The Art Of The Referral
Client referrals are a natural way to generate growth, 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," says Julie Littlechild, president of Advisor Impact.

Many advisors evidently agree, which explains why two education sessions dedicated to the subject at the recent Schwab Impact conference were packed to the rafters.

The foundation for referrals, of course, comes from customer satisfaction. "It's not just focusing on the numbers, but on lives," says Littlechild, an industry researcher and consultant. That means broadening client service to include the softer issues that lead to deep conversations, stronger relationships and engaged clients. And according to Littlechild engaged clients provide up to five times more referrals.

Advisor Impact research found 91% of clients said they're comfortable providing a referral to their advisor, but only 29% of clients provided a referral. And industry research found just 4% of new clients came from referrals.

That speaks to a disconnect in the referral process at many advisor firms--both in terms of communicating with clients and with people on staff. Littlefield, for one, says advisors must be clear with existing clients about who their ideal client is and what their investment minimums are.

Some advisors say successful recruiting stems from a concerted top-down, companywide approach. Ken Hart, president of Cornerstone Advisors in Bellevue, Wash., says his firm's catalyst to revamp its referral process came three years ago with the planned departure at year-end 2010 of its co-founder and chairman, who had been the company's rainmaker for a quarter century. "We realized it would take a team effort to replace him," he says.

He says leaders from various departments--client management, operations, investment management-are now involved with speaking to new prospects, and their teams are incentivized when prospects turn into clients. "It has increased the consistency of new prospects we're getting, and it's less feast or famine," Hart says.

Andrew Altfest, executive vice president of strategy and investments at Altfest Personal Wealth Management in New York City, says his firm created a program that aligns advisor compensation with referrals. But it entailed more than just throwing money at it. "We had to manage the program closely in the beginning to get people comfortable because there was some anxiety about asking people for referrals," he says.

With the help of ideas from the likes of Schwab and so-called referral gurus Bjorn Millom and Bill Cates, the firm created referral scripts that covered multiple scenarios on what can happen in client meetings when advisors ask for referrals--from best-case situations when clients know a friend nearing retirement who's dissatisfied with their advisor, to clients not being very receptive.

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