Refer Madness

About a year-and-a-half ago, John Marshall surveyed his client roster and decided it was time to go after the really big bucks. The likeliest avenue, he figured, was gathering prospects through referrals from existing accounts.

Marshall, an advisor with the Resource Group in Glendale, Calif., had always won new clients that way. But he wasn't sure just how to use referrals to win the $15 million-and-over prospects he was now after. So, on the advice of a marketing consultant, Marshall developed a plan: Start with his highest-net-worth client. Research the man's clubs, associations, charities, boards and other involvements, and then use that information to help the client identify specific prospects.

After a long lunch in his office, Marshall's client came up with 33 possible leads, four of whom eventually became clients. From those people, Marshall then was able to grab another three accounts — all of them worth $15 million to $600 million. As a result, Marshall has more than doubled the average net worth of his clients. “I go through a very thorough process for extracting as many introductions from each client as possible,” he says.

A Good Word

When it comes to finding new business, referrals, of course, are the gold standard. What could be a more effective marketing tactic than having existing accounts or business associates urge their own network of friends, family and clients to seek you out?

“It makes prospecting a lot more efficient,” says Eric Brotman, president of Brotman Financial Group in Timonium, Md. “By the time you've got someone with you in your conference room, they've already heard good things about you.”

It's especially useful for courting the finicky ultra-affluent, who are wary of advisors and who tend to reject anyone who smells like a salesman. In fact, for advisors like Marshall who are seeking the wealthiest clients, smart use of referrals is probably the only way to win business. “If you're going to play in the world of the affluent, you've got to master the art of referrals,” says Matt Oechsli, author of The Art of Selling to the Affluent (John Wiley, 2005), and a Registered Rep. columnist.

At the same time, referral gathering is only one step. It's unlikely you'll win much new business unless you have a carefully planned system, with lots of follow-through. Jennifer Tolman, who runs Second Summer, a Pacifica, Calif., consulting firm, and the marketing expert Marshall used, recommends planning your referral-gathering approach as methodically as you would any other part of your business — with a spreadsheet listing the number of referral meetings you expect to have and how many referrals you think you'll generate per meeting. “The tendency is for advisors to look on getting referrals as something that happens at one point in time,” she says. “But it's really a process that doesn't stop.”

Dennis Evans, an advisor with Heartland Financial in Overland Park, Kan., started up his practice less than a year ago and already has garnered around 100 clients with an average net worth of about $1 million. He has accomplished this by continually asking clients for names of likely referrals, then doing the same thing when those people sign on.

Like anyone with an effective referral-generating system, Evans has a method for setting the stage for what will follow. During his first meeting with clients, he explains that one way he gets paid is through referrals.

“I tell them, if you're happy with me, I expect you to pass my name on to others,” he says. Tolman takes that a step further, suggesting that clients commit to an appointment devoted specifically to discussing referrals, preferably in the client's office or home. In these meetings, the rep needs to paint a picture of the type of person he'd like to meet — individuals with a net worth of over $10 million, say, or professionals and business owners.

To do that, you first have to determine exactly who your target market is. That sounds obvious, but it's something many reps fail to do. “Advisors often get referrals who are much smaller than they want because they haven't really defined the identity of the ideal client,” says Oechsli.

Target Practice

When Brotman left a firm he ran with three other partners a year ago to strike out on his own, he met with a business coach who helped him determine the type of client to pursue. (Answer: high-income or high-net-worth individuals.) Similarly, five years ago, Marty Kooman, an advisor with Raymond James Financial Services in Altoona, Pa., streamlined his marketing program, targeting only business owners, high-income professionals and retirees. He recruited only those people who fit his ideal profile for referrals. Now, 120 of his 600 clients generate about 80 percent of revenues, which have have almost doubled since he changed his client profile.

Some advisors recommend starting by picking the brains of their top 25 clients. On Tolman's advice, Marshall started with his top client, the one who most closely approximated his ideal. There is one caveat: Before scheduling a meeting, be sure the client is happy enough to help you out. Even though Marshall and his No. 1 client had been working together for eight years, Marshall wasn't clear how satisfied the man was with his services or how willing he would be to name names. Over the years, for example, Marshall had made some stabs at getting referrals from the client, but had had little success. So, Marshall engaged in a “value-checking” exercise, a method for safely feeling out the client's willingness to cooperate. “I needed telling to make sure I was as valuable as I hoped,” he says.

Specifically, Marshall asked the client a few, telltale questions. Most important, were those that required a more open-ended answer. Instead of asking, “Has my work been satisfactory?” for example, he tried: “How does the work we've been dong compare with your original expectations?” and “What could we be doing better?” From the client's positive answers, Marshall knew he had a greenlight to take the next step.

The big problem for most advisors seeking referrals, however, is that they don't know how to get the creative juices flowing. The answer is not to leave it up to the client. Your task is to approach him, armed with enough memory-joggers that he can't help but come up with likely names. That means thoroughly researching everything from his trade association memberships to the members of his co-op board, and providing a list of as many organizations and individuals as possible. Tolman recalls an advisor who spent five years trying to get referrals from a client. But, even though the man sat on the board of directors of a major hospital, he continually came up dry. Finally, the advisor took his client out to lunch and presented a list of the board of directors' names. The client referred him to every one of them.

