Over the past couple of decades, the financial advice industry has evolved from being based primarily on one-off transactions with dozens or often one or several hundred individuals that an advisor may interact with (often only once every few years), to being focused on providing ongoing advice for a tighter group of clients that the advisor meets with several times each year. One of the greatest features that has emerged as part of that evolution (and attracts people into the profession itself) is the depth of ongoing relationships that advisors develop with the clients they serve. The feeling of playing a key role in helping families reach their financial goals provides a high level of both personal and professional satisfaction, and can become deeply gratifying personally as those relationships last for several decades (and across multiple generations). Sometimes, however, advisors can become so attached to their clients that it becomes difficult to separate a client’s stress from their own… which can eventually take its toll on the advisor’s own health.

In our 58th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss some of the things that advisors can do to stop thinking (and worrying) about their clients quite so much, strategies to regain some mental health balance in their lives, and ways create (and maintain) some separation from work outside of regular office hours.

As a starting point, some initial steps advisors can take in order to stop thinking and worrying so much about whatever may be stuck in their heads is by simply writing it down! Whether doing it digitally (with a dedicated note-taking app like Evernote) or by going ‘old-school’ with a pen and paper, the physical act of just typing (or writing) out the client issue on the advisor’s mind can often have a purging effect, as it gives advisors a way to get whatever it is that they’re stuck on out of their heads and into a place where they know they’ll be able to go back to it… with the caveat being that they have to make reviewing those notes (at an appropriate time) part of their routine (but at the same time, can let go of the issue for the immediate time being!).

From there, advisors can become proactive about making small changes to their routines and habits around sleep, exercise, and diet, to preserve their own mental health. Incremental steps, like going for a mid-day stroll, doing anything that doesn’t involve a screen before going to bed, and turning off notifications from work-related apps after a specific time, can go a long way. Or, in other words, taking those incremental steps can help advisors put “air in their shocks”, which can help them build up the resilience they need to better react to and manage stressful situations as they do inevitably arise.

Ultimately, the key point is that financial advice is, at its core, a helping profession, and as such, attracts people who want to have a positive impact on other people’s lives. However, it's crucial for advisors to realize that they are also important, and if they don’t protect their own physical and mental health, they simply won’t be able to help their clients. By focusing on getting some exercise, eating healthier, getting better sleep, and jotting down whatever it is that’s stuck in their heads, advisors can be proactive about making sure that they’re able to serve their clients to the best of their ability!

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If there’s one thing that just about every financial advisor can agree upon, it’s that surviving the first few years in the advice business is very difficult. As a result, there’s a natural tendency for newer advisors to not be terribly picky about who they take on as clients, as getting any new clients that can generate any new dollars flowing into the business is often necessary for survival. However as advisers begin to find success, they have the opportunity to start building their practice with focused intent. For some, that means growing and scaling by hiring staff to support a growing number of clients. For others, that may mean remaining a ‘solo’ lifestyle practice and serving a (relatively) small number of (often highly profitable) clients.

But, no matter what a practice may look like, many advisors reach a certain point where the clients that helped them get off their feet early on are no longer a good fit… whether because they “can’t be serviced profitably” given new staff infrastructure, or don’t generate enough revenue to fit the more focused lifestyle practice, such that they can even become a drag on overall business results. In the case of no-longer-profitable clients who aren’t pleasant to work with in the first place, the solution is often straightforward. But what if they’re not unpleasant, just “unprofitable”? Which raises the question: How should advisors handle clients who they otherwise know they are helping and truly enjoy working with, but just aren’t profitable to serve?

In our 57th episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss how to determine if a client doesn’t meet the profitability goals of a business, how to think about serving unprofitable clients who are otherwise a pleasure to work with and need good financial advice, and how to communicate with those clients when there’s no other choice but to let them go.

As a starting point, it’s important to first identify which clients are actually unprofitable for the practice. Accordingly, a common rule of thumb is to take the average revenue per client across the firm (by taking total revenues of the firm and dividing that number by the total number of clients) and then dividing that number by three. Since most advisory firms have overhead somewhere in the neighborhood of 30-40%, those clients who are generating less than about a third of the average revenue per client simply aren’t covering their slice of the basic costs of running the business.

