The problem with many advisory firms is that they don’t provide much of a story. What story does it tell somebody if you say you have worked with me and my financial advisory firm? Many years ago, Kaycee Krysty, at the time CEO of Laird Norton Tyee in Seattle, told me that she wanted her firm to be “like this best-kept-secret restaurant that you only tell your good friends about because you don’t want it to get too crowded.” That is exactly the kind of image that would drive referrals, but unfortunately for many firms, the experience and image they create are too sterile and don’t tell a story. The stories are there, but they need to be discovered, articulated and expressed. Unfortunately, most firms just give up too easily or try to “outsource” the story-writing. Someone else can write your bio, but they can’t live your life.

Recruiting Referrals—Joining A Community
The “best kept” secret strategy speaks of another opportunity as well. We all tend to “recruit” worthwhile people to the communities we belong to—truly belong to. If we derive a sense of belonging from a study group, we will tell people we meet about it. If we are part of a running club, we tell a select few others about it. Even if we start a baking group, we will try to get our friends to make quiches with us.

The more a firm is seen as a community, the more likely it is to engage in this kind of recruiting. A firm can do that by carefully targeting already established communities, with clear identities. Take, for example, Christopher Street Financial and its focus on gay and lesbian clients. Alternatively, you can focus on a specialized industry. RAA Advisors in Dallas works with the airline community. It’s even enough for a firm to serve one geographic location if the area is compact and defined enough and if the firm’s clients identify with it. My friend Pat Barrett in the little town of Anacortes, Wash., says that he has a “love affair with the local community.” Community building is a very powerful driver of referrals. But you cannot and should not fake belonging to a community. It has to be genuine.

How Many Referrals Are Enough?
So referrals are vital, but how many can you get and what is the benchmark for doing a good job? My recommendation has been that firms target 10 referrals a year for every 100 clients they work with. But the data suggests advisors aren’t there: On average, advisory firms generate three new relationships from referrals for every 100 clients (4.5%). Perhaps not every referral turns into a client, but if you think about it intuitively, the closing rate of referrals should actually be much higher than the industry standard closing rate on prospects, which is 67%.

How To Create More Referrals
The answer is clearly not to ask for them. Stephen Wershing makes that clear in his book Stop Asking for Referrals. The same is evident in Littlechild’s research; she finds that only 5% of referrals come by asking for them.

So let’s look at our strategies again:

• Get your clients to a very high level of satisfaction—nothing short of a 10 out of 10.

• Provide a story to tell that reflects well on clients.

• Build a community that others want to recruit to.