If referrals are instrumental in building your business, understanding the dynamics of successful referrals and how best to generate them should be a key focus of your practice.

When a referral system is working well, it can generate a chain reaction in your practice, much like a domino effect, with one satisfied client leading to others and then to still others, and so on. In particular, the potential of this effect over time should never be underestimated, says Steve Ison, principal responsible for advanced training at Edward Jones in Mississauga, Ont.

In 1997 — early in Ison’s career as a financial advisor — one of his clients was a young woman who had just finished university and was beginning her career. “Over the years,” Ison says, “she brought me the business of her boyfriend (who became her husband), her sister, her brother-in-law — in total, about 20 individuals from family, friends, friends of friends and co-workers.”

Referrals from existing clients are extremely powerful introductions, says Joanne Ferguson, president of Advisor Pathways Inc. , a Toronto-based financial services consultancy. “There’s already a trust, a bond established between the client and the advisor,” she says. “And the prospective clients are probably going to be similar to your client in terms of their careers and interests, which means you’ll be building your niche business.”

But asking for an introduction can be daunting. “Many of us don’t feel comfortable asking clients for referrals,” says Mark Nicholson, a financial advisor with Laurie Kenna & Associates Financial Services Ltd. in Lethbridge, Alta. “It’s cheesy and sales-oriented, and it often doesn’t work. You’re putting the client on the spot and getting him thinking, ‘Is this going to affect my relationship with my friend or relative?’”

Some new research, however, has established that asking for a referral can be much easier — and have the desired effect more often — when you take care to ensure there is a sound and reasonable connection between the type of advice you offer and the person who is looking for an advisor.

This research was carried out by Advisor Impact Inc. , which has offices in Toronto and New York. Julie Littlechild, president and founder of that company, notes that clients are likely to provide a referral only if they know the friend or relative has the need for financial advice. Otherwise, referring a friend to an advisor would appear presumptuous. Says Littlechild: “You wouldn’t tell a friend out of the blue that you know a hairdresser she should try.”

One of the keys to the success of this referral strategy is cultivating what Littlechild calls “engaged” clients, those with whom you have the deepest relationships. Those clients, she says, are the ones who will refer you to acquaintances.

But the motivation for these clients to introduce you to their friends and family members has to come from a clear understanding that those people need financial advice. Says Littlechild: “Advisors should be helping clients identify the need for financial advice in the people they know, which often arises from life-changing situations such as divorce, death of a spouse, losing a job or getting a new job, starting up a business and approaching retirement.

“This is where storytelling comes in,” she adds. “Talk about some of the problems you’ve helped clients solve in your practice.” For example, you can begin by saying to a business owner: “We’ve had a lot of success working with small businesses…”

Nicholson has started to make headway in getting referrals since he began working with Littlechild. He has learned the importance of approaching the right clients for referrals — those who fit the profile of clients he likes to serve. Nicholson recently sent an Advisor Impact client survey to a number of such clients in his book. The survey asks questions about the service these clients receive from Nicholson, solicits open feedback in the “comments” section and then asks whether they would be willing to provide him with references.

“Half of the clients who received the survey said, ‘Yes, [I am] willing to provide references’,” Nicholson says. “And after coming back from a vacation, I found three referrals waiting for me. Following up with these [referring] clients, they said the survey got them thinking. They didn’t realize I was looking for more clients, and they wanted to help me when they found I was looking for more business.”

Nicholson plans to ask these clients to take the survey again next year to determine whether he’s made improvements or changes in some the areas on which they provided feedback. “I’ve never been a guy who feels comfortable going out and kissing babies,” he adds, “so getting referrals has always been tough. But this feels really comfortable.”

Get your team on board

At the same time, you need to do your homework to ensure that you and everyone on your team is clear about the benefits you offer and how those benefits are being communicated to your clients.

Ferguson maintains that advisors who aren’t getting referrals have a gap in their businesses that needs to be filled. “It means that nobody’s talking about you and the great work you’re doing,” she says. “So, you’ll need to take a good look at your entire team. Are team members constantly reaching out to the client — from the moment the client walks into the branch to the followup calls?”@page_break@A good exercise, Ferguson says, is to have every team member write a statement about what he or she does, and what your practice is about. Then, look for consistency in the statements.

