Executive Summary
Growing a client base and acquiring more ideal clients is a challenge all advisors face, regardless of how successful they currently are. And although almost everyone in the industry has heard that asking for referrals is an important way to grow a business, many advisors struggle with this. Which raises the question, as recently posed by Ron Carson at a recent keynote presentation: "Why don't more advisors ask for referrals? Are advisors afraid to ask for referrals because they’re not proud of their own services?”
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we talk about why it is so hard to ask for referrals as a financial advisor, and how the many barriers – including our pride (or lack thereof) in the company or products we represent, our confidence in our own value, or even shame about the industry we are in – can make it hard to ask for referrals.
Of course, when financial advisors get started, it isn't feasible to ask for referrals, because you don't have any clients yet to refer you; instead, the only choice is cold calling, "cold knocking" (walking the streets and knocking on the doors of small businesses), or some other cold prospecting strategy. In fact, arguably for newer advisors, the whole appeal of being able to ask for referrals to generate new business is the opportunity to get away from cold calling and other types of prospecting!
Yet the caveat is that it's difficult to ask for referrals, if you're not actually proud of your company and its products. Because if you know, deep down, that your solutions aren't really the best for your clients, you'll likely self-sabotage your own behavior - as I experienced myself when starting out as a life insurance agent, struggling to prospect and ask for referrals because I was embarrassed about the sales tactics my company was using at the time!
Of course, ultimately becoming a real financial advisor is not about getting paid for your company's products, but getting paid for your own advice, knowledge, and wisdom. But that still means it's hard to ask for referrals until you're actually confident in yourself, and your own knowledge. And here, too, many struggle, because if we don't actually know anything about financial planning, and we know that we don't, then we can't confidently convey our value. Which is why professional designations like the CFP marks are so helpful... because often it's only after completing a designation that many will really start to feel confident that they can bring value to the table, and ask for referrals.
Although even once advisors have expertise and can truly add value as a financial advisor, it can still be hard to have confidence to ask for referrals, when telling people "I'm a financial advisor" risks making you a social pariah because so many consumers have had bad prior experiences with advisors! That's the challenge of trying to do business in a low trust industry. When metrics like the Edelman Trust Barometer finds that fewer than 50% of all consumers trust financial services companies, it’s literally an odds-on bet that if you say “I’m a financial advisor” and ask for referrals, that the person’s first and immediate impression of you will be negative!
The bottom line, though, is just to recognize that there really are a lot of barriers that make it hard for us to ask for referrals, all of which are built around our own fears and discomfort in what we do, the value we provide, or the company/industry we represent. Our fears hold us back. And often our fears are quite well-founded. It really is uncomfortable asking for referrals when you’re not proud of the company and products you represent. Or you're not confident in your own value. Or you're ashamed of the industry you're in. So, if you find yourself at one of these blocking points, figure what do you have to do to grow past it - whether it's leaving your company, reinvesting in yourself and your education, or differentiating yourself from the rest of the industry - or you won't have the confidence you need to ask for referrals!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces.
So for today's episode, I want to talk about a really interesting question that I heard yesterday at the eMoney Advisor Summit. So the keynote before mine was a really cool "Ask Me Anything" session with the great Ron Carson. So for those who aren't familiar, Ron was LPL's top producer for over 20 years, created the Peak Advisor Coaching Group, now runs a very large hybrid RIA, and is also an institutional platform for other advisors.
In the session, Ron asked a really fascinating question, noting that so many advisors don't like to ask for referrals. He posed this question in return:
"Are advisors afraid to ask for referrals because they're not proud of their own services?"
Provocative Q from @rchusker - If you're afraid to ask for referrals, is it because you're not proud of your own services? #eMoneySummit17
— MichaelKitces (@MichaelKitces) September 26, 2017
I have to admit. This struck home with me a little.
Asking For Referrals To Sell Investment And Insurance Products [Time - 1:04]
As most of you know, I started my career in financial services, working in a life insurance company, straight out of college, into a life insurance agency. It was the year 2000, so the hot product at the time was variable universal life insurance. Buy life insurance. Invest the cash value in the stock market.
Now, back then, the only way you could get started was you had to go out and prospect. You could do cold-calling, or you could walk the streets and cold-knock on the doors of small businesses. There were some long-term career life insurance agents in that office who built their whole careers knocking on the doors of people's homes, like, literally selling insurance door-to-door, cold-knocking, back in the 1960s and 1970s.
But ideally the goal for most advisors is to get away from that as quickly as possible, by getting some clients and then asking those clients for referrals to new clients and prospecting your way forward from there. It's basically the...Asking for referrals was the pathway from cold-calling and cold-knocking.
Frankly, compared to cold-calling and cold-knocking, proactively asking for referrals seems like a pretty good deal. But here was the thing. I couldn't do it. I just couldn't do it. I couldn't bring myself to ask clients and prospects I was talking to if they knew anyone else who might benefit from our company's products and services. It was what I was trained to say, and I couldn't do it.
Deep down, I think the reason why is exactly what Ron said. I wasn't proud of the company and the products that I represented. Because at the time at least, it really felt like the company was solely focused on one product, a variable universal life, at least in our branch, where it was all the managing partner wanted us to talk about with every prospect we met.
Even as a novice agent at the time, I knew deep down that not everybody on the planet needed a VUL policy. What's worse I knew we didn't even have the best VUL policy on the market, because we got trained in how to overcome objections, including the objection of outselling competing products that illustrated better than ours.
So I was in a position where the company was pushing me to sell a knowingly inferior product to a wide range of people, who often didn't even need the product. Lo and behold, I didn't want to ask for referrals. I just couldn't do it.
To be honest, it...Well, I guess as Ron's question suggested, it wasn't that I was afraid, per se. It was frankly that I was kind of ashamed of what I was selling, what I was doing. Ultimately there's only one good way you ever really deal with that. You have to leave, and that's what I ended up doing. It basically becomes a self-fulfilling prophecy. I wasn't proud of my company's tactics and the product I represented. So I didn't ask for referrals, and I didn't get much business, which meant I couldn't qualify my contract, which means the discomfort with the company and its products eventually meant that I no longer had a job selling that company's products. Funny how these things work out.
But I think it's a good reminder for all of us that you can't stay at a company where you aren't proud of what they do and their solutions that they provide. As Ron had put it, if you wouldn't knowingly, willingly, and happily recommend your mother and your grandmother to the company that you're working for, you need to find a different company. You need to go somewhere else because, otherwise, it will become a self-fulfilling prophecy. You won't be comfortable asking people to do business. You won't be comfortable asking for referrals, which means you will self-sabotage your own success, and it's not going to work out anyways.
So save yourself some time and extended, but inevitable, demise. If you aren't able to ask for referrals because deep down you're ashamed of the company or products you represent, find a new company to represent, and get over this hurdle.
Asking For Referrals Requires Confidence In Your Own Value [Time - 4:50]
Now that being said, the truth is that even if you want to ultimately become a financial advisor, where your primary job is actually not selling the company's products, but selling your own advice and knowledge and wisdom, then what you really need to become proud of, so that you can represent confidently, is yourself and your knowledge.
Here too, I'll admit that this was actually a huge struggle for me in the early years, even after I left the insurance company. I switched to working in a much more financial planning-oriented independent broker-dealer, but I still had to struggle. I didn't really know anything about financial planning. I was about 23 years old, with a bachelor's degree in psychology, and I knew I didn't know much of anything about financial planning. It's hard to confidently ask people to work with you and pay you for your advice, when you know you don't actually bring much value to the table and give very good advice.
For me, that was the primary motivator to go out and get my CFP marks and ultimately continue on with a lot of additional post-CFP designations from there, because I couldn't confidently convey my value and ask for their business until I knew, for me personally, that I had the knowledge and value to convey in the first place.
So for me, it was only after completing some of those designations that I felt confident enough that I knew my stuff and felt I really brought value to the table, that I finally started to get comfortable asking prospects for their business, asking for referrals and introductions, and actually started doing business development. And that was a good 8 to 10 years into my career, because it's a lot easier to ask for referrals when you're truly confident you actually add value and help people. I mean why would you not ask for referrals at that point? You have the knowledge. It helps people. Why do you not want to help more people by telling them what you do?
In fact, I find that's one of the key differences between advisors, not product salespeople, but actual advisors who are good at business development and asking for referrals, versus those that aren't, is that the ones who are good at it mostly just comes from their confidence in their own value. They feel it's only natural to share their expertise with more people, to help more people. Why wouldn't you if you have the expertise?
Asking For Referrals In A Low Trust Industry [Time - 6:59]
Now, really, there actually is one reason why you probably wouldn't, even if you have the expertise. It's because even if you have the expertise to add value as a financial advisor, it's still hard to actually tell people you're a financial advisor, because so many consumers have had bad experiences with advisors. I'm sure all of you who are advisors listening to this, you have experienced this. Right? You're at a social event, and someone asks you what you do, and you say, "I'm a financial advisor," and they say, "Oh, yeah. I have a financial advisor. He helped us with our life insurance a few years ago," because they think comprehensive financial planning is getting a life insurance policy.
Or you say, "I'm a financial advisor," and they take a step back and start looking for someone else across the room to talk to, "Oh, hey, Johnny," because they've clearly had some bad experience with a financial advisor or salesperson in the past, and now they're assuming that when you say, "financial advisor," you're just there to sell them something, and they didn't feel like buying anything today. It makes it really hard to ask for people's business and ask for referrals as a financial advisor, when so many people have been stung by a bad financial advisor in the past. It feels like you're not telling people about this great service you deliver. You're confessing you're a financial advisor and hoping it doesn't make you a social pariah.
This is the challenge of doing business in a low-trust industry, with low barriers to entry. The Edelman Trust Barometer, which is kind of the leading global survey that measures consumer trust, finds the financial service industry as the least trusted industry there is. We are dead last. Fewer than 50% of all consumers actually trust financial service companies, which means it's literally an odds-on bet that when you say, "I'm a financial advisor," and ask for referrals, that the person's immediate first response of you will be negative, because fewer than 50% of consumers trust financial services in the first place.
Like it or not, as financial advisors, even as we try to become our own profession, we're still representatives of the financial services industry. I think that makes it harder for all of us to ask for referrals. When you know the odds are that bad, it's hard to want to be productive. It's easy to be afraid that the reaction when you're going to ask for referrals will be negative. So you just don't want to do it at all.
Frankly, I think this is one of the main reasons, as financial advisors in the past couple of years, we've been evolving our titles and labels. You know? Financial advisor is associated with financial services industry, but wealth manager feels more aspirational, as though we're trying to separate ourselves out. I'll admit it at least, I'm often ashamed of the industry I represent, even as someone that's trying to help improve it, because I also know the bad stuff that happens in our industry.
Asking For Referrals When Clients Don’t Know Who To Refer [Time - 9:29]
Of course, even when you do actually ask for a referral, there's still the awkward reality that, often, when you ask someone for referrals, the person responds, "Um. Can't think of anyone offhand." Now it feels even worse to ask for referrals. What are you supposed to do at this point? Drill deeper? "Are you really sure you don't know anyone who might want to work with me?" Because that doesn't sound desperate.
Indirectly, I think this is one of the many reasons why having some kind of niche or specialization is so important. Think of it in the context of another profession. Imagine you're an orthopedic surgeon. Most doctors get their business by referrals. They get business from patients who refer them. They get business from other doctors who refer them, but you don't see a lot of orthopedic surgeons going to networking meetings saying, "Do you know anyone who's blown out their knee lately?" because they don't have to. They're an orthopedic surgeon. If you have knee problems, you already know you need an orthopedic surgeon. If I have a friend who has a knee injury, then I refer him to an orthopedic surgeon I saw a couple years ago, because I'm trying to be helpful.
In other words, when you have a niche or a specialization, you don't have to go out and ask for referrals. You establish your expertise and become known for what you do, and people refer the business to you. Think about it from the other end. If you had a friend who was having knee problems, and you knew a great orthopedic surgeon, why wouldn't you make the referral to help your friend? It doesn't matter whether the surgeon asks for referrals or gives me a pen and paper to write down the names of three knee-injury people I know. Frankly, it wouldn't even help, because if none of my friends just had a knee injury, I wouldn't know anyone to refer.
I'm not going to make that referral until I actually connect with the friend who just had a knee injury, and then I'm going to make the referral, which means what really matters isn't that the surgeon asked me for referrals at all. It's that I know his specialization is orthopedic surgery and that he fixes knee injuries. Then he just has to wait because the next time I meet someone with a knee injury, my brain is probably instantly going to make the connection because that's what our brains do all by themselves. Oh, you tore your ACL? I know a surgeon who does great work on ACL injuries. Let me introduce you.
What Does It Take For You To Ask For Referrals? [Time - 11:32]
But the bottom line here is just to recognize that I think there are a lot of barriers that make it hard for us to ask for referrals, as financial advisors. I think Ron Carson was right here. It's our fears that hold us back, but they're well-founded fears a lot of the time. It really is uncomfortable asking for referrals when you're not proud of the company and the products you represent, or you're not really confident in your own business value, or you're ashamed of the industry that you're in, or your clients never seem to come up with a name when you do ask for referrals. So what's the point? You just stop asking.
So if one of these are your blocking point, what do you have to do to grow past it? Do you need to change the company you're representing, to one where you're actually proud to ask for referrals because you believe you bring a good solution to the table? Do you need to reinvest in yourself with CFP certification or some other post-CFP designation? So that you're confident enough in your own value to proudly ask for referrals, because you just want to help more people with the expertise you have.
Do you need to find a way to market and position yourself so the value is unique enough that you're clearly differentiated from the rest of the bad people in the industry? Or do you need to refine your specialization or niche some way, to make you so referable that you don't need to ask for referrals because people naturally think of you when they've got a particular problem or challenge, where you have the niche expertise to solve it, and they say, "Oh, I know a person that can help you." So what's holding you back from asking for referrals?
This is "Office Hours With Michael Kitces." We're normally 1:00 p.m. East Coast Time, on Tuesdays. Although, again, since I was keynoting at the eMoney Advisor Summit yesterday, right after Ron Carson, who posted this great question, so here we are today. But thanks for joining us, and have a great day, everyone.
So what do you think? Why is it so hard to ask for referrals as a financial advisor? Is it due to the companies we work for? The industry? Our lack of confidence in ourselves? How have you overcome the barrier to asking for referrals? Please share your thoughts in the comments below!
If you do business with those clients that share your values you will not have to ask for referrals.
I think a big part of the issue is that clients still think of advisers in terms of product. It is easy for them to say “That guy did my insurance and was really good” but not so easy to say “that guy sorted out all my financial affairs and got me on the right track etc”. it is a conundrum because we all want to provide more than just a financial product advice but clients still think about us in those terms..And then if they do refer, it is possible the client may not be the right fit which makes the whole situation even worth
The other issue is that at the point in time you ask for referrals, the client doesn;t actually know if any of their contacts actually has a need. I think general profile/authority building particularly via social media can help because you have a wider audience catchment ((including your client’s contacts) who may be able to self diagnose that they have the need for advice
I appreciate the focus on confidence in the value you bring. For years I was unwilling to entertain the idea of starting my own firm, because I was still pursuing the CFP experience requirement. I found, quite unexpectedly, that when I started to really think about a specific target market, and how I could serve their specific needs, I got that confidence…even before having the CFP designation (which came within the year).
I remember years ago, Michael, when you were advising me on whether or not to buy another advisor’s practice, you mentioned that some people only need a series 65 designation and are fine hanging their shingle out the next day. That’s just their personality. And some people (say, me) needed a lot more under their belt before they’d be comfortable hanging out their shingle.
I find the journey of confidence to be one of the more unexpected and remarkable parts of the overall professional journey. What gives you the confidence? (years? designations? knowledge? work on process? treatment from others in the field?) And what does the confidence allow you to do? (start a firm? raise your prices? say no to prospects? or, in this case, ask for referrals?)
There are better ways to get referals than just asking for them. Bill Cates, Wayne Cotton and Sandy Schussel teach life insurance agents on how to build a referal based business. It is a good idea to check all 3 to see which one fits your personality. I get about 70 referals a year and add about 20 clients a year. I cant recall asking for one in the last couple years. Horsesmouth also has excellent language on how to be more referable.
I also believe that starting a niche early on will probably limit your earning referals easily. If you pick the orthopedic surgeon from day 1, and keep adding orthopedic surgeons, you make it so easy for an advisor who is insurance trained to replace you.I do this all the time for a living may be thats my niche. Big issue with the early niche strategy is that you cant fine tune your fact finding skills. There is a lot to be learned by factfinding 25, 40 ,60 and 75 years olds. If you do this and go back to the orthopedic surgeon after couple years, you will get that client also everyone in that office and their family members and most importantly you will get the receptionist who has more time and skills to refer you to other orthopedic surgeons. Each orthopedic surgeon office should generate 5 to 7 leads a year.
Name another occupation that is considered truly professional where top-notch practitioners regularly–if ever–ask for referrals. I cannot name even one.
I believe as an industry we must stop asking for referrals if we want to turn into more of a profession. Aggressive referral asking tactics are part of the reason our profession has its poor reputation. Professionals earn referrals because of the quality of their work.
Lack of confidence in your firm, products, etc. aside, think about it from the client’s perspective:
1) We work in a high-trust business. We’re not selling dry cleaning services, window blinds, or lawn maintenance. If one of their friends has a bad experience, it could ruin a relationship for life. A dry cleaner damaging a sweater is not going to ruin a relationship. Referrals to an advisor is high-risk proposition in their minds, and probably not worth it even if you’re a good advisor. Not to mention, talk of money is a VERY personal matter even for the closest of friends and family.
2) When a client does try to refer they can experience rejection. “Well, I have a person that does for me”. “I have a great guy too.” Or whatever. No one wants to feel rejected so they don’t refer.
3) Client may believe it’s not their job to help grow your business. In their minds they might be thinking, “Hey, aren’t we paying you enough? You mean we need to help you grow your business on top of paying you? They’re not going to say it out loud. They just won’t refer. The book “Stop Asking for Referrals” discusses this topic in detail.
4) Unless a person is going through a life-changing event such as retirement, divorce, changing jobs, etc. then likely client the will not be able to think of anyone to refer, thus making the conversation uncomfortable and awkward
5) Some people are just natural referrers. We get most of our referrals repeatedly from the same clients
As Michael stated, you have a better chance of getting more referrals working within a niche market. And there’s no law against having more than one niche. Then, you can ask for more introductions to people within that niche, especially if your marketing, website, social media profile, etc depict that you specialize in working with a particular group of people.
I’ve found that simple things like prompt responses to calls/emails, straightforward answers to questions, transparency, and a willingness to admit when I don’t know something goes a long way to generate referrals. The issue I have is what to do once an client says they have given my name to someone. Would love to hear some thoughts.