Executive Summary
Advisor surveys continue to show that the #1 marketing strategy for most firms is to grow through referrals. Unfortunately, though, most firms still get modest results at best, leading them to double down on their referral efforts by asking clients for referrals even more.
A recently released book by marketing consultant Stephen Wershing, however, suggests that the optimal path to success is actually to go the opposite direction - "Stop Asking For Referrals" and instead focus on creating the environment that makes it easier for clients to refer, by understanding what it is that drives clients to refer in the first place. The end result is a practice that has a well identified target market and a clear niche, so that clients truly understand who is and is not an appropriate person to refer, and when someone is referred what they find is compelling enough to make them want to follow through for an initial meeting.
Notably, recent research by Julie Littlechild has shown that overall, 91% of clients are willing to refer, and 29% of clients actually do refer - given that most firms are not growing at 29%+ organic growth rates, though, suggests that there is a lot of room for improvement by applying Wershing's recommendations to fix the weakest links in your own referral growth strategy!
The inspiration for today's blog post is a book I recently read, entitled "Stop Asking for Referrals: A Revolutionary New Strategy for Building a Financial Service Business that Sells Itself" by marketing consultant Stephen Wershing. The book, as the title implies, challenges much of the conventional wisdom around referrals, including and especially the popular advice that the best way to get more referrals is to ask for them more often.
As the book illustrates, there are many weak links in how most financial planners try to grow their business through referrals. Fortunately, though, there are solutions to do it better.
Stop Asking For Referrals
As the title implies, the dominant theme of the book is that asking more often for referrals is a terrible way to actually get more referrals. It may work to some small extent, but it is a poor strategy; in fact, it can be so socially awkward, that it actually undermines the entire relationship.
Wershing illustrates this with an example from the movie A Beautiful Mind, in which the lead character John Nash reveals his own ineptitude in trying to start an intimate relationship with a woman by demonstrating how ineffective it can be to shortcut the process and just ask directly for the final results. As the quote goes in the movie, Nash approaches the pretty girl at the bar and says:
“I don’t exactly know what I am required to say in order for you to have intercourse with me, so could we just assume I said all that? I mean, essentially what we are talking about here is fluid exchange. We could just skip straight to the sex."
Not surprisingly, Nash comes away not with the outcome he was hoping for, but a slap to the face and an abrupt ending to the conversation. Fortunately, asking for referrals usually does not elicit a slap and a client who storms away, but Wershing makes the case that we are perhaps not as far from that outcome as we think. And while it's true that if Nash keeps approaching enough women this way, he may eventually get the result he's hoping far, it doesn't change the fact that just going out and asking more people is not exactly the best path to accomplish the goal!
The Better Way To Get Client Referrals
Wershing makes the point in the book that the better way to get referrals is to stop asking for them, and instead focus on what it is that leads clients to make referrals, and how to make it easier for them to provide those referrals all by themselves.
The most important aspect is to realize that in the end, clients don't make a referral to do you, the advisor, a favor. They make a referral to do a favor for their friend who is being referred; as the client, helping someone you know by providing a quality referral so the person has a positive outcome is a good way to build social capital - obtaining social currency, expanding influence, etc. In turn, this means that the key to getting more referrals is to clearly position yourself in a manner that makes it as clear and easy as possible for clients to refer you, by knowing who should be referred, and in what situations that person should be referred.
Wershing explained this concept further on his blog earlier this year with a striking example. Imagine you're sitting across from one of your best clients, and you asked the client this question: "If I sent you into a cocktail party in the next room full of all kinds of people, and I asked you to refer a couple of them to me as prospective clients, how would you figure out who would be the best ones to send to me?" Most clients would probably answer "I don't know" and in that answer we see the real reason why most advisors don't get more referrals: because the advisor isn't really referrable to begin with! Or viewed another way, if you want to get more referrals, you need to make yourself more referrable!
