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The prospecting method that keeps on delivering the most opportunities is Referrals.
A distant second in the source of new clients for advice firms is Centre of Influence referrals.
Research by the Financial Planning Association showed that on average in the previous year some 34% of new clients came from client referrals. About 16% of the new clients on average came from COI referrals, meaning in total that 50% of all new clients came from a transfer of trust to begin with. Given that the next highest source of new clients for firms was acquisition (at just under 10%) and the rest made up of a myriad of other prospecting methods, the research suggests that when it comes to getting the best ROI from your prospecting dollars then focussing on referral generation will deliver the best results.
Usually when the idea of “focussing on referrals” arises the thinking zero’s in on “focussing on extracting more names” though. That is, the emphasis seems to be on how can one can get a better short term result in referral generation from existing clients. Incentives…gifts….rewards….ideas to get attention and appeal to personal greed on the part of the potential referrer typically become the focus.
That type of thinking is generally a bad move, as it only tackles one of the requirements for getting more referrals – and it targets the wrong type of clients usually anyway. Generating a consistent stream of quality referrals to the right sort of clients by your existing clients, requires that your potential referrers have a significant level of trust. Not just trust in the professionals’ expertise and competency, but trust in the professionals’ integrity and manner. Clients being asked to refer their friends and family are exposing their own reputations and relationships when they do refer, and they are being asked to place those in the hands of the professional.
Good clients who will provide good referrals to the right sort of clients then are rarely motivated to do so because of a dinner voucher or some similar “incentive” in my experience. Certainly such incentives achieve the purpose of obtaining attention and creating an awareness of the desire to be referred, however they tend to create interest with the wrong clients. Think about it: how strong is the relationship that someone is willing to put at risk for a dinner voucher? How likely is it then that the referred person in such a case will be truly open to the approach of the professional? How likely is it that you are actually getting high quality referrals from those motivated by a free dinner?
Incentives and reward schemes for referral generation have merit in that they create awareness, and for that reason they are worth considering as a part of a professional services firms marketing strategy. However they are at best only a part of the process of creating repeated referrals from clients. Maintaining awareness of the desire to be referred matters. Ongoing and repeated positive introductions from clients to other potential clients requires continual reinforcement of the trustworthiness of the professional. It is the continual demonstration by the professional that they are safeguarding the clients’ interests and being alert to the clients’ needs that gives the client the confidence to refer valuable relationships of theirs to the professional of choice.
Is it worth the effort to be client focussed, and ensure they understand that you are safeguarding their interests? Regardless of the ethical reasons for doing so and regardless of moral reasons for doing so, there is clearly a commercial case for doing so. Consumers today are most heavily influenced by their friends and peers. The transfer of trust matters more than perhaps ever before. That trusted relationship between your clients and their peers, and your clients and you is the primary component in the process of successfully using the number one business growth tactic….and that should be worth focussing upon.
Which finally brings me to the one thing I suggest advisers think about given the importance of referral generation. That is; you should be seeking recommendations as opposed to referrals. Recommendations carry weight. Recommendations also have the distinction of putting control of the transfer of trust process in the hands of the client. That means there is very little (or zero) chance of you damaging your existing relationship with the client as they never feel pressured to deliver “a name”.
Everything the research shows about the power and convertibility of referrals is true, but turning that into actively seeking recommendations will deliver more high quality new prospects in the medium term I believe.
Related: The Myth Of Independent Advice