Additionally, very few advisors evaluate their own results and use the insights to operate more effectively. Three-quarters of advisors perceive client referrals as the most important method of building their business, but a recent survey conducted on behalf of Forbes found that advisors attribute 88% of their 2009-2010 business to professional referrals or joint ventures and just 12% to client referrals (Figure 2). This disconnect between perception and reality probably means that a significant majority of advisors are putting their energy into prospecting activities that don't deliver the results they desire.
Finally, not enough effort is spent on selecting and cultivating professionals as referral sources. Too many advisors have low standards (or worse, no standards) for their referral sources. They don't bother to learn about each professional's business, clientele or objectives to determine if they fit well with their own goals, and instead drop off stacks of business cards and brochures at accounting and law firms hoping they will be at the top of the list the next time an opportunity surfaces. Any professional with a robust high-net-worth business knows that referring his clients to other professionals for specific services is both an implied endorsement and a form of currency. They should, at a minimum, receive more attentive service and cooperative marketing support from the recipient of the referral, but very few get anything more than a "thank you" note.
What's Changing?
On the heels of consolidation in the financial services sector and only finite opportunities to increase business from an existing customer base, there is mounting recognition among wealth management firms that future growth must come from new relationships. As a result, most firms are taking a closer look at their client acquisition activities. We have observed a shift in thinking from "Can we win the business?" to "What business do we want?" This demonstrates a more proactive and selective approach that forces organizations to be clear about their target client sectors and more thoughtful in the allocation of key resources.
This focus has also helped spotlight the central role of referrals in reaching high-value clients and set in motion a mission to understand the process and to make it more systematic and reliable for a broader cross-section of practitioners. This new mindset is still more of a theory than a reality, but it signals a desire to be strategic in tackling the growth conundrum and a willingness to try new approaches to create a sustained pipeline of new business, irrespective of macro-economic conditions or investment performance.
Wealthy clients are also becoming more selective and prudent in their review of professional services firms, demanding greater transparency and evidence of ethical business standards. Most affluent prospects will attempt to qualify a potential provider by triangulating with someone in their own personal or professional network.
The Critical Component
The more you know about someone, the more likely it is that you can connect with him or her on a level (or through a third party) that inspires trust and confidence. Until recently, most advisors gathered information about their clients through conversations, questionnaires, profiling tools or online searches. While these methods work and can yield important insights, they will not be sufficient as competition accelerates for the ultra-affluent. In truth, the financial elite are more discerning and less accessible than most and it will often take something more to win their business.
Possessing the best and most detailed intelligence about prospects and clients is an exceptional advantage for any advisor, but people have a tendency to underestimate the value of data because it is an intangible commodity and one that, in many cases, can be acquired for free. We believe wealth managers and multifamily offices need to expand their specialist networks to include researchers who can help them profile potential clients-the same way they collaborate with estate planning attorneys or private security specialists.
Proactive Profiling
In Private Wealth, we have long espoused the importance of holistic client profiling. More recently, leading practitioners are expanding on the concept and seeking specifics in such areas as sources of wealth, family members, business associates, philanthropic involvement, passions and hobbies, board and club memberships and political affiliation in an effort to gauge how well a particular individual fits with them, their capabilities and their business models. On the whole, this type of intelligence can increase the efficiency of any new business development efforts.
Once you've identified an ideal prospect, those same facts can help you find and interact with the person at the highest level. Such a profile can reveal that you share common interests or activities-say you both have twin girls or you both worked on Reagan's first presidential campaign-and connecting the dots for them can often produce enough comfort and trust to warrant a conversation. Detailed profiles can also help you identify ways to reach the prospect-perhaps she sits on a board with your college roommate's father-in-law. Having a fact-based foundation enables you to initiate more meaningful and consultative interactions with your constituents, spot avenues of access that might otherwise have been hidden and earn business through preparation and focus.
The same is true when working with extended family units. The faster you grasp their unique issues, the more efficiently you can direct them toward the right solution. For instance, if you know that two siblings are suing each other, you might choose to bring a family dynamics counselor to the meeting. If you can use specifics to artfully match their business concerns to the capabilities of your firm-or a passion for kite surfing to that of a colleague-you significantly increase your appeal to these high-end prospects.
Historically, the bulk of work done on behalf of a client came after the sale had closed, but times are changing and more than ever we see a direct correlation between the profitability potential of a relationship and how much advance work will be required. Sadly, many advisors remain reluctant to put in the time to construct such a dossier during the prospecting stage, choosing to delay any extra effort or expenditure until the business has been secured. All too often this decision is the difference between winning the business and losing it to a more ambitious and well-prepared competitor.
Moving Forward
As more providers flock to the high end of the market, the old referral model is not sustainable and practitioners that want to flourish will need to go beyond the traditional referral approach. Without question, it will require more upfront strategic work, rather than relying on serendipity to achieve organic growth, and an understanding of how to leverage client-specific insights in ways that are accretive to planning and prospecting. An informed advisor who arrives with pointed questions will garner the most trust, respect and new business.
David Friedman is co-founder and executive vice president of strategy for Wealth-X, a global provider of ultra-high-net-worth intelligence to multifamily offices, private banks, luxury brands and non-profits. More information can be found at www.wealthx.com.