Breakdowns In The Financial Advisor Referral Process
Perhaps the most striking part of the book is where Wershing cites some research by Julie Littlechild in her "Anatomy of the Referral" research, which found that while a whopping 91% of clients surveyed indicated that they were willing to provide a referral, only 29% indicated that they had made such a referral in the past year. The gap appears to be explained in large part to a lack of clear target clientele or any kind of niche for the advisor; in other words, as noted earlier, the clients were willing to refer but the advisor was so unreferrable that they simply didn't know who to refer, what to look for in a potential referral, or have any clear understanding of how or why to refer someone.
Yet at the same time, not only is the gap between 91% willing to refer and 29% who do refer striking, but in practice it seems that virtually no firms are actually growing like they even have a 29% referral rate! After all, if 29% of clients refer - especially when referrals should be very "warm" targeted prospects with a very high close ratio - why aren't firms growing at 29% organic growth rates!? In point of fact, the number would potentially be even higher, as even if "just" 29 out of every 100 clients provide a referral, some of them will refer more than 1 person, which means the firm should have anywhere from 30-50 prospects, every year, most of which should convert into clients. But where are the 30%+ growth rates?
Wershing again suggests that when the planning practice doesn't have a clearly defined niche, a clear target clientele, and a clearly defined value proposition, there is little incentive for the prospect to actually follow through on the referral. In other words, if you're not referrable enough that your client can tell a compelling story to the prospect on your behalf, there's little likelihood the prospect will follow through. At best, perhaps the prospect will make his/her way to your website to check you out further; but if your website doesn't leave a good first impression, the referral your client made while you weren't there never even manifests in an actual prospect meeting! Or alternatively, if the prospect shows up on your website, but can't tell if he/she is the kind of client you work with, or isn't certain if he/she will meet your minimums, there's simply no incentive to follow through on the referral to schedule an initial meeting. Whatever it is, these weak links in the referral process collectively lead to the result where 29% of clients actually make referrals, but the referrals planners actually receive and see in the first of an initial meeting are far fewer.
Overall, Wershing's book is definitely worth reading - I'd go so far as to say it's the most interesting book on marketing for financial planners I've read in a few years - as it really breaks down why having a niche and a clear target market is actually the crucial to make the referral process really run smoothly, and shows how to eliminate the weak links in your own referral process. So if you haven't gotten your copy of "Stop Asking For Referrals" yet, check it out.
So what do you think? Do you get referrals from 29% of your clients? If not, is that because the referrals are occurring but the prospects don't feel compelled to follow through and call you? Or are your clients not even truly comfortable referring you in the first place, facing uncertainty about who in the cocktail party they even should refer to you in the first place? Do you try to increase referrals by asking for them more often? Do Wershing's solutions seem like a viable alternative?
Michael,
Great post. I will put the book on my reading list.
I am curious how the author integrates strategies such as client appreciation events, client surveys, client advisory boards, and referral incentives (such as $50 to your charity of choice). Is it all about making yourself more referable, or is there an overall strategy of which niche marketing is part of?
Hmm, I’ll have to calculate what percentage of clients give me referrals. I just tweaked my website to clarify the identity of my ideal clients.
I picked up this book FPA Conference in San Antonio. I just finished reading it yesterday after coming back to India. One great book I must say – breaking all the myths about referral marketing with excellent insights and logics. Thanks for the review.
Michael,
Thanks for the coverage, and your nice words.
At FPA Experience last week, Julie Littlechild gave us a preview of the updated edition of her study. You reference the 91% of clients who are comfortable referring and the 29% who actually refer. I know, as you have pointed out, that the actual connections advisors make is way below 29%. In her newest survey, she looks into it, and finds that the number who actually connect with the advisor is 2%, which rings true to me.
If we can do something in our practices to increase that by even one or two percent, it would make a huge difference. If 29% of our clients already are referring somehow (in a way that’s positive but not compelling), that goal should be totally achievable!
Steve
Hey Michael,
As an rookie advisor who is building a business through acquiring clients these ideas will be a tremendous help in continuing to grow my practice. Thanks for sharing, ordered the book today.