Getting Referrals: An Act of Client Acquisition or Client Retention?

In the circle of life, and business, many struggle with where to focus their priorities: Work or family? The big project for the boss or what the client needs? A son’s baseball game or a daughter’s dance recital? The mental load that many are expected to carry daily is often overwhelming.

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    Getting Referrals: An Act of Client Acquisition or Client Retention?

    Getting Referrals: An Act of Client Acquisition or Client Retention?

    In the circle of life, and business, many struggle with where to focus their priorities: Work or family? The big project for the boss or what the client needs? A son’s baseball game or a daughter’s dance recital? The mental load that many are expected to carry daily is often overwhelming.

    For investment professionals, the big question is where to focus their attention. Is it gaining new clients or retaining current clients? Which should be the priority?

    The answer is simple … neither one takes priority over the other; both must be addressed, hand-in-hand, in order for a practice to achieve ultimate success.

    Client Acquisition

    New business development is essential for a financial practice’s long-term sustainability. The well-known adage of “If you’re not growing, you’re dying” is one to be cautious of; client losses are substantial drags on growth that can only be overcome by new client acquisition. This is particularly true in times of market volatility, in which research shows that 29 percent of clients end up looking for a new advisor due to dissatisfaction with how the advisor handles a market drop.1

    Client acquisition is often viewed as a costly endeavor. Whether using the time-tested methods of seminars and direct mail, or newer means of advertising and social media, many advisors feel hard-pressed to put the needed time and effort into a proper client acquisition model. Historically, most advisory firms spend little on marketing—only 2 percent of revenues, according to the 2018 Pricing and Profitability survey from InvestmentNews.2 Yet, the reality of the cost is so much more. Costs for attending seminars and meetings, coupled with lunch meetings and the hours spent attending these events, could potentially cost an advisor thousands of dollars and hours of time.

    What many may not realize is that the best proven way to achieve client growth is through client referrals; in fact, it is the No. 1 source of new clients for financial advisors, sitting at 77.5 percent.1 Though the most basic method of growing an advisory business, it’s hardly an easy one for many. Research shows that in 88.1 percent of instances, advisors ask for client referrals zero times, often feeling that doing so will make the client feel uncomfortable or obligated, creating an imbalance in the relationship.1 Without trying, however, this perceived expectation could be the roadblock to growing an advisor’s business. After all, one cannot win the lottery if they don’t first buy a ticket.

    Getting Client Referrals

    Often considered an awkward conversation, the process of asking clients for referrals is one financial advisors should work toward mastering … or at least feel comfortable broaching. The process is certainly more efficient, and less costly in terms of time and money, than hosting prospecting meetings or seminars. AP-affiliated investment professional Kris Tower of Denver, Colo., has much success with client referrals and reaffirms that “it’s low cost and low effort compared to many other marketing techniques, so the return on investment is huge.”

    There are several ways an advisor can go about asking for a referral to increase business:

    1. Create a process for asking. A process must be put in place that allows an advisor to routinely ask for referrals, not just at random points as they remember. Tower has implemented a methodical approach of asking for referrals; this system not only makes the advisor more comfortable in asking and doing so more often, but it also sets an expectation with the client so it’s not a big deal. For Tower, he asks immediately after delivering a client’s initial financial plan and the client wishes to implement, as well as at annual reviews. However, they take it a step further, leaving nothing to chance. “We don’t just ask, ‘Do you know anyone?’” Tower explains. “We’re looking for client connections that will be a good fit for us, so our associate advisor reviews the client’s LinkedIn connections and identifies those we may be interested in approaching. We then ask the client about that specific individual: How well do they know the person? Would it be a good fit for us? Would they be willing to introduce us?”
    2. Connect with clients outside of business. Clients are investing their livelihoods and that of their families; they want to feel that they are more than numbers and returns. It’s important that an advisor knows what is going on in their clients’ lives outside of their retirement account. Did they take a recent vacation? Enjoy a day on the golf course? Go to a baby shower? These are important things to know, because beyond establishing a rapport, the advisor can follow up with asking who the client went on vacation with, went golfing with or showered with baby presents … which could lead to an introduction. Keeping records of these details can help with future conversations.
    3. Take care of current clients. This is the big one. Approximately 85 percent of advisors state that their clients who are most satisfied with them and their work are the drivers for new clients.3 Those advisors who go above and beyond to make sure their clients are happy and feel taken care of will reap the rewards.

    Client Retention

    The first two years in an advisor/client relationship are the most crucial, with 20 percent and 25 percent of clients leaving their chosen advisor within the first and second year of the relationship, respectively.4 Advisors must focus on retaining their clients and building a relationship meant to last. The importance of doing so is proven; a study revealed that a mere 5 percent increase in customer retention alone could provide for an increase in profits of 25 percent.4

    For Tower, the focus is on striving hard to be referable. “I think this is the most important piece that many advisors miss. If you want to be referable, then do referable things,” Tower points out. “Have a concise value proposition; have a niche or unique specialty that clients can easily describe; set yourself apart from every other advisor; have a Web site that looks like a quality operation; communicate and interact with your clients on a frequent basis; respond to and process client requests in a timely and efficient manner; anticipate their likely needs; be proactive. You know … be referable!”

    Studies back up Tower’s point of taking care of the client—the biggest reason clients leave an advisor is for service-related issues:

    • 53 percent say they would leave because the advisor is not proactive in contacting the client4
    • 61 percent would leave because the advisor does not return phone calls in a timely manner4
    • 46 percent would leave because e-mails are not returned in a timely manner4
    • While seemingly inconsequential, another 17 percent say they would leave because the advisor only speaks to the spouse and does not include them in conversations4

    Customer service comes down to one essential point—if the advisor makes their client feel valued. By caring for clients and making an effort to build a long-term relationship, retention becomes natural.

    Circle of Success

    Success and growth; retention and acquisition. They’re not so different. “It’s a virtuous circle,” Tower says. “The better we take care of our current clients, the more likely they are to refer us.” And he should know … 100 percent of his new business comes solely from referrals.

    1. The Catalytic Conversation: Converting Prospects into Clients Today. Invesco Global Consulting.
    June 15, 2020.
    2. The (Understated) Cost of Client Acquisition in Financial Advisor Marketing. Michael Kitces.
    April 29, 2019.
    3. How the Most Successful Financial Advisors Source New Wealthy Clients. Forbes. Russ
    Alan Prince. March 28, 2016.
    4. Client Retention: Why Clients Leave and Five Ways to Encourage Them to Stay.
    ICON Advisers. 2018.

    Please reference disclosures:



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