Bowen, founder and CEO of CEG Worldwide, previously worked as a financial advisor and firm executive. He served successively as CEO of Reinhardt Werba Bowen Advisory Services and Assante Capital Management.

Referrals for the Asking

Client acquisition is one of the most important tasks you face as an advisor. How you find and attract new prospects clearly will have an enormous impact on your firm's overall growth and profitability.

Unfortunately, new research from CEG Worldwide reveals that the majority of advisors are ignoring one of the most effective, efficient and obvious sources for new referrals: their existing clients. By contrast, an elite group of successful advisors are tapping their client base to build their businesses-and maintain their competitive advantage in the process.

With that in mind, here's a look at the importance of client referrals, along with a proven process for systematically generating new business from existing clients.

Overlooked Avenue
Think for a moment about your best clients-the ones who are profitable for your business, whom you enjoy interacting with and whom are satisfied with you. How great would it be if your practice consisted of nothing but these types of people? Going into work each day would be a pleasure.

One of the best ways to find more of these investors is to go to the top clients you already have. Many of their friends and associates are probably similar and could therefore make ideal new clients.

Because client referrals can be such a strong resource for business growth and development, you might think that advisors are actively pursuing this method of new client acquisition. However, recent evidence proves that advisors are overlooking this important avenue.

Consider CEG Worldwide's most recent study comparing wealth managers and investment generalists. Nearly all of the 2,094 advisors surveyed—93.4%—use an investment generalist business model with a transactional-based approach to client management. By contrast, a select percentage of advisors (6.6%) use a wealth management business model centered on consultative client management. These wealth managers are significantly more successful, earning an average annual net income of $881,000 versus $279,000 for the investment generalists.

When we examined the client acquisition habits of both groups, we saw that a mere 1.8% of the investment generalists regularly ask their clients for referrals. But almost 66% of wealth managers ask for referrals on a regular basis. Given that wealth managers don't hesitate to ask clients for referrals, it's no surprise that they receive more of them. In 2006, the typical wealth manager received 3.1 referrals from each of his or her top 20 clients. The typical investment generalist's success rate: just 1.2 referrals from each top client.

Getting It Done
The numbers prove some undeniable facts: The most successful advisors in the business-wealth managers are consistent and systematic in their client referral efforts, and therefore garner more referrals. That approach is one reason why they outearn their investment generalist peers by $602,000 a year on average.

To emulate these top advisors and generate a steady stream of client-based referrals, we recommend the following process:

Step 1: Set the stage to ask. Start by showing clients that it's in their own best interest to give you referrals. Explain to them that the less time you need to spend on marketing and prospecting, the more time you can devote to helping them achieve their goals and providing great service. Setting the stage helps clients understand "what's in it for them" by helping you. If you are delivering a great experience, your clients will want to share that experience with their friends and business associates.

Step 2: Ask for the referral. Simply state who you are looking for-your ideal type of client-and ask if the client knows anyone who fits the profile who they believe would benefit from your services. If they don't, ask them to think it over and call you or tell them you'll check in with them during your next regular meeting.

Step 3: Ask again. If you've been given a name, simply say, "Great! Who else comes to mind?" It's reasonable to expect an ideal client to come up with a few good prospects.

Step 4: Gather contact information. Once you have a list of names, ask for background and contact information of the prospects.

Step 5: Consider asking for a personal introduction. Asking the client to give the prospect a heads-up call is a good option if the client has some knowledge of the prospect's financial situation, if it's clear that the prospect is affluent or if there's a high likelihood of having immediate success with the prospect.

Step 6: Commit to follow up. If the client isn't sure whether the person would be a good fit for your services, tell the client that you will follow up on their recommendations by yourself.

Step 7: Wrap up the meeting. Many advisors think that a referral source is using up valuable social or political capital when they refer someone. But remember that even though you are grateful, your clients also benefit by making referrals. So remind clients that referrals allow you to focus on serving them and getting them to their goals faster instead of spending time on marketing. Also, let them know they can now have the personal satisfaction of having helped someone find a trusted advisor who will assist them in solving their financial challenges.

Step 8: Thank the client. Send the client a handwritten note expressing your thanks. (An email is quicker, but less effective in showing your gratitude.) Send the note out on the same day that you receive the referral, and let the client know that you'll keep him or her posted on the outcome of the meeting with the referred prospect.

Step 9: Call each prospect. Here you're looking to arrange an initial meeting. If the prospect says no, it's usually because he or she already has an advisor. If so, ask if the prospect would like a second opinion on his or her portfolio, given the current market volatility. If the prospect says maybe, assure him or her that there is no cost to get together for a consultation. If the answer is yes, schedule the meeting and explain that you'll send out a letter detailing the information that the prospect should bring to the meeting.

Step 10: Send an invitation to the prospect. The letter should include a list of the important documents the prospect should bring (bank and investment account statement, tax returns, insurance policies and similar information).

Step 11: Follow up with the client. Your referral source will want to know how things worked out, so it's important to keep him or her informed of the outcome of the meeting (while maintaining appropriate client confidentiality, of course). Lack of such feedback diminishes the value of the client's efforts and can create resentment.

Step 12: Thank your client-again. Keep your client referral source motivated to refer again by acknowledging how much you appreciate his or her assistance in helping you focus on client goals by reducing the need to prospect. A gift basket or a gift certificate to a client's favorite restaurant can make an ideal thank-you gift.

As you can see, many of the steps in this process are fairly straightforward and easy to implement. The fact is, generating referrals from clients needn't be an especially challenging or uncomfortable task. Most advisors who don't get referrals from clients simply make the mistake of not asking in the first place-usually because they feel they are imposing on their clients. But as noted above, your clients will enjoy great benefits by referring.

Another big mistake to avoid in this process is seeking clients that aren't a great fit for your firm and your skills. Instead of going after every referral you get, stay focused on those prospects you enjoy and to whom you can bring significant value.

The upshot: There's simply no good reason not to pursue new business by leveraging your existing client base. In fact, if you want to provide an exceptional client experience and grow your firm rapidly, you must turn to your clients for help on a regular and consistent basis. By following the steps outlined above, you'll fully tap into one of the biggest sources of your future business-and build a hugely successful practice in the process.

Reprinted from: Financial Planning