Mentioned In This Article

While most clients say they are ready and willing to provide a referral for their financial advisors, many of them are not actually following through on it, according to a recent report released by Advisor Impact, Charles Schwab Advisor Services, and researchers at Texas Tech University, who surveyed advisors’ clients. Some 91 percent of respondents to the survey said they are comfortable providing a referral, but only 29 percent of them had acted on it in the past 12 months. Clients identified as “engaged” were more likely to offer referrals, the survey found.

“This study underscores that there is a direct economic correlation between having ‘engaged’ clients and having a thriving practice,” said Nancy Allen, director of Business Consulting Services with Schwab Advisor Services, which sponsored the survey.

“Engaged” clients, who made up 24 percent of those surveyed, provided a satisfaction rating of eight out of 10 or higher, 10 being the highest, and a loyalty rating of four or five out of five. And a full 100 percent of these engaged clients had provided a referral in the last 12 months.

“These ‘engaged’ clients are a great source of referrals for advisors, they just need to know how to close the gap by working with the right clients, having the right conversations and asking the right questions,” Allen said.

When clients were asked about their motivation to refer, the top reason was reciprocity, with 58 percent saying they wanted to thank their advisors for the good job they were doing. But there seemed to be a disconnect between their good intentions and actual action. “Being motivated to help simply isn’t enough,” said Julie Littlechild, president and founder of Advisor Impact.

Clients seemed only to act on their willingness to provide a referral when there was a clearly stated need on the part of a friend or family member, said Littlechild. When asked about why they took action on the referral, 57 percent said a friend had described a financial challenge, while 48 percent said a friend asked for a recommendation. Only 2 percent made a referral because an advisor had asked for a name.

Debra Brede, founder of D. K. Brede Investment, said she often asks clients for referrals during regular meetings, but they don’t normally give her a name right away. In some instances, clients will say they don’t want to refer because they’re afraid the friend would be upset if the referral didn’t work out. Even though Brede doesn’t get a name every time, she does get referrals from many clients, she said.

According to Littlechild, because most referrals happen when a client becomes aware that a friend needs advice, a better approach for advisors might be to help clients identify friends with advisory needs and help them understand what kinds of problems they can solve. In fact, when asked what advisors could do to encourage more referrals, 58 percent of respondents who had already offered three to four referrals said advisors could help them understand how to help their friends.

To have the most immediate and substantial impact on the business, Littlechild suggested focusing on those clients with whom the advisor has a deep relationship and those clients who already have a propensity to refer.