Executive Summary
Imagine for a moment that you just got some terrible news: you have a serious and potentially fatal illness, that requires the attention of a world-class expert to cure. Where would you go for information to find the person you need to literally save your life?
The answer probably would not be just going to your friends and family for referrals. Sure, they’re helpful for some quick advice about what kind of fabric softener is best or where to get good Mexican food, but this is a life-or-death matter, and it’s not clear that any of them would even know who the specialists are for your disease, much less who’s the best to try to cure it.
Instead, it is more likely that in today’s day and age, you’ll turn to the internet. You’ll search for who’s a recognized expert in solving your particular problem. You might seek out information from others who’ve shared your condition, to see what experts they ultimately turned to. Simply put, you’d use the power of the internet to find out who truly, really is the best person to work with to solve your problem. After all, it’s your life on the line.
Now, imagine instead that it’s not your physical health at stake, but your financial health instead. Is the value of 'getting a referral' versus 'searching for the best' really any different if you're finding the savior of your financial life instead? And does that mean that as we enter the digital age, it's time to eschew the advisory world's traditional reliance on referrals for growth, or at least recognize that it may deliver far less in the future than it has in the past?
Finding A (Good) Product Or Service
Before the internet, our means of finding a good product or service were limited. We might have tried things out for ourselves and see how it went, although for matters that were really important, it was often not worth the risk, and sometimes we would be more influenced by advertising than we intended or realized. We might try to find expert sources, from popular critics or product reviewers in newspapers and magazines, to publications like Consumer Reports, although it could be difficult to find the right source with the right information on the right need, and determining whether a source was really trustworthy was sometimes difficult as well. The end result: often it was just easiest to rely on friends and family we knew we trusted, and hope that their guidance was good enough, even if they might not really be experts on the subject at hand. In other words, when it came down to weighing personal trustworthiness against subject matter expertise, it often wasn't clear if/when anyone was an expert, so at least we took the advice from the people we knew and trusted.
With the rise of the internet as we enter the digital age, though, the balance is beginning to shift. It's now easier than ever to find expert information about a particular subject matter. With an explosion of review sites, it's no longer necessary to just rely on who your friends and family know and recommend; instead, you can see what product or service provider dozens or hundreds or thousands of people know and recommend. After all, why ask your neighbors about a good contractor based on their one experience remodeling a kitchen, when you can go to Angie's List and see an extensive range of reviews to figure out who's really the best? Or maybe a starting point is to ask a friend to suggest a restaurant to check out, but isn't it still a good idea to double-check on Yelp to see if it's really been well-received by lots of people, or if your friend's experience might have just been an outlier?
In a similar manner, the search for experts to work with directly - from a doctor to a financial advisor - are going through a similar shift. Certainly, it's good to know that your friend or family member trusts their advisor - and you trust your friend and family member - but does that really mean the person has the expertise to solve your particular problems and issues, especially if your friend's circumstances appear different than your own? And is there any way to know if the positive experience being referred to you is the norm or just an exception? The end result - even if you get a referral, you are increasingly likely to go online, do a Google search for that person or firm, and verify whether it's really credible and relevant for you. And increasingly, the question arises why you would even bother getting a referral as a starting point at all.
The Importance Of Findability
Given the rising prominence of search as a means for prospective clients to find their advisors, it raises the question: how findable are you in the first place? Are you discoverable by your potential clients if they were looking for you?
The starting point to answering this question is to see what happens when a prospect searches for you; in other words, type your own name into the search engines, and see what comes up. If you were referred by someone and the potential client typed your name into Google to try to validate whether you were a credible professional, would the results of the search help or hinder your success? Do you appear on LinkedIn? Do you have a website of your own? Does it all look professional and trustworthy? Bear in mind, it's not just about whether "good" information comes up versus "bad" information; getting no results is just as bad, as a "professional" who doesn't exist online may as well not exist at all in the minds of many potential clients. After all, how credible and expert can someone really be if the entire internet has never heard of them!?
Of course, people will only search for you if someone had already referred them to you. Otherwise, they wouldn't know who you are in the first place. Instead, what most people will really search for is not you or your firm, but an answer to their question, or a solution to their problem. Which means ultimately, for strangers to find you and ultimately want to do business with you, they need to find your solutions and answers, and discover that you are the one who can provide it to them. This is the value proposition for inbound marketing strategies for financial advisors, and why the rise of blogging and social media is so important for them; in the end, it's not about engaging with those technology platforms for technology's sake, but because engaging in those platforms is how you can demonstrate yourself to be the solution that the search engine recommends. It also reinforces how absolutely crucial it will become to have a professional niche, as it will be almost impossible to stand out in a search process from the reams of media publications, personal finance sites, and other advisors, if there is nothing unique about the services you provide or the clientele to whom you provide.
Is This The End For Referrals Entirely?
Does this mean that referral marketing is soon to be dead entirely? No, it doesn't; but it does mean that referral-based marketing may be on the decline, and suggests that certain types of referral-based strategies may soon cease to work entirely.
