Note: This is the first of two articles about the untapped opportunity for high-quality referrals from trust and estate lawyers and the way in which financial advisors can leverage that opportunity.
There are, as we all know, two principal ways to get new affluent clients: through referrals from current clients and through "centers of influence"-other advisors to the affluent. Because of their anguish over the state of the market and their equity portfolios, relatively few clients are handing out referrals these days. In too many cases, they're more likely to be shopping around for a new financial advisor. That leaves fellow advisors as the best bet for new business. But when it comes to those other advisors, recent research that we've conducted shows that one of the best sources for reliable referrals-trust and estate lawyers-is also one of the most overlooked.
Financial advisors have targeted accountants as a prime source for referrals, and with good reason. Accountants have an ongoing relationship with their clients and they have proven to be influential when it comes to delivering referrals. They also are receptive to being approached by financial advisors. One reason is they have been positioning themselves as a conduit for other services with their affluent clients. Another is they themselves are offering financial advisory products and services and often need to partner with financial advisors and financial services firms that can deliver those products and services.
Both sides of the accountant/advisor relationship also reflect the broader move to wealth management, where advisors want to be able to deliver their clients the full menu of products and services. In the context of wealth management, the accountant is just as important a resource to the financial advisor as the advisor is to the accountant because together they can offer their clients a comprehensive financial solution.
A Well-Worked Center Of Influence
While accountants are a valuable source of referrals, the word is long since out, and it's the rare accountant who has not been approached by an financial advisor looking to team up.
Our research shows that is far from the case with trust and estate lawyers, however. In fact, in our national survey of trust and estate lawyers, we found that three of four had not been approached by financial advisors in the previous 12 months (see Exhibit 1).
There are a number of explanations for this. Financial advisors are busy enough as it is, and may not even be thinking of trust and estate lawyers as fertile ground for referrals. They may be concentrating their efforts on accountants. Or it may simply be a question of timing; as we shall see, trust and estate lawyers are far less frequently in the position to offer referrals than accountants. But when they do make referrals, they stick.
A Missed Opportunity-So Far
Not surprisingly, the same trust and estate lawyers had made very few referrals to financial advisors-less than one for every 10 clients (Exhibit 2). This is very much a missed opportunity because those clients had an average of $2.7 million in investable assets. Since financial advisors generally charge an annual fee of about 1% to manage investable assets, that means that each of these clients is worth an average of $27,000 a year to the financial advisor-and most financial advisors have well over a hundred clients. Adding one or two would help any advisor's bottom line.
When we further segmented the trust and estate lawyers based on their business model, we found that those who had the wealthiest clients (an average of $8.1 million in investable assets) were also those most likely to provide a referral, making 2.1 referrals for every 10 clients. It's also important to note that for most trust and estate lawyers, these referrals are being made without any reward other than episodic reciprocal referrals.
This is not to say that everyone has ignored the opportunity, of course. U.S. Trust has made a concentrated-and successful-effort to generate referrals from trust and estate lawyers. But with three-quarters of the field still unapproached, clearly there is still plenty of potential.
Referrals That Matter
Referrals aren't of much use if they're ignored, however. But our research also showed that when trusts and estates lawyers do make referrals, they're accepted by the clients nearly three-quarters of the time (Exhibit 3). That's quite a testimony to the strength of their relationship with their clients.
Again, the referrals made by that segment of trust and estate lawyers that is most successful, the ones whose clients had $8.1 million in investable assets, were most likely to be accepted (at a rate of 89.2%). Importantly, this group was also most active in wanting to make referrals, with better than two-thirds saying they were seeking good financial advisors with whom to partner.
A Matter of Timing-And Intimacy
In fact, the nature of the relationship between trust and estate lawyers and their wealthy clients is very different from that between accountants and their clients, and that difference has a lot to do with the frequency with which clients act on the referrals made by the former.
With accountants, most affluent clients have a series of regular interactions over the course of a relationship that may last for years or even decades. As a result, there are a lot of chances for those accountants to talk with their clients about investing in general and financial advisors in particular.
The situation is quite different for trust and estate lawyers, who have a far narrower window of opportunity-the occasion of setting up a trust or writing a will. But while that opportunity is far less frequent, it is also very intimate. When setting up a trust or writing a will, affluent clients are at their most introspective. They are thinking about their family, their legacy, and their own mortality. They are involved, and as our research shows, they are receptive to advice and referrals.
In sum, at a time when high-net-worth referrals are increasingly hard to come by, trust and estate lawyers have a roster of affluent clients who may be excellent prospects for financial advisors. Those lawyers are open to being approached by financial advisors, and because of the intimate relationship between trust and estate lawyers and their clients, financial advisors who get referrals from them usually get the business as well. Finally, as a referral resource, trust and estate lawyers are largely untapped. The next question then is: How do financial advisors find and connect with trust and estate lawyers?
Hannah Shaw Grove is managing director and chief marketing officer of Merrill Lynch Investment Managers. Russ Alan Prince is president of the consulting firm Prince & Associates.