The psychology of referrals - part 2

(continued from Part 1)

In this article I will share some of the research that clearly proves the folly of asking for a referral. Plus, I'll show you an approach that is much more effective.

Fact Set #2

The following come from a 2008 report titled Economics of Loyalty --- Conducted by Advisor Impact. One of the areas covered in this study was the dynamics of a disintegrating client relationship. In other words, what is really going on in the mind of your client just prior to your being fired or replaced If you knew that, you'd be able to plug the hole and retain that client.

Let's look at the findings:

FACT If you're not building the relationship, you're putting it at risk. One of the notable factors about client satisfaction in the financial industry (and most likely every industry) is that clients are on average very satisfied. That is an extremely misleading statistic which may lead us to believe that very few client relationships are at risk.

The key point (for advisors, consultants and relationship managers) is that the relationship seems to be at risk when overall satisfaction is at a 7 or less out of a 10-point scale. The numbers suggest that even if the relationship had been excellent, there was a decline in satisfaction just prior to making a change. In other words, if you're not building the relationship, you're putting it at risk.

These results together with those from the Investor and Industry Perspectives study suggest that client relationships slowly erode over time and probably hit a tipping point relative to some event or time when the advisor should have been responsive but wasn't. (9-11, 400 pt down day, Bear Stearns imploding).

To many financial advisors, the client relationship is not with the person but with the person's money, estate or account. Big mistake. When you focus on the impersonal aspect, you allow the human to drift away. So, how does that affect your ability to get a referral from that person? It destroys it.
FACT Engaged clients are most likely to give referrals. The study finds four categories of client relationships Disgruntled, Complacent, Content and Engaged. As you might expect, the more engaged a client is in your relationship (and work together), the more loyal the client is. The more loyal a client, the greater the chance he will give a referral. After all, the engaged client has something (more than money) invested in you. Giving a referral is one way they validate their connection to you.

FACT Asking for referrals does not produce referrals. The process of asking for referrals does not impact the likelihood of getting them. Consider how most advisors ask for referrals, "Can you share with me the names of some friends I might be able to call on."

Over the years, I've personally asked hundreds of advisors to tell me how they ask for referrals, and that's what most of them say. It is backwards! It is tantamount to saying, "I may not be able to help your friend, but I sure do need the business."

The findings from this study suggest that the reason clients give referrals is not to help the advisor; it is to do their friend or colleague a favor. If that is the case, how does that change your referral strategy?

For example, you might consider immediately implementing a communication strategy to show yourself as more responsive. This could include some or all of the following:

1. Personal phone calls to discuss the market and involve the client in the most appropriate next steps.
2. Lunch with a small group of clients to discuss the market and appropriate positioning of assets.
3. Devote time to developing your "value proposition." What do you want your clients to tell their friends about you? Perfect that language, then teach it to them to day on? your behalf.
4. Launch a greeting card campaign to enhance the personal side of your client relationships.
   

Conclusion.
Referrals are the result of a complex set of factors. You are in control of most of those factors. Referrals are NOT the result of asking for them. People who are engaged with their advisors are more satisfied with the relationship. Engaged clients give more referrals. Communication is a key to increasing the level of engagement.

Want to learn more? How about a FREE report on the 6-Step Referral Process? If you want it, just send me an email: michael@aboutpeople.com