There are few topics on which financial advisors get as much advice as the best ways to increase referrals. Some of that advice includes coaching your clients to understand and communicate your value better or becoming the safe choice in a targeted niche and “create raving fans” by delivering an outstanding client experience.

New research suggests that neither of these strategies truly drives referrals. In fact, the variable that appears to influence referrals most is something that almost never gets talked about: the predisposition and mindset of clients – what can be called a client’s “referral DNA.”

Taking an evidence-based approach

Historically, the advice to advisors concerning the creation of satisfied clients and increasing referrals has been informal and anecdotal rather than rigorous and fact-based. To help address that deficiency, I worked with a faculty member in the MBA program at the University of Toronto (where I’ve taught for more than 20 years) to design a research study to measure what drives client satisfaction and what leads to referrals.

Fifty advisors from a variety of firms volunteered to participate in this study. Over a six-week period in the spring of 2012, participating advisors asked clients, after meetings, to complete a confidential, in-depth written questionnaire about that meeting, as well as an assessment of the advisor. To encourage candour, clients did not return the survey to their advisors but were given postage-paid envelopes in which to mail the completed questionnaires. The advisors, meanwhile completed parallel surveys about their perceptions of the same meetings.

More than 500 clients returned completed questionnaires. One of the questions in the survey related to the number of times the client had recommended friends or family to his or her advisor in the past two years. Clients fell into three categories: those who had recommended the advisor two or more times (26%); those who had recommended the advisor once (20%); and those who had not recommended the advisor (54%).

Please note: these findings cannot be extrapolated to suggest that half of all clients have referred friends and family. The 50 advisors who volunteered to participate were not intended to be representative of all advisors. The clients typically were of above-average importance and thus not representative of all clients. Although we asked advisors to invite all clients to participate in the survey, it’s possible that if an advisor wasn’t confident about a client’s happiness or felt that a meeting hadn’t gone well, he or she might not have offered the survey. And relying on clients’ memory to report on the referrals made over two years has limited accuracy.

Within these limitations, we now had three groups of clients when it came to referrals. The next step was to examine what drove the differences between these three groups.

Asking for referrals

The conventional wisdom is that to maximize referrals, you need to talk about this subject with your clients. Most advisors have moved past the pressure-based approaches of the 1970s and 1980s. That being said, there is a cottage industry of referral coaches who expound the view that to maximize referrals, you need to have clear conversations about your value and about the benefits your clients have experienced in working with you.

A 2008 research study conducted by Advisor Impact Inc. of Toronto and sponsored by U.S.-based mutual fund company the Vanguard Group has called into question the impact of talking to clients about referrals. That study polled clients who had provided referrals and asked about the catalyst for the referrals. The surprising finding: only 6% of referrals were triggered by a conversation with an advisor.

Catalyst for referrals

The Advisor Impact/Vanguard study found that the most common reason given for providing a referral was: “A friend told me about a financial challenge and I suggested my advisor might be able to help (54%).

The second most common response was: “A friend asked if I knew about a good financial advisor (45%).

Only 6% said they provided a referral upon their advisor’s suggestion.

Along the same lines, our research found very little connection between an advisor raising the issue of referrals and getting recommendations as a result. Of the clients whose advisor had raised the topic of referrals:

– 22% said they had recommended their advisor two or more times over the past two years;

– 14% had recommended their advisor once; and

– 19% had not recommend their advisor.

Satisfaction and referrals

So, if asking for referrals doesn’t drive referrals, perhaps the key is to have highly satisfied clients.

We asked clients to rate their advisors on a scale of one to 10 regarding key dimensions that drive satisfaction: performance, volatility, frequency of meetings and feeling like a valued client.

Again, there was little correlation between higher ratings and referrals.

– “DNA” as a driver of referrals

So, if neither asking for referrals nor client satisfaction is connected with getting more referrals, what is? Or are referrals simply a random event?

Fortunately, we asked one other question on our survey that ultimately provided the answer: Had these clients made referrals to other professionals, such as accountants, lawyers, doctors and dentists?

We found that over the past two years, 76% of clients who had referred other professionals also had recommended their advisor two or more times; 67% had recommended their advisor once; and 36% had not recommended their advisor.

There is a clear connection between clients who referred their advisors and those who referred other professionals. An advisor can have two clients with similar levels of satisfaction and with whom she’s talked about referrals, with one client providing multiple recommendations and the other providing none.

There are two possible explanations: that the client who provides recommendations has a broader network and therefore more opportunities to provide referrals; or that some clients are more comfortable with the “risk” of making referrals and give the issue of referrals higher priority.

In both cases, what drives referrals is not any activity by the advisor. Rather, it’s the client’s “referral DNA” – his or her comfort level with providing referrals.

Implications for referrals

There are at least four implications from this reality of “referral DNA” in clients:

1. Consider referrals in client segmentation. When you segment clients regarding the communication they’ll receive, give clients who provide referrals the recognition they deserve.

2. Recognize referrals. Most advisors acknowledge referrals. But advisors with the most success put special effort into organizing intimate dinners and other special events to thank referral sources.

3. Reduce the risk in referrals. Ensure that your clients feel good about their decision to make introductions. One advisor implements a 90-day welcome process for all new clients, during which he dramatically ramps up the level of contact.

4. Reduce your stress regarding referral conversations. There is value in talking to your clients about the fact that you’re open for business. But these conversations are much less important than a reading of our industry’s “referral literature” would have us believe.

Yes, it does make sense to remind your clients periodically that you’re happy to work with their friends. But once you’ve raised this topic a couple of times, don’t make these conversations a source of anxiety. Having low-key conversations with those clients who have demonstrated openness to making introductions is far and away the best way to increase referrals – and reduce your stress in the process.

Dan Richards is CEO of Clientinsights ( in Toronto. For more columns and informative videos, visit www.

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