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Practice Management

Advisors should tackle referrals the same way they address any other business issue—simply and effectively.

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

Do you manage marketing and referrals with the same orderly, disciplined approach you use to manage money? Are you in control of your firm's growth and the quality and quantity of referrals you receive? Or do you work each day doing your best to maintain good client relationships while juggling myriad challenges and frustrations, wishing there were a simpler way to build your business?

Most of the advisors I've worked with felt the latter, to some degree, irrespective of whether they managed $30 million or $3 billion in assets. Most advisors have great intentions to market more, if only there were more time.

For most advisors, marketing is an innate ability. Perhaps because of this, or in spite of it, marketing and referrals tend to get the least attention in a practice. At my firm, Quantuvis Consulting, we conducted a survey of large broker/dealers' top 400 advisors on the subject of referrals. We found:

  • 39.6% of advisors did not ask for referrals.
  • 38.5% have no system for tracking prospective clients.
  • Most new contacts came through a planner's network.
  • More than 75% of new business came from referrals.

Clearly, advisors are not proactive when it comes to drumming up clients, which means there's a wealth of untapped opportunity out there. We believe advisors should tackle referrals the same way they address any other business issue—simply and effectively.

Who's Really Influential?
To start, focus on relationships that have the greatest ability to advance your practice. You need a way to organize your contacts and manage them in a disciplined way—a simple way you'll sustain. When we design marketing and referral plans for firms, we suggest organizing business contacts around three types of categories:

  • Influentials. These contacts have referred someone to you within the past two years. This could include clients and anyone who might help with marketing and referrals. An advisor with high-net-worth clients who sends along contacts with small portfolios, or vice versa, would be an influential.
  • Incubators. These people have the potential to help your practice, but need incubation and nurturing to grow. This would include clients who may refer other professionals or centers of influence who have responded positively, but haven't made a referral.
  • Popeyes. The spinach-eating cartoon sailor often grunts, "I am what I am." Like Popeye, you have some clients who like you, trust you, and who think you're doing a great job—but they never refer business, because it simply isn't their nature. No matter how hard you try, they are not likely to change.

Organizing your client and referral list into these three groups should help you identify who is important—and who might be important—to your marketing and referral efforts. Also, it tells you quickly who is not likely to yield much help. Then you can market more effectively and consistently.

Your firm should habitually conduct general marketing efforts, perhaps 75% of its outreach, because it builds credibility. On the other hand, specialized marketing may not build the company; it is personal interactions that should comprise 25% of your marketing work.

Specialized efforts should focus on influentials and incubators, and these folks also should steadily receive marketing materials from the firm, such as articles, educational material, and contacts. Popeyes should receive only general marketing efforts. All marketing efforts should be consistent and given time to yield results. This strategy is called the rule of influentials.

Quantuvis has a new client who spent $35,000 on a client event last year, both to thank people he does business with and to generate referrals. Spending this much money on all contacts breaks the rule of influentials because it certainly is not a good return on investment to spend a lot of money on Popeyes.

Monitor your contacts and their categories and consider revising them every two years. This means you must have a system of tracking referrals.

If an influential contact hasn't made a recommendation in two years, add him to an alert group. It's appropriate to ask a CPA who has stopped sending clients if anything has changed that would diminish those contacts. If nothing improves during the alert period (give them 90 days), the CPA's name would move to the incubators group.

This group should still be getting a good deal of attention.

Alternatively, if someone in the incubators group sends along a potential business source, the incubator should be promoted to the influentials group even if the new name doesn't become a client. The effort has great value despite the result.

Advisors who talk with us about goals for their practices want to build a scalable, sustainable, successful business. Even in the few practices where investments and planning are institutionalized, marketing and referrals are almost always organic in nature. Using the rule of influentials will help you develop a simple, organized, and disciplined approach to marketing.


Stephanie Bogan is founder and CEO of Quantuvis Consulting, a subsidiary of Genworth Wealth Management.

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