Building Out Referral Networks

In the experience of James Pollard, founder of adviser business development and marketing program TheAdvisorCoach.com in Claymont, Delaware, the biggest hurdle for financial advisers wanting to get referrals is not knowing how to ask for them.

Most professionals know that referrals are powerful, he says, but they struggle with tapping into their network to generate them. Often they are uncomfortable requesting referrals, and, in rarer cases, they may be unsure that they are delivering sufficient value and benefit to their clients to merit asking for one.

Presuming the adviser delivers significant value to his clients, Pollard says, there really should be no hesitancy to ask for referrals—especially when the adviser follows a few key guidelines and heeds a few warnings.

Define Your Target Market

“For example, one big issue I see is that, when they do ask, advisers are far too vague,” Pollard says. “One of the worst questions to ask a client or a center of influence is also among the most common: ‘Who do you know who could use my services?’ Merely asking this question of a client offers it no insight into the type of client the adviser may be seeking.”

For instance, the existing client may know many other professionals—both those who are engaged in running a defined contribution (DC) retirement plan and those who may be good candidates for wealth management services—but it may lack an intimate view of the potential prospect’s financial life or responsibilities in the workplace.

“The client needs to have a clear picture of who an adviser wants as a referral, and it’s the adviser’s job to help it get that clear picture,” Pollard says. “Many advisers think that if they get too specific with their request, they’ll block off whatever referrals they would have gotten. This just isn’t true. More often than not, financial advisers don’t get referrals because they aren’t specific enough.”

He suggests thinking of a few “client personae” to cite. “By putting your ideal client in focus, the existing client will be able to honestly tell you if he or she knows anyone who fits the bill. The clearer and more confident you are in your request, the better your client will receive the request.”

This perspective aligns closely with referral advice from Vince Morris, president of OneDigital Retirement in Leawood, Kansas. In his view, the first thing advisers should do before trying to cultivate a referral is to identify the market they serve, or want to serve.

“You need to have a defined target market,” Morris says. “You really want to understand what your ideal client looks like and start from there.”

Leverage Well-Established Contacts

The next step is to communicate this information effectively to existing clients and to the centers of influence in an adviser’s professional community. In the world of DC retirement plans and private wealth management, these will be audit firms, Certified Public Accountant (CPA) practices, ERISA [Employee Retirement Income Security Act] attorneys, bankers or property and casualty insurance brokers.

For Morris, being part of OneDigital makes him part of a company that also offers employee benefits and human resources (HR) consulting, so he seeks out referrals through his colleagues in these divisions.

While client referrals matter, centers of influence are often the more potent referral sources, says Matthew Cellini, a partner with Greenspring Advisors, in Towson, Maryland. However, advisers need to understand that developing quality referral sources can take years, and there is no one-size-fits-all approach.

“Most advisers think referral sources can be developed quickly,” Cellini says. “In fact, the majority of our referral relationships have taken five to seven years to develop. Most advisers want to see a quick outcome, so they often stop investing in these relationships if they aren’t immediately fruitful, which negates any effort they have put in.”

Pollard sees this dynamic playing out as well. He points to a notable trend of advisers bombarding CPAs and ERISA attorneys with direct messages on LinkedIn, proposing a referral partnership even in cases where the two professionals have never met in person or share any common experiences. Naturally, such outreach almost always falls flat, and it can be counterproductive by making the adviser seem “salesy,” he says.

Take Advantage of Client Appreciation

Although Pollard encourages advisers to leverage well-established relationships with retirement industry professionals, his most practical pointers relate to client-based referrals.

“There are two ways that are incredible for securing such referrals,” he says. “The first is to bring [your current] prospective clients to some type of client appreciation event. This approach has been hard in 2020 and 2021, obviously, but you could consider online coffee chats or virtual meetings while things return to a more normal way of doing business. This strategy is so powerful. It allows your best clients to act as referral sources and to endorse your services.”

The second approach is to “give your clients something,” Pollard says, and he is not referring to a bottle of wine or a coffee mug with the adviser’s logo on it.

“All of the research shows that people give referrals of their financial advisers in order to help the people they know get financial advice that’s in their best interest,” Pollard says. “One very tangible way to make this process easier for your clients—and this is not my original idea—is to give them a branded binder of materials that step through your advisory process, your investment philosophies and your client service approach. You can then encourage them to use this binder to organize their personal financial portfolio as you have future meetings.

“What happens in the real world is that Prospect X is talking to Client Y about his financial life, and your client pulls out the binder for his friend to look over. That’s an amazing referral. It’s no pressure. It works like you wouldn’t believe,” Pollard says.

Ultimately, the better an adviser’s service, the easier it will be to get referrals, because the client will truly want to share with colleagues.

Take ‘No’ for an Answer

“With [all of the above] being said, you’re living in dreamland if you think every client will want to give referrals,” Pollard notes. “Even if you’re the best financial adviser on the planet, some people just don’t want to do it. No big deal. If someone tells you they don’t give referrals, it’s usually because they had a bad experience in the past, or they’re not sure how people in their network will react to having their name given out. If you want to explore their resistance, do so gently.”

Pollard personally recommends that advisers respect the client’s position, however, and live to fight another day.

“If you plow ahead and try to get referrals from people who don’t feel comfortable giving them—for whatever reason, it’s none of your business—you run the risk of aggravating them,” he concludes. “You don’t want to kill your client relationship for the chance of a referral.”

Art by Irene Servillo