Key to Future Success Is ‘Likely to Refer’
By Martin R. Baird

I know that for most financial advisors, referrals are the No. 1 marketing tool that makes or breaks their business. Sure, seminars were a hot marketing technique in their day and Webinars are fun. But referrals are the real meat from where most financial professionals get their assets. I understand your situation. You live and die by how interested clients are in telling family and friends that they should give their assets to you to invest. You need these referrals like fish need water.
 
Well, the other day I was catching up on some reading (yes, I'm behind on my reading) and I noticed an article titled “Mad As Hell” in the May-June 2008 issue of The Capitalist. Research for the article was done by the fine folks at HSGrove, who surveyed more than 400 affluent investors with fee-based investment portfolios between $500,000 and $7 million in size. I'm always intrigued when people are unhappy – especially when it comes to their financial advisor – so I gave it a quick review.
 
One statistic in the article almost knocked me out of my chair. The survey asked these affluent investors if they would be likely to refer people to their primary investment advisor. I expected half the respondents to say they would make the referral. After all, advisors treat these people like gold, so I was sure many of these particular clients would tell their friends about their wonderful advisor.
 
The weighted average response to that question was 5.7 percent. What? I re-read the number because I thought my eyes were playing tricks. It had to be 57 percent. Nope, it was 5.7 percent. What a shock! Rounding it up, only 6 out of 100 clients would tell their friends they should use their financial professional. GULP! How will these advisors grow their business? How will they retain those assets?
 
Now remember that this was published in the May/June edition, well before the financial market meltdown last fall. Many people were still in a relatively good financial mood. They still had not seen the Dow drop 40 percent or more. I shudder to think what that survey would reveal if it was conducted today.
 
If you have read my previous articles here or around the industry, you know that I support research published in the Harvard Business Review that found that so-called customer “satisfaction” has zero correlation to the future growth of any business. Instead, this research shows that measuring customers’ willingness to recommend (or refer) a business to others yields the only real statistic that can guide companies going forward. A willingness-to-refer rating of only 5.7 percent means the advisors serving investors in the HSGrove survey are in for a world of hurt. Those clients and their assets are going to disappear at an amazing rate.
 
Here is what you need to take away from this.
 
First, you need to measure your current clients’ willingness to risk their reputation and recommend your services. This is not a client satisfaction survey by any stretch of the imagination. Satisfaction surveys are a waste of time and money. This survey drills down to what is really important to your clients – their reputation and their interest in risking it for you. That is a world apart from satisfaction.
 
Express the degree to which clients are willing to risk and recommend as an index or score and you have a simple measurement that serves as the starting point for your practice’s future growth. Know what your clients feel and why. Please notice I said "feel” and not think. Most of the time, when it comes to referrals, it's more about how the person feels about you and less about what they think. It's an emotional decision more than a logical one. That is why some people will still refer an advisor even when their portfolio has lost money.
 
Next, you must take not only the statistical part of the research but also the narrative and identify why you earned the score you did. This allows you to see inside your business from your clients’ perspective. For some of you, this will be fun because you will like what you see. For others, this will be very difficult because it could feel like an attack. Try to avoid taking the results personally. The important part is to understand what clients are feeling and why so that you can improve and serve them better. Major issues are seldom involved. It’s often small things like the time it takes to return a phone call or errors in documents.
 
Finally, confront the problems and start solving them. Identify the ones that are most common as well as the ones that are easy to tackle. Develop a priority list with completion dates and get on with it. One of the worst things you can do is ask clients for input and do nothing with the information. As soon as you start making progress, tell your clients what you are doing and why you are doing it. Explain what needed improving and how you are fine-turning your internal operations to polish overall service. Let clients know that their input and guidance are important.
 
Different marketing tools come and go, just like seminars and Webinars. But referrals are a consistent, long-term means of growing your business. Referrals will be around as long as people value other people’s opinions. Which brings me back to that survey. I was stunned to see a number so low. But there could be great opportunities if your clients are likely to refer ... you!

Martin R. Baird is chief executive officer of Robinson & Associates, Inc., a consulting company that helps financial professionals measure and manage the quality of client service and improvements to their internal operations to enhance business performance and increase revenues. He is a highly regarded speaker in the areas of marketing and client retention and development. Baird is author of “The 7 Deadly Sins of Advisor Marketing,” a book that offers easy-to-implement marketing ideas for financial professionals. He may be reached at 206-774-8856 or mbaird@raresults.com.