Are Referrals Dead?
For most successful trusted advisors, referrals from existing clients and strategic partners have been the primary driver of growth for our practices. Many advisors would also claim that referrals continue to be their #1 source of growth.
Are you one of them?
If so, is it because you are getting more introductions than you can handle, or because you do not engage in other forms of business development?
Are Referrals Dead?
In a recent article from Michael Kitces, The Death Of Referrals And The Future Of Business Development For Financial Advisors, he shared some results from the latest Investment News 2016 Financial Performance benchmarking study that may surprise you. (Even though this article speaks specifically to Financial Advisors, I believe is it highly relevant for all trusted advisors.)
Primarily, for the first time, non-referral business development is now driving more growth than all client and professional referrals, combined. In fact, only 1.8% of growth for the average advisory firm came from client referrals last year.
There are a number of reasons why referrals are down, and I don’t believe they are coming back anytime soon. Here’s why: Early in your career, you probably worked with a younger clientele who were experiencing big life events (getting married, having babies, etc.) that required the services of a financial advisor. These clients referred you to their friends who were in a similar position.
It’s likely that these happy clients introduced you to the majority of their network during the first few years of your relationship. At some point, all of your clients will have referred (or tried to refer) everyone that seemed like a good fit.
Assuming you now have a more established practice, as a result of your clients earning more money and paying you more money, you likely aren’t interested in working with new families or folks just beginning their professional journeys. An ideal introduction for you right now is probably someone with more complex issues (and more cash to pay for your services).
The problem is these folks are likely already working with one of your competitors, and the odds are good that, at a minimum, they are content with the services they receive (i.e. they are passively loyal). Unless they are really dissatisfied, they aren’t asking their friends for referrals and aren’t open to making a change no matter how much your clients sing your praises.
You may be wondering where you should focus your efforts if the good old days of receiving steady referrals are over. While there are plenty of viable alternatives, the study referenced above showed no clear cut solution. To give you a few ideas to consider, the top four strategies advisors are focusing on in 2017 are community involvement, TV/radio appearances, hosting networking events, and volunteering on non-profit boards.
One of the options not listed in this report is manufactured referrals (probably because it is a term I made up three months ago). If you agree that traditional referrals are dead (or dying), you need to think of creative ways for getting on the radar of ideal prospects you would not otherwise meet. Doing this effectively will be a game-changer for your business development efforts. Before I give you some ideas, I think it’s important to clarity what I mean by a traditional referral.
The process of receiving a traditional referral usually happens in one of two ways:
- Someone asks one of your clients or strategic partners for a recommendation.
- Your clients and strategic partners proactively recommend you to their friends and colleagues.
It’s great if you have clients who love you and want to recommend you, but if your current strategy is for them to ask their friends if they are willing to meet you and learn more about your services, you need to understand this approach will yield you very few if any, introductions.
If you are like me, almost anyone worthy of being a great new client for you is already working with another advisor. And at a minimum, they are satisfied with their current provider. (If they were unhappy, they would actively be looking to change.)
The key to getting more introductions to prospective clients is to create reasons for your existing clients to connect you with their friends that have nothing to do with your core services. These reasons can include things like hosting events (big or small), attending events, and creating great content (just to name a few).
To illustrate how this works, here a few questions your existing clients could ask their friends and colleagues that could lead to you being introduced to them:
- “My banker is amazing! Would you be willing to meet him to learn more about his services?”
- “My banker is hosting a wine-tasting event for a handful of his best clients and is allowing us to bring a guest. Can you join me?”
- “My banker invited me to hear Malcolm Gladwell speak at XYZ Venue next week and gave me an extra ticket. Can you join me?”
Unless there is someone actively looking to make a change, no one will say “yes” to Question #1. Conversely, think about how many people would jump at the opportunity to drink amazing wine, or to learn from a bestselling author.
Hint: It will be a lot because these invitations have nothing to do with your services, or whether or not they are looking for a new advisor. They will, however, get you in front of a lot of people you otherwise would not meet, which will give you an opportunity to eventually show them why they would be better off working with you.
If hosting or attending events is not your thing, there are other strategies to consider, and I will be sharing more of them over the next few posts.