Back to School

If you don't want to go through all that, there are other methods. For example, make notes during conversations whenever your client mentions a likely name. Then, at an opportune time, bring it up. You may not only be able to use that name for a referral, but the process may help get the client thinking of other possibilities. At the same time, try to coax as much information about the referral as possible out of the client. “Then you can build a pretty quick rapport when you meet the person,” says Tim Noontz, vice president of Heartland Financial, who also trains financial advisors.

After you get names, contact them right away. But, it's best to do so in a way that allows you to control what happens afterwards. Meaning: You can't just send a letter and follow up with a phone call. Noontz recommends you have a brochure just for those occasions, and ask your referring client to write a short message on top.

“When I do that, 50 percent of the time I get an appointment,” he says. Or try to draft a letter on the client's letterhead. If your client or your compliance department balks, then just write a letter, mentioning the client's name, and follow up with a phone call.

The most effective tack is to get your client to call on your behalf. If not, make the call yourself, but don't expect to get a response after leaving the first message. In fact, it's likely to be a good two months before you make contact.

“It takes a while for an advisor to get on the top of people's radar screens,” says Tolman, “If you're No. 20 on a list of phone calls to return, you have to wait until you're No. 1.” At the same time, you need to be persistent, without becoming a pest. You can do that by methodically mixing phone calls with follow-up notes.

Send thank-you notes to your clients when you get a response. That's not only to express your appreciation, but also to keep them primed to provide more referrals in the future. If you run into a brick wall after three months, report back to your client with your progress. For those referrals you haven't been able to reach, ask whether you can tag along on a regular get-together — a monthly golf game, say, or drink after work.

It all means a lot of meetings, phone calls and letter writing. So much, in fact, that it's easy to get confused — sending one client two thank-you notes for the same referral, or forgetting to make a follow-up call. To make sure he doesn't get mixed up, Brotman has a checklist for each client, so he can tick off when he's accomplished a particular task and keep track of his progress.

Other Sources

Clients, of course, aren't the only effective source for referrals. The other potential gold mine is in attorneys and CPAs with whom you forge symbiotic referral networks. “People do whatever their accountant or attorney tells them to do,” says Noontz.

Developing that network, however, requires the same patience and planning you need when dealing with clients. Fact is, a small army of other advisors is also probably knocking on the doors of the same professionals you're trying to cultivate. As a result, it can take six months to a year before your target starts sending you referrals. Oechsli points to one advisor who developed successful relationships with five CPAs — but only after spending a year meeting with over 50 contacts.

And, you'll probably need to go the extra mile to get anywhere. Noontz recalls an attorney who only started sending him referrals after he had sent several of his own clients to the lawyer. Brotman has cultivated a group of about half a dozen estate-planning attorneys, originally the lawyers for existing clients. But he made points with them by first including them in financial planning discussions, “to give them the opportunity to see what we do and get to know us,” he says.

Then there's Diane Armstrong. An advisor with King Dodson Armstrong Financial Advisors in Columbus, Ohio, and president of the Financial Planning Association of Central Ohio, she shares a percentage of assets under management fees with about 14 CPA firms. (She makes sure clients understand the arrangement.) And she tries to serve as an information resource for CPAs, even if they don't refer business, just to establish “goodwill,” she says.

Brotman's M.O. — approaching the accountants or lawyers of your better clients — is probably the most effective way to get started. But there are other, less orthodox, tacks, as well. Noontz, for one, suggests that advisors see two or three accountants for their own personal tax needs, just so they can develop those relationships into referral sources. “You're not going to get any referrals from Turbo Tax,” he says.

What's more, there are other creative sources for referrals, as well. About 11 years ago, Brotman put together what he calls his own board of directors — a group of professionals, including an estate-planning attorney, a CPA and an executive coach — to refer business to each other and help each other out in other ways, as well.

He started by sending letters to 100 estate-planning attorneys in the area, asking if they'd be interested in helping him form a board. Sixty of them agreed to have lunch to discuss the idea. After six months, he found the perfect choice, then they put together the rest of the membership. For his part, Kooman has a standing referral arrangement with an employee-benefits firm. Six of his top 10 clients came from those referrals.

The bottom line: You can develop referrals from all sorts of places — but only if you make finding them a way of life.

The Fine “How Do You Do”

Tried-and-true methods for getting referrals.

• Leverage your relationship with your highest-net-worth client. Research his clubs, associations, charities and boards, then use that information to help the client generate referral prospects for you.

• Make referrals part of the new-client orientation process. During a first meeting with a client, explain that referrals are a large part of your business.

• Get clients to agree to a meeting devoted specifically to generating referral names.

• Take careful notes of names your client drops during conversations and try your best to turn these names into referrals.

• Use your relationship with other financial professionals — estate lawyers, accountants — to generate referrals. Such partnerships work best when referrals flow both ways.