understand them, be responsive and add value.
Figure 1: The Center Of Influence Is The Client
Yes 91.4%
No 3.3%
Unsure 5.3%
N = 549 financial advisors
The complication is that while financial advisors recognize and talk about the center of influence being the client, in many ways they don’t act that way. For example, while all the financial advisors reported having files on each of their affluent clients, only about a sixth of the financial advisors said they had files on their centers of influence (Figure 2).
Figure 2: Have Files
• On their affluent clients 100.0%
• On their identified centers of influence 12.9%
N = 549 financial advisors
More telling is that we asked the financial advisors a series of questions about their top affluent clients and their top centers of influence. All we wanted to know is if they believed they knew the answer to the questions, not what the answers were. We then converted their responses into a summary score where TEN is extremely knowledgeable and ONE is not knowledgeable at all. While the financial advisors tended to be very familiar with their affluent clients, they strongly tended to not be very familiar with the centers of influence they were focused on (Figure 3).
Figure 3: Detailed Knowledge
On their affluent clients 7.9
On their identified centers of influence 1.8
N = 549 financial advisors
While it’s easy and correct to say that the center of influence is the client, a large majority of financial advisors are clearly not taking the actions to deal with them as clients. Failing to do so is a misstep that will quickly derail any effort to cultivate them.
Failing To Develop Formal Action Plans For Each Center Of Influence Relationship
In a variety of situations, winging it is not uncommon in the financial advisory industry. This is commonly the case when it comes to cultivating centers of influence. While about a third of the financial advisors surveyed have a formal plan for approaching this endeavor, very few are creating customized action plans for each of the centers of influence they’re cultivating (Figure 4).
Figure 4: Have Formal Plans
For cultivating centers of influence 35.3%
For each center of influence 4.2%
N = 549 financial advisors
Formal plans are especially effective in helping financial advisors stay focused and motivated. One component of these plans should probably be a specification of the anticipated number of new clients from centers of influence. When we asked the financial advisors who did have a plan for cultivating centers of influence, fewer than 5% had a goal number of new clients (Figure 5). More informative was that about half didn’t know, 30% said “a lot” of new clients and slightly more than a sixth said “some” new clients. These latter objectives don’t translate into effective plans and actions.
Figure 5: Target Number Of New Clients Expected
A lot 30.4%
Some 14.4%
Don’t know 52.1%
Goal number 3.1%
N = 194 financial advisors
What is generally required to succeed in sourcing high-caliber new clients from centers of influence is individuated formal plans per center of influence. These plans should, most likely, include detailed goals and objectives coupled with the activities that will produce those results. A lack of action plans is another misstep that can easily derail an effort to cultivate centers of influence.
Not Delivering Meaningful Value-Added To Each Center Of Influence
Part of the formal action plan entails identifying and delivering real value to each individual center of influence. Delivering meaningful value to centers of influence goes way beyond being able to do a good job for their clients, as there are many financial advisors who can probably do a good job for their clients.
What’s therefore important is to be able to ascertain for each center of influence what value-added they most desire. However, only about a fifth of financial advisors are making the concerted effort required to determine what the centers of influence they’re focused on define as meaningful value-added (Figure 6).
Figure 6: Determined The Nature Of The Value-Added Desired By Each Center Of Influence
Yes 19.3%
No 80.7%
N = 549 financial advisors
Even among these comparatively few financial advisors who report determining the value-added appropriate for each center of influence, slightly more than a quarter are delivering the value-added (Figure 7). There are two main reasons for this. One is an inability to deliver what the centers of influence want. Second is just not doing so because of the resources required. Either way, the result is going to be very weak relationships with centers of influence, and thus few new clients.
Figure 7: Delivering Value-Added To The Relationship
Yes 26.4%
No 73.6%
N = 106 financial advisors
Value-added is the differentiator that regularly motivates a center of influence to open up his or her book of clients to a financial advisor. When financial advisors fail to understand and concentrate a portion of their efforts on determining and delivering value-added to centers of influence, it’s a misstep, and the train won’t derail because it won’t even be leaving the station.
Implication
While centers of influence are, for the most part, the most formidable way to source new clients, it’s evident that most financial advisors are not taking the proper steps to get significant results. The three missteps noted here can easily disrupt any efforts to motivate centers of influence to refer their clients.
What’s necessary to create a flood of new affluent clients is a systematic framework where the centers of influence are center stage. Moreover, for financial advisors to get significant results requires a lot of hard work.
Russ Alan Prince is president of R.A. Prince & Associates Inc. and Executive Director of Private Wealth magazine.
Brett Van Bortel is Director of Consulting Services for Invesco Consulting, the sales consulting group within Invesco Distributions Inc. The opinions expressed are those of Russ Alan Prince and Brett Van Bortel, and are based on current market conditions and subject to change without notice. These opinions may differ from those of other Invesco investment professionals.