What will still work are truly niche-focused referral marketing strategies (which ultimately are what most professionals should be working towards in an offline environment anyway!). In part, this is because a referral within a niche changes the nature of the referral, from one that is just a referral from a person you trust but may not really be expert and credible, to a referral that is trustworthy AND expert AND credible. For instance, if your specialization is working with eye doctors, then when one ophthalmologist refers you to another one it is not just a referral from a trusted peer, but a referral that appears to have the credibility and subject matter expertise that is a perfect fit. In other words, the person being referred would have had a reasonable expectation that if he/she just searched for "advisors specializing in eye doctors" on Google, the exact same result would have come up, and the personal referral was just a shortcut. From this perspective, the real value is still in having the clearly defined niche, which allows you to be recognize as "the best" at something that drives people searching to solve their problems to you as their solution; as an added benefit, it alsomakes you referrable enough to generate real referrals by more traditional means as well.
On the other hand, the more "traditional" approach to generating referrals - just doing good work for any/every client you can, and passively waiting for them to refer you to their friends and family - will be in serious danger in the coming years. In point of fact, some research suggests that referral-based marketing may already be on the decline; for instance, a recent Cerulli study found that the referral itself was only the deciding factor in selecting a new advisor for a mere 11% of clients. At best, the referral may have pointed the prospective client in your general direction to start, but it takes far more than that to actually turn a potential client into an actual one; the relatively low importance of the referral in the decision-making process reinforces the fact that consumers are now using other tools and factors to make their decisions. It also reinforces the question of whether referral marketing is even a best practice in today's world, or simply the most common practice because advisors are doing such a poor job at any other type of marketing that it wins by passive default. Or viewed another way, if your referral marketing approach isn't good enough to generate referrals without asking for them, and it wouldn't work in an online environment, then it may not work in an offline environment, either.
In the long run, I don't actually expect that referral-based marketing will vanish entirely. But its effectiveness is about to diminish dramatically, as the refinements of search engines rapidly approach the point where the solution that comes up in the search engine really may be more likely to be expert, credible, and trustworthy than a personal referral. In fact, the whole point of "social search" is aimed at taking the best information your friends and family have to offer, and integrate it into existing search information, to ultimately deliver recommendations that capture the best of both worlds... and eliminate the need to ever ask your friends and family for suggestions in the first place. While in today's world there is still a challenge that it's often difficult to determine from the results of the search engine alone whether the results are really trustworthy and credible, are you positioned to still be competitive as the search engines figure out how to close that gap? Do you really want to bet the growth and success of your business against the ability of Google, Microsoft, Yahoo, Facebook, and more, all trying to figure out how to make the results of search so relevant that traditional referrals are unnecessary or outright inferior?
So what do you think? Are traditional referrals still going to be a driver in 10 years, or are they actually on the decline?
M,
Really important discussion. Right now, I think it is still difficult for prospective clients to actually evaluate financial professionals online. We don’t have Yelp-like reviews for clients to rely on. Instead, I believe most people will still ask for referrals and then go online to validate a professional’s credentials and knowledge. Until rules change about testimonials I find it unlikely that the majority of individuals will rely purely on an internet search for professional services. Of course that does not mean that a solid web presence is of little importance, in fact it reinforces the importance of being very “findable.”
I needed a new CPA when I moved to Georgia.
I didn’t ask for referrals because my centers of influence don’t have the same needs that I do.
After several searches on Google, Yelp, and YouTube, my CPA’s video on YouTube help seal the deal.
I saw and heard everything I needed that spoke to my specific needs and the specific services I was seeking in a CPA. He completed my 2012 return, all electronically, and I have yet to meet him face to face.
Very important trend you’re pointing out here. I see no basic reason why it should differ from what we’ve already seen in other industries.
On one level, yes there’s shift to search away from referrals. But that masks two other changes: the first is from a one-step process to a two-step process. The first step is search, the second step is qualification and selection, and there the referrals are still valuable.
The other change is to wed the two – everywhere else has gone to putting referrals online. And yes there’s a lot of grade inflation, and a great deal needs to be taken with many grains of salt, and yes no doubt there will be huge resistance to the idea of financial planners peddling testimonials – but where there’s a need there’s a solution. A sound, well articulated and genuine testimonial is hugely helpful, and therefore I suggest we’ll find some way to get such testimonials online and discoverable by search.
So it’s not just either/or, it’s also a lot of yes-and.
One of my largest clients came to me last year from a google search, She was in Minnesota and I am in Wisconsin, I have a very unique niche (Money and Metaphysics) and that is exactly what she was looking for.
I think the narrow niche made the difference. She couldn’t find anyone in her area that she thought could speak her language, I did, that came through on my website when she found me, she flew in to meet me and I signed her up at that first meeting.
I think the key here is you have to stand out from the crowd, What makes you unique and is that coming across in your communication you put out to the world?
I’ve worked hard at this and after 30 years in the industry feel I’m finally attracting my ideal clients.
That was a fun experience!
Janet
I don’t think referrals are going anywhere, since for most people money and advice is very personal decision. Having said that on our site we are trying to bring consumers and advisors together around consumer questions and answers from one or more experts, so that the consumer can choose a provider based on the value they are adding and their demonstrated expertise around a particular question or need.
You can see Advisors answering questions here: http://www.newretirement.com/answers/default.aspx
and learn more about this works here: http://www.newretirement.com/advisors/benefits.aspx
Good article.
The digital age is going to revolutionize all industries and advisors will also be greatly impacted!