From there, advisors can make a deliberate decision to designate a certain number of clients as “pro bono” and continue to serve them. But after those proverbial pro bono seats are full, there may be even more clients that now need to be transitioned. At that point, the best way to handle that conversation is by being candid and honest, and by explaining that, because of the level of service that’s being provided, the firm needs to charge a higher fee commensurate with the services it’s providing… and that it wouldn’t be in the client’s financial interest to pay the firm’s (new, higher) minimum fees. At that point, the advisor is communicating that they aren’t a good fit for the client (rather than the other way around, in a manner that could hurt the client’s feelings), and can best help by finding a different advisor who is!

Ultimately, the key point is that advisors chose this profession because they want to help people, but it’s equally important to acknowledge that advisors can’t help everyone… and that there are also other advisors out there who do great work, and for whom one advisor’s unprofitable client could still be a very good client for them. In other words, just because a client can’t be served profitably by one advisor doesn’t mean they can’t be served well by any advisor (as one advisor’s “C” client may still be someone else’s “A” client!). Which means transitioning clients who aren’t a good fit isn’t simply about “rejecting” them or leaving them to fend for themselves… instead, it’s an opportunity to help them find the advisor who will want to service them at the level they need and deserve, for the benefit of all!

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For the past several decades, the prices that consumers pay for financial products have been trending lower and lower. From the rise of discount brokerage in the 80s, to no-load mutual funds platforms in the 90s, online brokerage in the “aughts”, and robo-advisors in the 2010s, the cost of investing has decreased steadily and dramatically. Accordingly, a recurring concern over the past decade has been whether the “fee compression” in financial products will eventually spread to financial advice as well. Instead, though, the opposite has been true, as our own Kitces Research shows that there has actually been fee expansion when it comes to financial advice, as the typical price that advisors charge for standalone financial plans, retainers, and hourly rates has been on the rise (and even AUM fees have remained remarkably stable!). Which suggests that, as the industry has become more focused on the advice side of the equation (and less on product sales), advisors have had to up their game… and in practice really are delivering far more value to their clients than they ever have… to the point that they’re even able to charge more for it!

However, as the advisory world transitions fully to advice fees and the debate between commissions versus fees begins to fade, a new sort of industry conflict is rising to take its place: where advisors who charge fees are criticizing each other for whatever fee model they’ve chosen to utilize within their practices, and the suggestion that their particular fee model is superior to all the others. Which raises the question: is the debate about the “best” advice fee model another version of consumer education (akin to teaching consumers about the difference between fees versus commissions), or are advisors charging fees becoming too focused on differentiating on price (or pricing model) instead of focusing on the range of value that a range of advice fee models can support?

In our 56th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss the emerging new advisor fee debate, why advisors may be missing the mark on the core issue at play, and how advisors could reframe their discussion in order to help move the profession (and their own practices) forward.

As a starting point, it’s important to remember that in an industry with a lot of compensation excesses, it has been a tried-and-true tactic for financial advisors to build their businesses over the years by pointing out that their costs are lower (making it more feasible to deliver better performance) than their competition. Yet at the same time, it’s important to remember that there’s a difference between advisors who charge a lot for very little service, and advisors who charge a lot for a lot of service (that not all clients may want to buy and pay for… but some do). In other words, while there are certainly advisors whose rates are “high” (in absolute terms), the central debate shouldn’t be around the fee itself (or what it’s based on), but rather the value that a client is actually getting for the fees they pay. Or stated more simply, the issue isn’t whether a certain fee (or fee model) is good or bad, it’s whether the fee itself is justified for the value it provides to the particular type of clients being served.

From a client-facing perspective, meanwhile, advisors might consider focusing on all the services (and value) they provide when meeting with prospective clients, rather than highlighting the fees that other advisors may be charging. Because, at the end of the day, when advisors ask good questions and emphasize the positive effect that they have on their clients' lives, prospective clients will be able to connect the dots themselves and understand if the service that they’re getting (or not) from their current advisor is worth the fees they’re paying.

