"While a highly satisfied client may occasionally give you a referral without being prompted, you can't count on this avenue for any kind of steady stream of referrals."

Passing It On

By John Bowen

Referrals are incredibly important in building an elite financial services business for affluent clients for one simple reason—wealthy investors would much rather find their advisors through referrals than any other way. Studies of affluent investors repeatedly show the number one way they prefer to find financial advisors is through referrals from other delighted clients.

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Research by our firm, CEG Worldwide, demonstrates that elite advisors fully understand this and emphasize referrals accordingly. Top-earning advisors rely heavily on referrals from their existing clients, leaving no doubt that referrals are key to growing their businesses. And elite advisors aren't just more successful at getting referrals, they're also more successful at getting the right kind of referrals—those from their top clients. In our research, the highest-earning advisors received an average of 9.6 referrals from their top 50 clients in one year, compared to just 1.9 for the lower-income advisors.

But this type of high-quality referral doesn't just happen. While a highly satisfied client may occasionally give you a referral without being prompted, you can't count on this avenue for any kind of steady stream of referrals.

Instead, you must formalize your referral program, committing yourself to a process that has been shown to generate a large number of high-quality referrals. We recommend the following proven, methodical system.

1. Set expectations. For clients to be comfortable giving you referrals, they need to know exactly what to expect in terms of how you will approach and work with the referral. If you have delighted your clients at each contact, this step is easy—they will be at ease with you, familiar with your processes, and thus comfortable referring their friends and associates to you.

2. Ask for the referral. Many advisors are so worried about using exactly the right words to ask for a referral that they get bogged and never actually do any asking. Just ask; you do not need to be eloquent to be successful.

Always communicate that you need the clients' help. Tell them why they should help you—so that you can grow your firm and better serve them. Let them know the alternative to referrals is spending more of your time on marketing and less on helping clients. Emphasize that you are looking for a particular type of client with a certain amount of money to invest.

The most crucial part of asking is to use the four most powerful words in the English language: "I need your help." Your clients do want to help you and see you succeed. Affluent clients are willing to give referrals, and most will be honored that you ask.

3. Commit to follow-up. Once you have obtained the names of referrals, ask for their background and contact information, as well as the best way to approach each one. If it's appropriate and your client has some awareness of a prospect's financial situation, ask for a personal introduction.

Do so if it's clear from the conversation that it's a high-quality prospect with whom you would have a high likelihood of immediate success. As your client base becomes more affluent, personal introductions become more important and expected.

Many clients won't know if the prospect needs investment services or is in the market for a new advisor, however. In these cases, tell your client that you'll follow up by yourself on these referral prospects.

4. Repeatedly ask for additional referrals. This isn't a one-shot deal. Ask your clients for referrals at every crucial point of contact, including when they first become your client and at every meeting you have with them.

Don't worry about being repetitive or making them uncomfortable. Simply remind them that you need to grow your business and that the best way for you to do this is through referrals. And don't forget to use those potent words, "I need your help."

5. Thank your client. Many advisors believe that referral sources are using up valuable social or political capital when they refer you. You are grateful and need to thank your clients, but they do benefit from giving you the referral in at least two significant ways:

• By helping you build your business, they allow you to allocate more time to solving their financial challenges and less time to marketing.
• They get the personal satisfaction of helping another person find a trusted advisor—you—who will assist them in solving their financial challenges.

You should quickly reciprocate by thanking referring clients with a handwritten note. This has become a lost art and is greatly appreciated. If you don't have good handwriting, find someone who does to write the note for you. Failing that, you can send an email, but it is much less effective.

Your note should ideally be sent out on the same day that you receive the referral, and no later than the following day. The note should thank the client, state that you will follow up with the referral, and confirm that you will let the client know the outcome.

6. Keep them informed. Your clients will be curious about what happened, so update them after you've contacted the prospect (respecting client confidentiality, of course). A quick note or an email is better than a phone call, but immediate feedback is required either way. Lack of feedback devalues your clients' efforts on your behalf and can damage the relationship.

7. Thank your client—again. Referral sources that refer once are more likely to refer again. To keep your referral sources inclined to make additional referrals, acknowledge how much you appreciate their assistance, which allows you to focus more of your time on solving their financial challenges.

Some advisors like to thank referral sources with small gifts, such as gift baskets. Other advisors like to take clients out to dinner, but most clients tend to prefer dinner with their spouses to dinner with their advisors. This makes a certificate to a favorite restaurant a nice gift. Be sure to be aware of current NASD limits on the annual total allowable value of gifts.

Regardless of whether you give clients gifts, what's most important is that you acknowledge them for providing the referral, whether the prospect worked out or not. You can never reinforce too often how seriously you take referrals and how important clients are in helping you receive them.

Client referrals are by far your most valuable source of new business. By implementing a systematic process for gaining these referrals on a regular basis, you'll build the elite financial services business that both you and your clients deserve.