Six Marketing Strategies for Developing a Referral-Only Practice | Lord Abbett
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Practice Management

Seasoned veterans share their insights on how to build a business through trusted relationships.

This Practice Management article is intended for financial advisors only (registered representatives of broker dealers or associated persons of Registered Investment Advisors).

Imagine never having to cold call to find new clients. Imagine putting an end to marketing seminars and direct mail campaigns. Imagine having clients so loyal, so pleased with your work that they happily refer you to family, friends and business associates without you even having to ask.

For many advisors, this dream of a referral-only business has become a reality. Here, seasoned veterans share their insights on developing a client acquisition model where referrals are a common byproduct of trusted, long-term relationships.

Doing Away with Tradition
A dirty little secret of the financial services industry is that more than half of the clients at the larger financial firms are assigned to senior advisors, says Mitch Kramer, principal of Fluent Financial in Dallas.

The reason? First year advisors have a high failure rate, and their employers don’t want to lose the assets they brought into the firm.

“They get their friends and family to…open accounts, and if they don’t make it, the big wirehouses will do anything in their power to keep those assets on the books,” explains Kramer. The Catch-22 is that the senior advisors who inherit these clients rely on the reassignment coordinator for all of their marketing, rather than developing a good referral network, he says.

Kramer spent his first nine years in the industry at American Express Financial Advisors (now known as Ameriprise) before venturing out on his own in 2005 with LPL as his broker/dealer. “I built my practice basically referral-only from my second year on,” he says.

Sounds simple enough, but developing a practice that grows on referrals alone is no mean feat. If you’re considering this model, the following six strategies can help you achieve your vision.

1) Make a gentleman’s agreement.
Jim Relyea learned the art of asking for referrals early in his career while working in the life insurance business with Connecticut General.

“An integral part of the CG process was to ‘serve first,’ which included entering into an informal gentleman’s agreement with the prospective client,” explains Relyea, a founding member of Relyea Zuckerberg Hanson, LLC, part of Commonwealth Financial Network. Under the “agreement,” Relyea offered to help clients with their estate planning if the clients in turn agreed that, should they choose to buy life insurance as a result of his plan, they would buy it through him. Likewise, if they were happy with the work he did and his low-pressure advisory style, they would, as a goodwill gesture, refer him to others whom he would contact on an informal basis.

“I’ll give you the best possible service if, in return, you will help me meet some good people that you feel might benefit from this work,” says Relyea. “The whole basis of the gentleman’s agreement is accountability.”

Relyea also showed clients how providing him referrals would improve the quality of service they received. He explains, “If you are able to introduce me to good people, I won’t have to spend my time cold calling. Therefore, I can spend 90% of my time working for you rather than trying to get new people.” Under this approach, advisors earn the right to be referred and never take either clients or referrals for granted, he notes.

“You keep building relationships and creating good will,” says Relyea.

2) Team up with others.
Relyea went on to earn his CFP designation, and in 2000, joined forces with planners Carl Zuckerberg and Dana Hanson with a shared vision of working as a team with every client. This same approach has led to the continued success of their referral process.

“In our [business] model…clients are clients of the firm, and referrals are referrals of the firm,” explains Relyea. “We all share in the responsibility and the activity of finding new people and getting referrals.”

Neal Van Zutphen, vice president of Delta Ventures Financial Counsel, Inc., also chose the team approach to support the continued growth of his business through referrals. After working with a fee-for-service consultancy, Van Zutphen went independent in 1994, and five years later was managing more than $10 million in assets. Most of his revenue came from financial planning and retainer fees to support the financial plans.

“As my assets grew, time to do plans declined and the revenue mix flipped,” explains Van Zutphen. “Instead of 80% planning fees, 20% advisory fees, it became 80% advisory fees, 20% planning fees.”

Realizing his ability to service his clients was limited, he merged his practice with Charles Autrey, a veteran investment advisor, to form Delta Ventures in 1999. Today, Van Zutphen handles the planning side, while Autrey is the firm’s senior portfolio manager. Not only do they each benefit from referrals that the other brings into the practice, but clients also get a wider range of services from one resource.

3) Develop centers of influence.
For Mitch Kramer, the secret to building a thriving practice has been networking with other professionals.

“If you develop a good rapport with CPAs and attorneys, mortgage bankers and certain clients who can be good advocates for you, that is a better way to build a client base,” he says.

Kramer took a proactive approach to developing centers of influence early in his career. “I went through my top ten clients and looked at their tax returns to see if their CPA or tax preparer was a big name firm or an individual. Then, I called these professionals and asked if they have a relationship with a financial advisor,” he explains. “The ones that said no, I set up a lunch or breakfast meeting to tell them about what I do and asked if they’d consider entering into an informal relationship to give each other referrals.”

Early on, Kramer was giving more referrals than he was getting, which he says is typical for novice advisors. A decade later, he manages about $80 million in assets and receives close to 40 referrals a year. “You have to be patient,” he notes.

4) Provide exemplary service.
Of course, for clients and business associates to provide referrals, you also have to be worthy of their recommendation.

“The real simple thing is, do what you say you’re going to do, and follow up,” says Kramer. He adds, “We’re all busy and we all have more things on our plate than we have time to deal with. But, for key relationships that you have, under-promise and over-deliver.”

Says Neal Van Zutphen, “We don’t limit the amount of time a client can call us and talk. We don’t say, ‘We’ll meet with you every three months and you get this one-hour slot.’” Instead, Van Zutphen and his partner give clients as much time as they need—even if it means working longer hours—to ensure clients don’t “feel like a number.”

Adds Casey Van Zutphen, who joined his father’s firm in 2006, “You really want to make it so the client will want to refer you. If you’re starting young and don’t have the experience, you have to make up for it in diligence and desire to serve the client.”

5) Develop lifelong relationships.
Perhaps the most important factor to establishing a referral only practice is forming long-term, trusted relationships with your clients. But, building trust takes time, notes Mitch Kramer, and requires an honest, open dialog.

“You don’t find your spouse through a catalog. There’s a dating and courtship phase,” Kramer explains. He adds, “When you’re developing a relationship with a financial advisor, there needs to be the same process to see if you’re compatible.”

Kramer and his wife, Shawn, socialize with clients several times a month, and many clients have become good friends with the couple. Getting involved in your clients’ social network—going out to dinner or attending events together—makes it easy for them to introduce you to others who may have similar financial planning needs.

Of course, you have to be sincere in your efforts, notes Kramer. “You can’t fake it. You have to really care about your clients,” he says.

6) Be patient.
In the end, growing a practice solely through referrals comes down to proving yourself over the long term.

“That first few years…your clients aren’t sure you’re actually going to last in the business,” says Neal Van Zutphen. Once you’ve been in the industry for more than a decade and have established yourself, clients are much more comfortable making referrals, he notes.

The key to success is to push through the lean years, councils Van Zutphen, and focus on the long-term goal.

“You’re not in it for one year to see if you can make it work. Once you make the commitment, you’re in it for the next 30 years,” he says. “It’s not a race or a 4/40 dash, it’s a marathon. And marathoners know that endurance is as important as speed.

Leslie J. Thompson is a freelance writer.



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