Client referrals are a financial advisor's lifeblood, but why do so many advisors do a poor job in getting them? The answer, it seems, is that they don't really work at it.
"When you think about what a referral really is and how it can work, you'll understand why it's more complicated than it appears," Julie Littlechild, president of Advisor Impact, told a packed session Friday morning during the final day of the Schwab Impact conference in Boston.
Advisors can't assume that just because their clients like them and think they're doing a good job, that the clients will tell their friends about them. And it's not enough to ask the "R" word in client surveys.
Littlechild, an industry researcher and consultant, said it's not the job of the client to know if their friends or family meet the standards set by the advisor, Littlechild said.
Instead, advisors need to create a process for communicating to their clients what the firm's ideal client is in terms of financial minimums and customer relationships.
"This will increase the odds of getting a new client," she said.
The foundation for referrals, of course, comes from customer satisfaction. "It's not just focusing on the numbers, but on lives," Littlechild said.
According to industry research, 77% of clients said they'd give their advisor a satisfaction rating of at least eight out of ten, and that 93% of clients are somewhat or extremely likely to keep working with their advisor.
In that vein, 91% of clients said they're comfortable providing a referral to their advisor, but only 29% of clients provided a referral. From that, just 4% of new clients came from referrals.
To create conditions for more referrals, Littlechild suggests putting together a referral checklist consisting of the following: