Curian Makes A Common Mistake In Explaining A Drop-Off In Referrals

A volatile or declining market is too easy and superficial an explanation why clients are not referring.

Curian Capital, LLC, a money management platform, just released its annual survey of 1,000 advisors. In it, 77% of advisors listed acquiring new clients as their top goal for the year. The survey also noted that advisors are receiving fewer referrals than they did last year.

The story about the survey noted comments by Mark Schoenbeck, senior vice president of marketing for Curian. “Clients' reluctance to urge friends or family members to work with their adviser is a function of the negative news and opinions about the economy” the story reported.  “That tends to make them feel less likely to want to go out on a limb by suggesting that their friends work with their adviser, according to Mr. Schoenbeck.”

I disagree. And looking more deeply into the possible reasons for the drop-off in referrals can lead to a strategy less reliant on market conditions.

Clients risk their relationships and reputations when they make a referral to a financial advisor. However, I do not believe that the ups and downs of the market elevator those risks - unless the advisor has established that delivering returns is their primary value proposition. And I believe many advisors have inadvertently done exactly this by failing to consciously design and communicate a better value proposition.

If you represent a solution or experience that your ideal client needs or wants, assuming the solution is not consistently positive portfolio returns, prospective clients will be attracted to that regardless of market conditions. Clients and centers of influence will continue to mention you when they meet prospective clients who are looking to solve the problem you specialize in. Whether the market is up or down should be of little significance to your ability to deliver on your value proposition.

If you find referrals disappearing when the market gets volatile or declines, don't blame it on the market. Take a look at your value proposition instead. It probably needs rewriting or a better communication plan.

Update:

Since posting this article I had a conversation with Mark Schoenbeck. It turns out he believes strongly in target marketing for financial advisors and how that can help in attracting referrals. Mark fell victim to the risk all of us face in the public realm: you may talk with a reporter for 20 min., and what gets published might be a single sentence that doesn't necessarily relate to your point.

My point above holds true. If you fail to identify yourself with a value proposition that goes beyond portfolio returns, you run the risk that your client will assume that positive returns are your value proposition. Mark, and Curian, believe that. The results of their survey update for this year drives home how important that is.

Understand Why People Make Referrals and You Can Attract More

I specifically say “make a referral to you” and not “give you a referral” because, when it happens naturally, a referral is not something a client gives you; a referral is something he gives a friend. 

You probably make referrals every day. I know I am making them all the time, although I would usually call them suggestions or recommendations. Here are a few that I have made recently or make fairly regularly:

• Since I work with financial advisors, I will often get questions about tools and resources. I am happy to recommend the client relationship management system I use, Redtail.
• A client of my retail practice needed some short-term financing, and I was happy to recommend and coordinate a loan through a regional bank.
• I love the software applications Evernote and Nozbe. As a busy consultant and executive who struggles with ADD, I have found that these programs improve my life.
• I am a fan of Mark Sisson and The Primal Blueprint. If I get into a conversation with someone about diet or health, I will frequently direct them to Mark’s book or website.
• I recommend my auto mechanic pretty regularly. There have been many times when he has directed me back to the dealership because he believed that my problem was covered under warranty. Other times he has talked me out of repairs on a beat-up Jeep or van I used to own to carry things around for home improvement projects because they were too expensive relative to the value of the vehicle. I believe he won’t charge me to do something unless it’s necessary.
• My wife and I love food and wine and frequently talk about local restaurants and vineyards in the Finger Lakes area of New York where we live.

Once you reflect on it, you will likely realize that you make referrals pretty regularly. Your clients do, too. They likely refer people to you more than you realize. In her study “Anatomy of the Referral,” Julie Littlechild found that 91% of clients were comfortable providing a referral to their financial advisor, and 29% had made a referral. I am intrigued by the 29%. Most of the advisors I know would be thrilled to receive referrals from almost one-third of their client base. What portion of your client base do you think referred someone to you in the last year? 

The study found that the top two reasons for offering a referral is because a friend asked for a referral or a friend expressed a financial challenge. In his book The New Art and Science of Referral Marketing, Scott DeGraffenreid determined through social network analysis that people make referrals to improve their standing among their peers. Your client is telling his friend about you not because he wants to benefit you, but because he wants to benefit the friend and to benefit himself. 

Who have you recommended to friends over the past month? Why did you do it? Why do I tell people about my auto mechanic, or those software applications, or Mark Sisson? My mechanic does not pay me to tell people about him; he provides me no incentive to recommend him—no discounts or coupons or certificates for a steak dinner if I send three people his way.  And I assure you Mark Sisson does not even know I exist, much less that I am a fan. I encourage friends to patronize those businesses because I care about them, my friends. I do it because I want them to have a better experience taking care of their car, because I want them to avoid getting ripped off, and because I want them to be healthier. And I want them to think better of me for having turned them on to something that was useful to them. That is why we naturally make referrals.

So, if people want to realize the benefits of providing a referral (obtain social currency, expand influence, etc.) and can accomplish that by directing a friend to you because they believe you will help them solve a problem, they will refer people to you. Attracting referrals, then, becomes largely a matter of training clients to remember to mention you at the right time. It’s all about helping people remember you when they can benefit from mentioning you. It’s not about giving you names when you ask, it’s about remembering to refer you when the opportunity arises, so you have to prepare clients for the opportunity to refer. “Who can you think of that could use my services?” is about asking your client to help you. “I know someone who can help you solve that problem” is about a client helping a friend.

