Referrals To Encourage and Referrals To Avoid

Referrals is the best way to grow your business. Most people would agree. A current client who understands your value tells another person, bringing them to the point where they are ready to meet and take that next step towards becoming a client. Not every referral is a good referral. Which should you encourage, and which ones should you avoid?

Referrals to Encourage

If you could get all your clients focused on introducing people fitting into these categories, life is good.

  1. People who are just like them. Some advisors say: “I only work with nice people.” Although everyone should be entitled to advice if they are willing to pay for it, this approach compliments your client, recognizing them as a nice person. You are politely saying, please replicate yourself by introducing me to someone in the same wealth and investment sophistication category.

  2. Fellow professionals. Now you are making the case for niche marketing. You have experience working with dentists or police officers. You understand why their retirement plans are different from other professions. You are uniquely positioned to provide relevant advice.

  3. People facing a specific problem. You have helped a client. Perhaps they were setting up a college savings plan for their grandchild. Maybe you were establishing a donor advised fund to support their charitable giving intentions. It is highly likely they know people facing the same issue. “Who do you know in a similar situation?”

  4. People seeking similar knowledge. This ties into another time-tested strategy. Your client heard the tax laws have changed and wondered how this affects their current approach to investing. Although as an advisor you do not give tax advice, you mention in general terms how retirement saving may have been affected. They have their answer. You ask: “Who else wants to learn about this subject?”

  5. Money in motion. Everyone dreams about winning the lottery. If an advisor doesn’t win it, they dream about their neighbor (or a client’s neighbor) holding the winning ticket. Other examples of money in motion are people receiving an inheritance or selling their business. This is often started with those words, “Who do you know…”

  6. Someone whose advisor recently retired. There are other reasons they might be out of the picture. The bottom line is that person was very happy with their advisory relationship, then it wasn’t there anymore. It has been said people who have been happily married and lost their spouse are positively inclined to seek out a similar relationship.

  7. Someone dealing with a life changing event. This can be the loss of a spouse, birth of a child or a divorce. Many people find themselves heading into unfamiliar territory. Your client might say, “If you find yourself needing advice of a financial nature, I know someone who is a really good listener…” They might say “Has helped other in similar situations too.”

Referrals to Avoid

If someone sends a potential client in your direction and you need to send them away, that puts your referring client into an awkward position. They may give up entirely on sending referrals.

  1. People who do business in an entirely different way. Your business model involves financial planning and managed money. You do not trade stocks, although you carry the appropriate licenses and will execute orders on behalf of clients. You have been introduced to someone who is an active options trader, in and out of the market several times a day. This client requires a high degree of attention along with certain unique skills.

  2. People who require expertise outside of your field of knowledge. This is a familiar plot on TV dramas: The corporate attorney is approached by a friend unjustly accused or murder. They need a trial lawyer experienced in criminal law. This is entirely outside the corporate lawyer’s area of expertise. If they are with a large law firm, they probably refer the business internally.

  3. Relationships that are much smaller than your average account size. You utilize multiple money managers, each with different style and size characteristics. Put another way, you need several managers to try to achieve diversification. Each manager has a $100,000 minimum. You have been referred a person with $50,000 to invest. You can help them, but this may involve referring them to another area of the firm working with similarly sized accounts. If the person is related to a current client, there may be ways the account can be householded, although you would need to find appropriate investments.

  4. People expecting a high degree of interaction with the top person. Many experienced advisors can tell the story of a client “wanting a call every hour while the market it open.” If not, you might have a client who wants to speak with “you and only you,” even if it’s a paperwork or service issue. They do not understand how different staff members have different roles.

  5. Someone who is unwilling to follow advice. Perhaps you have (had) a client who will not act on your recommendations yet blames you when they lose money in the stock market. This can easily become an adversarial relationship.

  6. The person who recently sued their previous provider. Back in the days when advisors actively cold called people at home, I thought the ideal “I am not interested” comeback would be: “I am glad you called. I just won a successful lawsuit against my previous financial advisor. Now I need another one.” This implies there was an adversarial relationship at some point. The new advisor should proceed with caution.

  7. People who do not understand paying for advice. There are people who assume all advice should be free. They do not understand “free” advice is often “biased” advice, designed to sell the product on offer. Lawyers, accountants and doctors charge for their advice. Advice has value. People should be prepared to pay for it, with the understanding they can walk away and stop paying if they choose.

  8. People you suspect are involved in illegal activities. There is often a “sixth sense” that enters the picture. Something does not seem quite right. Because of the concerns about money laundering and the risks involved, this is a situation where you want to bring your Compliance manager into the conversation. You might be wrong, but your initial judgment is often right.

All rules have exceptions. You might only want to do business with “nice” people, yet if a wealthy person with a crabby disposition was agreeable to following advice and did not quibble about fees, you would probably make an exception.

Related: Ten Ways To Get Your Picture in the Local Newspaper