Ultimately, the key point is that advisors who win business on price run the risk of eventually losing business on price (and/or simply attracting the most price-sensitive clientele). Which means for advisors focused on long-term relationships, making clear the real value of financial advice (and what that looks like on an ongoing basis) turns the focus away from why a prospective client may or may not be paying too much, and towards their pain points and the issues that they need help with. Because it’s the emphasis on the positive work that advisors do, and the outcomes they facilitate for their clients, that will push the profession (and individual advisory firms) forward.

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For most of its history, the financial advice industry has been almost exclusively transactional in nature, which meant that advisors would usually interact with clients only when there was a new sales opportunity. The need for interaction only once every few years meant that advisors could have literally hundreds of clients, and it was virtually unthinkable that an advisor would ever choose to or have to turn anyone away. But, as the industry has shifted towards a more ongoing, relationship-driven model, it’s become increasingly common for advisors to find that they’ve hit a capacity wall and simply can’t take on more clients. And once at capacity, many advisors have either raised their fees (so that more prospective clients self-select out of the engagement process before ever reaching out) and/or sought to add capacity (by bringing in additional advisors and staff).

However, for those advisors who aren’t interested in increasing headcount (because they aren’t keen on managing people) or don’t want to raise fees (because their current pricing works for the particular niche they’re targeting), many have turned to implementing waitlists as a way to manage their capacity, at least in the short-term. Which, in turn, raises the question: is implementing a waitlist really the best way to handle capacity limitations, or is there a better alternative?

In our 55th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss the motivations that might drive an advisor to implement a waitlist in their practice, the unintended consequences of a waitlist, and a key mindset shift that advisors can make when thinking about their desire to manage their limited capacity with a waitlist.

As a starting point, it’s important to distinguish amongst a couple of different circumstances behind the use of a waitlist. On the one hand, for the advisor who is actively expanding their capacity by hiring more staff, a short waitlist might be unavoidable if there’s been a sudden influx of new clients, and it’s logistically impossible to onboard everyone all at once. On the other hand, some advisors have intentionally capped their growth pace, and implement a waitlist that (in some cases) might be up to 18 months.

For that second subset of advisors, it’s important to recognize that their decision to put prospective clients on a waitlist comes from a deep desire to help, while realizing that it’s impossible to help everyone (because an advisor who says “yes” to more professional opportunities than they can handle is also actively saying “no” to other things in their life). Unfortunately, though, that decision comes along with some unintended consequences, as people who reach out to financial advisors invariably do so when they have an acute pain point that they need help with right away, and telling those people, “yes, but” means that they often aren’t getting the help they need when they need it (and will just go elsewhere anyway). Instead, it’s perhaps the better response for advisors to simply say they aren’t accepting new clients at the moment and (as an alternative) recommend those prospects out to other advisors who do have the capacity to offer the immediate help the prospective client is seeking.

Ultimately, the key point is that, while it may make sense to implement a waitlist as a way to manage growth and capacity, the reality is that the longer the waitlist gets, the more the risk that advisors end out rejecting clients who, not knowing where to turn, may not get the help they need (or worse, seek it from an advisor who doesn’t do a good job for them). And while some advisors may worry that referring potential clients out will empty out their pipeline and leave them without prospects when spots do open up, it’s important to realize that simply getting to a point where there isn’t room for more clients means that the advisor must be doing something right, and can move away from the scarcity mentality all advisors have as they build their businesses. Because advisors who are at capacity and choose to refer prospective clients to good advisors, at the end of the day, are actively helping those people and moving the profession forward.
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An often underappreciated aspect of the financial planning process (and the resulting Plan that financial planning software packages produce) is that it wasn’t originally developed as part of fostering an ongoing client/advisor relationship. Rather, it was a tool that advisors would use to identify “gaps” or “needs” in someone’s overall financial picture… in order to then sell them something to fill that gap! Which, in turn, is why many financial planning software packages are still structured in such a way as to produce moment-in-time snapshots... and why some advisors have turned to other types of client deliverables, such as one-page financial plans and action checklists, as a means to engage clients in an ongoing planning process.

Yet, while there’s a broader recognition that planning isn’t a one-and-done event, the issue remains that clients can often see tremendous progress in the initial stages of working with an advisor, but may end out wondering what value they’re getting on an ongoing basis. Which raises the question: how can advisors create (and more importantly demonstrate) value for their clients... if they aren’t producing a new Financial Plan every year or few?

In our 54th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss the most important factor to consider when thinking about creating ongoing value for clients, strategies advisors can use to actually demonstrate that ongoing value, and how to avoid a common challenge when creating a “value structure”.

As a starting point, it’s important to recognize that the most important aspect of demonstrating ongoing value to clients is consistency. For instance, some advisors adhere to an outreach and meeting cadence throughout the year to make sure that there are (depending on the nature and complexity of the relationship) a certain number of in-depth meetings and touch-points. Others even systematize the process even further by creating (and sharing) checklists of regularly performed tasks and client service calendars in order to actively communicate to clients that their advisor is routinely paying attention to all the big picture (as well as mundane) things on their financial plates (so they don’t have to!)

Meanwhile, some advisors have implemented more “homegrown” solutions to actually track the value that they create for their clients. Some examples include “keeping score”, whereby advisors assign point values to all the various pieces of the financial planning process and tally a score to show clients the progress that they’ve made. Because while advisors do a lot of behind-the-scenes things for their clients, they often underestimate how important it is to actually communicate to clients all those things that they actually do already! Other advisors prefer to track a client’s net worth over time (even having the client themselves enter the number themselves into a spreadsheet to further emphasize progress and ownership), or even keep a running tally of the real dollar value of the money that clients have saved as a result of the advice they’ve received, either of which shows the client the actual progress they’re making on an ongoing basis in real (but non-portfolio) dollar terms.

Ultimately, there are a lot of things that advisors do for their clients to create value beyond ‘just’ producing a five-inch three-ring binder called The Plan once every few years. The key, however, is in being consistent, not only about the doing part, but systematically showing to clients that all the different pieces of their financial puzzle are regularly taken care of. Yet at the same time, it’s important not to get so focused on their systematic process that the advisor may miss uncovering a new issue or pain point. Which can be avoided by asking their clients ahead of meetings if there’s anything that they would like to cover in the upcoming meeting that isn’t already on the agenda... and then making that the very first thing they talk about. Because at the end of the day, the most effective way to demonstrate ongoing value to clients is simply to be ready and prepared to address their ongoing financial planning needs and concerns, whatever may arise!

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The evolution of advisor technology in recent decades has made it easier and easier for financial advisors to build (and manage) systematized model portfolios for a large number of clients. The good news of this shift is that it has greatly facilitated the scalability of advisory firms. The bad news, though, is that it centered the advisory firm’s value proposition around the portfolio, as the firm’s resources were literally focused on “investment management”. And in turn, to help convert the prospects to clients, advisors learned to create beautifully designed marketing brochures, “investment decks”, and engaged proposal generation tools to show why their bespoke portfolios were better than all the other bespoke portfolios out there.

However, as the industry has continued to evolve towards a more holistic and service-based (i.e., intangible) approach to the financial planning process (and away from such a focus on investment management and the attendant performance expectations), advisors often struggle with illustrating the increasingly financial-planning-centric value that they offer (often over the course of decades) to their clients. Which, in turn, raises the question: Is there such a thing as a “financial planning proposal”, or something similar that financial advisors can give to prospective clients in an initial meeting to illustrate how great all this ‘financial planning stuff’ really is?

In our 43rd episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about the importance of meeting prospective clients where they are and asking good initial questions, creating a preliminary financial planning proposal and deliverable (and what that might include), and how to provide an even more substantial piece of supporting material that can help advisors show prospects what value they can expect to receive from the financial planning process.

As a starting point, it’s important to recognize that, in order for a prospect to decide to hire an advisor, the advisor needs to have asked the right questions to uncover and understand the specific pain point that prompted the prospect to book a first meeting. As it’s the clear understanding of this pain point as a motivator that led the client to take action that the advisor must address in a financial planning proposal (and communicate back to the prospect to make them feel they’ve been heard!).

From there, the advisor can create a one-page plan that lays out what the key issues are, which might include a preliminary statement of purpose, a list of initial goals that have been identified, and a 90-day action plan to start down the proverbial financial planning road. The key is to understand that prospective clients care far less about specific solutions than knowing that someone understands their problems (and can help them work towards a solution). Additionally, advisors can supplement that one-page plan with a full sample financial plan, which can really help prospects understand what exactly they will be getting, why the fees are what they are, and what the financial planning process really means (beyond what they may have encountered in prior experiences).

Ultimately, the key point is that the days of glossy brochures full of Morningstar reports and stock photos of compasses and lighthouses may not be as relevant as they were when an advisor’s main value proposition was investment management. But that doesn’t mean that there aren’t valuable deliverables that advisors can use to help demonstrate the sort of value that prospective clients can expect. And at the end of the day, tools that help clients decide to move forward and engage a financial planner not only help them solve the problem that they came in to get solved in the first place but can expand further into a holistic financial planning engagement… and also help advisors grow their businesses in the process, too!

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Over the past several years, the technological capability for financial advisors to implement dynamic, interactive websites has evolved dramatically. Gone are the days of needing to publish static brochure-style webpages with images of lighthouses, compasses, and winding roads, and instead, advisors are able to publish robust portals that allow them to share content that demonstrates their expertise, provide information about the advisor(s) and their team, communicate directly with those they hope to serve, share the details of their pricing and the value they provide, and (if everything goes to plan) have visitors become a lead or even outright book an appointment. Yet the end result is that the advisor’s website becomes a sort of Swiss Army knife… chock full of little tools that can do a lot but don’t necessarily work nearly as well as a tool with a singular purpose. Which, in turn, raises the question: Are advisors asking their websites to do too much?

In this our 52^nd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the one important thing that all advisor websites should do, ways to create awareness and become relevant to a specific audience over time, and why some advisors have unrealistic expectations from their website.

At its core, the key to marketing success as a financial advisor is learning how to solve the specific problems of a specific group of people better than anyone else (rather than trying to be ‘everything to everyone’, and in the process, not actually being especially relevant to anyone). Because having a clear focus on a clear target market niche clientele allows the advisor to differentiate themselves in a crowded and competitive marketplace, by being able to clearly stand out to the clients they are best able to serve. Which also means moving away from having a website that tries to be everything to every visitor, and instead simply gives a clear statement about who they serve… and an obvious next step for those prospects to actually move forward with the advisor.

Which, in almost every instance, isn’t going to be a newly minted client deciding to hand over their life savings. Because, outside of referrals who are doing their last bit of due diligence before reaching out, most visitors to a website simply aren’t ready to do business with an advisor upon their first visit.

Instead, by simplifying a website’s design and ‘just’ having a well-defined audience and clear next step, advisors can build a targeted mailing list that they can use to share out relevant and actionable content, so that when someone who’s been on that list realizes they have a problem that needs solving, they will remember that the advisor who serves ‘people just like them’. In other words, an advisor's website should have one purpose, and that’s to gain permission to communicate with a visitor again. And use those subsequent communications to build the trust relationship necessary to actually do business with them whenever they are ready.

Ultimately, the key takeaway is that advisors should shift their mindset around what their websites are meant to do, and recognize that it’s extremely rare that a first-time visitor has arrived ready to do business. And that, unless it’s clear who the advisor serves and what the next step is, the odds are that all those first-time visitors will also be last-time visitors as well (even if they are exactly who the advisor serves in the first place) unless there’s a simple way (and a reason) for them to give their permission (by sharing their email address) to hear from the advisor again. While advisors who can find a way to stay in front of people in the future after they come across the advisor’s website once have at least a fighting chance of being top of mind when that one-time visitor eventually needs to actually hire a financial advisor!

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For most of its history, the financial advice industry has been predominantly transaction-based, with advisors earning a living solely from the commissions they earned on whatever product they sold to help their clients meet their needs. And since there wasn’t any reason to meet with those clients again until there was another opportunity to implement a product, advisors needed to attract as many potential clients as they could in order to be successful. As a result, it was essential for advisors to be as broad in their messaging and marketing as they possibly could, to be certain they reached anyone who might potentially be able to buy their company’s products.

However, as the industry has moved towards recurring-revenue model, where advisors are paid for ongoing financial advice, not only has it become increasingly difficult for advisors to stand out in a crowded and competitive marketplace, but as recent Kitces Research shows, advisors who serve a niche enjoy clear operational benefits as well, including the ability to spend more time on high-value, client-facing activities, charge more for the advice they give, scale their practices more efficiently, and earn (on average) more than 50% more than their non-niche counterparts. Yet, the reality is that many advisors still balk at the notion of focusing in on a specific niche, which raises the question: why is it so challenging to choose an area of focus, and how does one get comfortable choosing a particular niche to focus on?

In our 51st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss some of the reasons advisors have a hard time committing to a niche, the mindset shift that advisors can make when thinking about the choice to serve a niche, and why relevance (through serving a focused clientele) is a key element to building a successful advisory business in the future.

As a starting point, it’s important to recognize that the most common reason that advisors avoid ‘just one’ specific client-type is that they worry that they will have to say ‘no’ to prospective clients who don’t fit that focus… and actively turn down revenue in the process, which a particularly daunting prospect for advisors who are in the early stages of their career. Yet, the likelihood is that very few people (if any) end out saying ‘yes’ to advisors who try to be everything to everybody in the first place. Which is often readily apparent when looking at advisor websites, that (for generalists, at least) rarely generate leads, despite seeing (usually) a few hundred visitors each month… who might arrive at the advisor’s website, take a (virtual) look around, but leave without taking any action. Put another way, advisors who don’t develop the expertise to solve specific problems for a specific group of people better than anyone else may be able to work with anyone, but don’t end out being relevant to anyone.

Ultimately, the key point is that deciding to serve a niche isn’t about saying ‘no’ to a bunch of prospective clients, it’s about getting at least a few more potential clients to say ‘yes’ in the first place. Getting started as a financial advisor (regardless of the business model) is by far the most difficult stage in every advisor’s career. But the good news is that there is nothing to lose by not trying to be everything to everyone, and a whole lot to gain from getting really good at serving a specific clientele with issues that are unique to them for which the advisor can offer differentiated value. In the process, advisors can move from not being relevant to each and every person with whom they interact, to being in a position to serve the exact needs of at least a few of them… which, at the end of the day, is a big step forward, both for advisors just getting going, and for advisors who want to take their businesses to the next level!

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Over the past several years, there’s been an explosion in the number of marketing channels that advisory firms can use to attract new leads, turn them into prospects, and finally convert them into clients or customers. Yet, despite the ongoing evolution in marketing, our Kitces Research studies have shown that the most common way that financial advisors gain clients is the same way they’ve been doing it for decades… through referrals. As the profession has evolved, however, so too has the approach to actually generating those referrals, as the invasive “I get paid two ways” tactic has been replaced by having far more effective (and far less uncomfortable!) conversations with existing clients about ways in which they would prefer to connect with new people.

Unfortunately, though, many advisors still have a difficult time actually starting up those referral-asking conversations in the first place, which, in turn, raises the questions: What are the blocking points keeping advisors from having conversations with their existing clients about finding more clients like them, and how can we as advisors overcome those blocking points?

In our 50th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the underlying reason why advisors have such a hard time asking their clients for referrals, how to push forward by instead asking advice on how to grow their practices, and ways to gain the sort of confidence that ultimately eliminate those blocking points altogether.

As a starting point, it’s important to recognize that anything having to do with marketing and business development requires an advisor to put themselves “out there”, which means that there’s a risk of rejection. And since human beings don’t like rejection, it’s that fear of rejection that causes us to find all sorts of reasons to not do what it is that we’re supposed to do. Overcoming that fear initially often requires a burst of courage to take a leap and take action, but the good news is that those leaps not only get easier with repetition, they eventually become something to look forward to as the advisor starts to see tangible results from their efforts and feels “rewarded” for taking the leap.

From there, the next important step is for advisors to gain the confidence that the services they offer really do bring value – so much value to their clients, that they should want to be passionately telling (nearly) everyone they meet about the great work they do! There’s a plethora of pathways towards gaining that passion and confidence, but two of the most important for advisors are by making sure they are in a situation where they are proud of what they do and the services they can offer, and by obtaining the education necessary to have the self-confidence of knowing that they are good at what they do and that they help people.

The key point is that the challenge around generating referrals from existing clients is less about the method itself, and more about overcoming the fear of rejection, and addressing our own self-confidence gaps that may exist. Because at the end of the day, it can be helpful to reflect on the fact that most of the good things that happen in life involve some initial element of risk. Ultimately, soliciting a client’s help in meeting more prospective clients that are like them isn’t about generating referrals or having conversations about referrals, but is simply a way for advisors to try get more people great financial advice that they’re confident they can provide!

 

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Achieving success as a financial advisor is difficult. Not just because of the challenge of learning the necessary information (and how to deliver that information), but also because of the perennial challenge for advisors in getting people to (in marketing parlance) “know them, like them, and trust them” enough to become clients and pay the advisor for their expertise. Which is why, despite the tremendous growth in recent years of available channels to connect with prospective clients, by far the most common (and reliable) means of growth for advisors is when existing clients (who already know, like, and trust their advisor) refer their friends and family to the advisor. Still, though, while “referrals” remains the most common channel by which advisors get new clients, most are not getting as many referrals as they would like, and struggle with figuring out how to actively get more referrals in a way that is both genuine and scalable, in a world where just trying to be “remarkable” may no longer be enough.

In our 49th of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss why asking clients to refer their family and friends has become increasingly difficult for advisors in recent years, the key mindset shift that advisor should make when thinking about growing their business through referrals, and a systematic strategy to actively go about making that happen (beyond just trying to do more and give more away to clients in the hopes that they will tell their friends and family about it)!

As a starting point, it’s important to recognize that, as the industry has shifted towards a more fee-based model (where clients see the fees that they pay as a line item in their statements), the old “I get paid two ways” conversation (by the work you do with me as an advisor, and giving me a referral to your friends and family) is no longer a comfortable one to have. Yet, when asked how they go about generating referrals in a post-commission world, most advisors still don’t really have a good answer other than they try to give remarkable service and then hope that their clients will, in turn, remark to their friends and family about what a great advisor they have.

Unfortunately, that process is neither reliable nor repeatable for most, which is why advisors should instead adopt an approach that is. A more targeted strategy is for the advisor to instead make a shortlist of the clients that they would most like to replicate, scheduling a short call with those clients, and asking them, if they were in the advisor’s shoes, how they would go about finding more clients like them. Some conversations may not go anywhere, but a few may result in the actual name of a new referral on the spot! But by far the most valuable outcome is an idea, that comes from the client, about a good way to meet more people just like them. And because those ideas are coming from the client, chances are pretty good that they’ll be the first in line to show up with their friends or family to an outing or event that they thought of in the first place!

Ultimately, the key point is that getting clients to refer their friends and family to their advisor is about creating room for clients to become invested in the success of the ideas that will help their advisor build relationships rather than just trying to provide remarkable service (which is still important) and then hoping for the best. Because if advisors can show that they are genuinely interested in their clients’ interests, ideas, and opinions, then those clients will become actively engaged in activities that will give prospective clients the opportunity, in turn, to get to “know, like, and trust” the advisor as well.

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