Executive Summary
One of the primary business virtues of comprehensive financial planning is the deeper relationship that is formed as a result of going through the financial planning process. The experience helps to engender trust between the advisor and the client, which in turn can aid in client retention, and make the client more comfortable referring the advisor to others. Yet at the same time, one of the primary challenges of being comprehensive and holistic is that when you do so much for the client, it's difficult for the client to explain what it is the advisor really does, in the process of making a referral.
In fact, a recent survey highlights this striking contrast - clients of holistic advisors were almost 20% more likely to provide referrals, and amongst those who didn't refer, clients still generally felt that holistic advisors were more likely to have earned the right to receive referrals. The survey results also paradoxically revealed that clients who didn't refer their holistic advisors were almost 30% more likely to state it was because they didn't know any referrals or were uncomfortable to make referrals!
In other words, holistic advisors were simultaneously more likely to earn the right to receive referrals, yet ended out making a significant portion of their clients less comfortable and less able to think of anyone to refer!
The inspiration for today's blog post are the results of a recent survey from ByAllAccounts in conjunction with Paladin Registry, which examined how consumers choose to hire and fire financial advisors, including whether and why clients choose to refer for their advisors. In particular, the study examined differences between advisors who offer a holistic view - e.g., provide advice regarding all investments, not just those under the advisor's purview - versus those who focus more narrowly and are not holistic.
The summary of results regarding referrals - in particular the reasons why those who did not refer their advisors chose not to do so - are shown below (and you can obtain your own copy of the full survey results here):
In reviewing the survey results, a startling reality emerged - advisors who offer a holistic view are more likely to have earned the right to receive referrals (85.2% vs only 57.7%), yet at the same time their clients are more uncomfortable making referrals (33.3% vs only 19.2%) and more likely to state they don't know any referrals (25.9% vs only 11.5%)! Overall, the results still favor the holistic advisor (the survey found 54.2% of clients had referred their holistic advisor, versus only 33.3% of clients who have referred a non-holistic advisor). But the striking surprise remains: clients have an easier time thinking of people to refer and are more comfortable making referrals when the advisor is not holistic!?
In reality, this result is not as counter-intuitive as it might appear at first glance. The reason is that advisors who are holistic and comprehensive have a strong tendency to try to do everything for everyone. By contrast, advisors who are not holistic tend to have a more narrow and specific product or service that they deliver. Which means, in the end, advisors who are not holistic tend to have a more clearly defined niche, and as a result are actually more referrable!
To understand why, imagine the situation for a client of each of these advisors - holistic, and non-holistic - who is considering whether to make a referral.
Non-holistic advisor A's client: "Jack, you should talk to my advisor. He specializes in providing life insurance for new parents, and you'll have to get some insurance when Jenny is born. You should give him a call."
Holistic advisor B's client: "Jack, you should talk to my advisor. He's great and really helps us with everything."
Most comprehensive financial planners would prefer that their clients talk about them like holistic Advisor B, not advisor A. Yet the reality is that the former advisor is more likely to get a referral! After all, advisor A's client can more easily identify prospective referrals (new parents who need life insurance), doesn't have to worry about his referral being rejected for failing meet minimums or being a mismatch for the advisor's service, and knows exactly what the value proposition is (get insurance to new parents who need it).
On the other hand, advisor B's client is likely to have difficulty clearly identifying an exact referral match (as the survey results indicate, the client responds "I do not know any referrals" even though clearly a holistic advisor is capable of serving more people and therefore a client should know more referrals, not fewer); in addition, advisor B's client is more likely to worry that a referral might be a mismatch that gets rejected (which makes the client more uncomfortable making referrals, again as the results showed).
On the plus side, the holistic advisor ultimately has the opportunity for the best of both scenarios. The results clearly show that holistic advisors are more likely to have "earned" the right to receive referrals. The key is to define your services and target market clearly enough as a holistic advisor or comprehensive financial planner to still be referrable. And as I've noted previously on this blog, defining your target market is about more than just having minimums; it's about having a niche and making it easier for your client to be able to explain, clearly and concisely, what it is you actually do and who you do it for!
So what do you think? Do holistic advisors make it harder to be referred by being holistic? Do you offer comprehensive planning services that could help "anyone" yet have clients who can't think of "anyone" to refer? Have you taken steps as a comprehensive planner to ensure that you're still referrable? Are you a focused "not holistic" advisor who finds it easier to generate referrals by having a clearly defined market and service?
We holistic financial planners need to understand that we should first have a clear elevator pitch. We need to consistently drip that into client’s consciousness. When the clients encounters someone that they feel can benefit from our service, they should be able to repeat our elevator pitch verbatim. If we are able to do that, we will get lot of referrals.