Other professionals need a number of reasons to refer their affluent clients to you. They have to strongly believe that you’re going to do an exceptional job for these people. And they have to be confident in your abilities and commitment, since their own important relationships with these individuals are on the line. Other professionals also have to “connect” with you. There has to be chemistry.

Yet these strengths alone are not enough. A lot of financial advisors have them. So for other professionals to refer clients to you, they need financial incentives as well.

There are two types. Direct financial incentives generate revenues for the other professional immediately. Indirect incentives are “business building” and are more powerful long-term motivators. You’ll get the best results when you combine the two.

Direct Financial Incentives
There are a number of ways financial advisors can provide direct incentives. The three most pervasive are:

• Trading affluent clients. As it turns out, while appealing, this approach is the most ineffective long-term way to build a greater affluent clientele.

• Sharing your revenues. One of the very best ways to motivate people is to give them a percentage of the monies you generate providing your expertise.

• Paying introduction fees. While these fees are not tied tightly to revenues, the idea is that you pay the referring professional a fee for connecting you with an affluent client.

Direct financial incentives are quite powerful. They clearly and unquestionably help other professionals achieve their own financial goals. But the difficulty is in execution. Most advisors’ attempts to use direct financial incentives prove to have limited effectiveness.

In a survey, we found that trading affluent clients had been the most effective form of direct financial incentive over the previous 12 months. (Using a number of criteria, we developed a scale going from “1,” not at all effective, to “10,” extremely effective.)




However, based on previous research, over time trading clients often quickly loses its effectiveness.

While it’s important to consider these direct incentives, they are often not enough.

 

Indirect Financial Incentives
Sometimes you can, instead, add value beyond an existing array of services. Indirect incentives are an interesting area, allowing other professionals and centers of influence to easily and effectively discriminate among you. But while some advisors are very good in developing and delivering indirect financial incentives, most fall woefully short.

Three critical areas where you can provide indirect financial incentives are:

Insights into the world of the affluent. If you can provide actionable insights to people, you’re using information as currency. This approach is especially viable when you’re positioning yourself as a thought leader. That means you are able to:

• Elucidate the key concerns of the affluent.

• Describe the changing investment preferences of the wealthy.

• Explain the nature, advantages and drawbacks of family offices.

Practice management. It’s very appealing to people if you can tell them how to improve their practice models. There’s a plethora of possibilities:

• You can tell them how to duplicate the best practices of their peers.

• You can help them become street-smart networkers.

You can show them how to improve their compensation structures or how to adopt alternative compensation arrangements such as value-based fees.
Business development. Another way to add value is to provide marketing ideas and support.

• You can deliver learning products that other professionals can, in turn, deliver to their affluent clients.

• You can develop joint-promotional projects.

 

Sourcing Indirect Financial Incentives
Indirect incentives differentiate you from other professionals and forge stronger bonds without necessarily sapping your revenues. But most financial advisors find it arduous and challenging coming up with viable indirect incentives (Exhibit 2).


We readily recognize the difficulties involved. Our answer is that, for many advisors, the answer isn’t to create something totally new of value but to do something better. In other words, deft and clever imitation of others is better than innovation. The simplest approach is to scan your own professional environment to see what resources are available to you and then slightly “repackage” or “repurpose” content for particular people by expanding the breadth of the material, by making it more usable or by making it easier to understand.

Implications
With competition for the affluent so intense, financial advisors are recognizing the business development opportunities in cultivating relationships with other professionals. But successfully getting new wealthy client introductions from other professionals means more than being good at what you do and having chemistry with these professionals.

Direct incentives (like trading clients) are always attractive, but there are lots of inherent complications. Thus, advisors would be wise to focus on delivering indirect incentives. Even if you don’t believe yourself capable of that, the reality is that it isn’t all that difficult to do. A critical benefit is that they are highly effective in differentiating you.

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.