Thinking about it another way, when you ask for a referral you’re essentially asking your clients to sell for you.  And that’s not the role they signed up for.  Consider it in your own experience.  Is there a professional you work with, or have used his or her services, that you would happily refer anytime someone expressed a need—a car mechanic, a plumber, a lawyer?   Most of us have at least one or two people we deal with on a regular basis that we would be thrilled to refer.  Let me ask you this, who will you call about that person today?  Well of course you're not going to wake up and ask yourself, “Who can I call to tell about this great mechanic I know?”  That’s not how it works.  How many clients will you commit to attracting for those people this year? None, of course—that’s not why you recommend them. You do it because it benefits you, not the person you are referring someone to.

If You Want More Sex, It Is Not About How Much You Ask For It. Same With Referrals.

Attracting referrals is like attracting sex.  Stick with me and I’ll explain.

I saw a newsletter yesterday that stated as fact “The single biggest reason you aren’t getting more referrals is because you’re not asking enough.” Garbage. 

The biggest reason advisors don’t get more referrals is they don’t understand how they happen. And the first step in mastering referrals is to understand why people refer.

People are social animals. As human beings we have a natural need to refer.  We do it all the time.  They are social currency.  They are a way of expanding influence.  They are a way of networking.  It is perfectly natural to want to do things for the people who are important to us, and providing referrals is one way we can. Being the source of good information and to be a person other people look to for advice also makes us feel important.

As John Jantsch says in his book The Referral Engine,  “Being recognized as a source of good information, including referrals, is a great way to connect with others. Think about how eagerly you responded the last time someone asked you for directions, offering up your favorite shortcut and tips for avoiding traffic. We all do it. Making referrals is a deeply satisfying way to connect with others—asking for referrals is just the other side of the same phenomenon. I think the growth of many popular social networks can be traced to the fact that people love to connect and form communities around shared ideas.”

In his book The New Art and Science of Referral Marketing, Scott Degraffenreid utilized social network analysis to examine why people make referrals.  His study demonstrated something that makes intuitive sense – people refer to elevate their standing with their peers.  

Asking a client to provide you a referral is an attempt to hijack the process. To bypass the reasons someone would want to give you one and just get the payoff. It's a little like Russell Crowe playing the role of John Nash in A Beautiful Mind.  In the movie, his friends bring him to a bar and find a single girl at the bar.  They finally persuade him to go up to the girl and ask her out.  He doesn’t know how to ask a girl for a date. So, he just goes for the gold.  Here is what he says:

"I don't exactly know what I am required to say in order for you to have intercourse with me, so could we just assume I said all that? I mean, essentially what we are talking about here is fluid exchange. We could just skip straight to the sex."

How do you suppose that scene turned out?  Not well for Nash. She won’t want to go to bed with him just because it is good for him. Besides not having any interest in him, there are real risks involved for her. He doesn’t appreciate that for her to want to go to bed, she needs to have certain feelings about him first.

When a client makes a referral to us, it is because they feel certain things about us.  They must feel strongly enough about what they will get out of it that it is worth the risk they expose themselves to by sharing a friend with us. Making a referral must be an experience they benefit from. And if you attempt to disrespect your client and go directly for the result without having respect for the process that goes with it, you'll get metaphorically slapped just like Nash did. 

Understand why people would want to make referrals to you, and provide it to them. Regarding referrals, that’s the first step in “being attractive.”

To Get Your Clients Referring, Teach Them the Trigger Phrases

The new referral conversation is about interacting with our clients the way friends would interact with each other or enlist their help in problem-solving. Whatever approach we take, it should be a conversation that delivers benefits to the client.

One aspect of the new referral conversation is that it can naturally grow out of educating the client. You have worked hard to determine who your ideal client is, what problems they have, and what kinds of solutions or experiences they seek. Ideally, you would have reviewed your service mix and made some adjustments to more closely tailor it to that ideal client. So, the natural place for the new referral conversation to begin is in describing the problem you have decided to focus on solving or the need you have determined to fill. By extension, you will be drawing a picture for your clients of your ideal prospect. Our objective is to identify and reinforce expressions the client may hear that we hope will prompt him to mention you. We want to be teaching the client how to know who a great referral would be.

In The Referral Engine, John Jantsch says “I believe any salesperson worth their salt has developed a list of phrases, situations, and verbal clues that, if heard during a sales presentation, signal it’s time to take the order. The same idea is true of a qualified referral.”

What are your trigger phrases?

• ·         I was just awarded another allocation of stock options, and I'm not sure exactly what they can do for me.
• ·         Our company just moved to a cash balance retirement plan.
• ·         My best friends husband was just diagnosed with Alzheimer's.
• ·         We went to my son's high school last night to you the guidance counselor talk about financial aid.
• ·         My sister just had her first child.

Take some time and talk with your clients about who you have realized your ideal client is. And discuss those ideal clients in terms of needs they might express that you are particularly good at fulfilling. Teach your clients those trigger phrases so that when they hear them again you will pop back into their mind.

Secrets of Referral Marketing program coming to Atlanta

The Secrets of Referral Marketing three-hour workshop is coming to Atlanta.

In it, you will learn:

• How referrals actually happen (it’s not what you think…)
• Why asking for referrals backfires
• How to be the person your clients will refer
  
• How to train your clients to refer you every time they meet a good prospect
• How to use LinkedIn to find prospects for your clients to introduce you to
• How to cultivate centers of influence
• How to design your own referral marketing plan

Here are some comments from previous attendees:

“Practical Takeaways!”

“An epiphany”

“You need this if you want to grow”

“If you are serious about changing and improving your practice, you need to listen to this.”

Every participant gets a Referral Marketing Template (a $25 value). You will also receive a one-hour individual coaching call 30 days after the program to make sure your referral marketing plan is on track.

The program comes with a money-back guarantee, so there is no risk if you don't see results.

The program will be held on Friday, November 4, 9AM - Noon at the City Club of Buckhead. You can register here, or learn how to bring the program to your city here.