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Studies have shown the cost of adding a new client in the financial services industry is over $3,000.1 Most of this is comprised of the time it takes, consider the cost of the financial advisor’s time while they could be doing something else. Earlier figures for a credit card provider to add a new client are $167.2 Both these costs support the value of retaining your current client base, but it indirectly highlights why you should appreciate business that falls into your lap.
When I was a financial advisor, one of my clients invited us to visit their weekend house in the country. During the visit, she introduced me to a friend who handed me a manila envelope of statements and said: “I understand you are my new financial advisor.” This is business that fell into my lap.
Unsolicited referrals (like this one) are an excellent example of new business that comes your way through either good luck of cultivating an active referral system.
Let us consider the steps you should take when business falls into your lap. Be aware there are Do Not Call rules in many states and you have an obligation to maintain client confidentiality.
1. You are always open for business. In the manila envelope situation, it is important to enter directly into your business mindset. If they say “I want to do business” you need to be ready to talk with them about proceeding. You cannot say “I am on vacation. Let’s talk later.”
2. Respect confidentiality. If this conversation started with others standing around, you need to head somewhere private or explain you are interested, but we are in a moving car with two other people present and we should talk when it is just the two of us. They might not have thought the confidentiality aspect through.
3. Learn more about your prospective new client. It is logical this is a square peg, square hole situation. If you are an accountant who does individual tax returns and they are a business owner doing international shipping across different foreign tax jurisdictions, this might not be a good match. You will help them find the right person with the appropriate skill set.
4. Follow up immediately. In another case, it might be a client who says: “I have a friend. I gave them your name. They said you should get in touch. Here is their contact information.” There might be DNC rules involved here, but your firm likely has procedures. Your client might be able to call and hand you the phone if there is an issue. Sending an e-mail should have less regulatory concerns. The important point is you should not delay in reaching out.
5. Follow up with the provider. A friend or client provided the referral. You want to reward good behavior. In this case, letting them know you reached out is ideal. Start by thanking your friend for sending someone in your direction. Let them know you have both spoken or you have reached out and left a phone message or sent an e-mail. If their friend says “I never heard from them” that will discourage referrals in the future.
6. Not all referrals are a good fit. There are situations where the client’s asset size might be too small, or they are interested in a certain type of business that is not your specialty. Instead of changing the way you do business (and possibly providing inadequate service) it makes sense to learn about their needs and refer them within your firm. You will see they get help, even if you are not providing it.
7. Sometimes an account that is not a good fit should be welcomed. You have a big client. They are referring a nephew or other extended family member who is just getting started in the investing world. They do not fit your client profile, but you accept them anyway out of respect for your large client. Your firm likely has a system for tying accounts together into households or extended households. Statements might go elsewhere, but the system knows they are connected.
If you come across as picky or selective in the accounts you will accept, your friends and clients might think acting as your advocate or referring friends is not worth the bother. Be respectful and reward good behavior by immediately following up and finding a way to help the other person.
Related: Clients Have Milestones – Are You Part of Their Story?