A survey conducted by Ferguson’s company of 50 top-producing teams — most with books of $100 million or more — found that all of these practices received some referrals. But the teams that demonstrated a passion for client service tended to get more. Excellent service, Ferguson notes, will always garner some referrals, even if advisors don’t ask for them.

But some advisors, especially those who are just starting out in the industry, may find this strategy to be a slow way to build their businesses. “Existing clients will be able to tell people in their networks exactly what they’re going to get from working with you,” says Jonathan Rivard, a 31-year-old financial advisor with Edward Jones in Richmond Hill, Ont. “But they’ll only do this unasked if their own experience has been spectacular.”

Other professionals

Rivard has found success using another avenue for generating both volume and value in new referrals. He has developed “centres of influence” — other professionals, such as accountants and lawyers, who provide referrals. COIs have brought in about 50% of Rivard’s new business. (Another 25% has come from face-to-face prospecting, such as holding seminars, and the rest has come from referrals from existing clients.)

Rivard adds that the types of referrals an advisor goes after has a lot to do with his or her personality and communication style. “Some people do better at getting referrals from clients,” he says, “while others work better with other professionals.”

On the other hand, some advisors may feel more comfortable asking clients for referrals indirectly — in their newsletters, emails and letters. The benefits of asking indirectly, Ferguson says, is that “clients won’t feel you are putting them on the spot; they can refer someone at their leisure. And by planting the referral seed in this manner, you are raising awareness of the need for referrals among your team members.”

But most new advisors will probably have to wait until they’ve formed solid, trusting relationships with clients over the course of a few years before they can expect referrals from them, whether by asking directly or indirectly, or hoping referrals will somehow fall into their laps. Advisors need to ensure they have a track record that is referable and a strong bond with existing clients.

Indeed, establishing trust is the single most important objective you can accomplish in building your business, maintains Dan Richards, CEO of Clientinsights, a Toronto-based financial services consultancy. Research conducted by Richards’ firm 10 years ago on how clients select their advisors showed that 50% chose advisors they thought they could trust, while the other 50% made their choices based on factors such as performance.

“Today, after the market downturn of 2008 and with the public’s current skepticism of the industry,” Richards says, “far more than 50% would choose advisors they could trust. Trust is paramount in the client/advisor relationship, and referrals from clients are a transfer of that trust.”

Clients are generally more willing to give referrals than advisors often assume, says George Hartman, president and CEO of Toronto-based Market Logics Inc. The key is asking for a referral in the right way. Once a trusting relationship has been established, he suggests, bring up the subject of referrals in regular reviews of your client’s portfolio. “We encourage advisors we are coaching to make the ‘pitch’ a part of the review agenda,” Hartman says. “Let the client know you’re open for business by saying: ‘We’ve done a review of our business and we find we have room for a half-dozen new clients.’ Make it a natural part of the conversation.”

Ison suggests a similar strategy: “If I thought a client was happy with our relationship, I’d ask him for feedback on it. And then I’d inquire if anyone else he knows comes to mind who would benefit from working with me. It’s important to ask for the referral in the context of the relationship that is going well.”

Richards contends that clients don’t provide referrals to help their advisors; rather, referrals are to help the people the clients know. “So, when you bring up the subject of referrals,” he says, “bring it up in the context of helping the client’s friends or relatives.”

Richards suggests a strategy that incorporates both the review agenda and soliciting client feedback: “Prior to your scheduled meeting, ask the client what topics he or she would like to see covered, and then add the topics you want to cover. At the end of the list, add the profile of clients whom you can best help. Then ask the client if anyone he or she knows fits this profile.”

Richards’ rule of thumb is to bring up the topic of referrals only in every third meeting or every 18 months, whichever comes first.

Whichever system you choose, it’s clear that using referrals should be a key component of your business-building strategy. After all, now that you have established a business you are proud of, why not spread the word? IE