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5 Facts About Referrals All Advisors Need to Know

If you’re like most advisors, you want more referrals.  But to get more referrals, there are five basic facts you need to know.

Fact #1: The Definition of a Referral

The definition of a referral is “a name volunteered.” Pay attention to the word volunteered.  It means your client, or Strategic Partner, or whoever, provided you with the referral on their own volition.  

The reason why it’s important to understand the definition of a referral is beca5 Facts About Referrals All Advisors Need to Knowuse you have likely been taught to ask for or solicit referrals.  But read the definition again: a referral is a name volunteered.  Obviously, you cannot solicit or ask for something that must, by its nature, be volunteered.  

What you have likely been taught up to this point is wrong.  

Fact #2: Asking for referrals doesn’t work!

According to a study by Julie Littlechild, president of Advisor Impact, only 2% of clients referred someone because their advisor asked them to.  If nothing else, the data alone should convince you that asking for referrals is the worst way to actually get them.  

“But Bill,” you’re probably saying, “I’ve asked many of my clients for a referral, and they’ve told me the name of someone they know.”  

My question: how many of those names became actual clients?

Probably not very many.  That’s because the client didn’t actually give you a referral.  They didn’t give you a name volunteered.  They just gave you a name.  

If you ask, “Who do you know?”, or any of the countless variations, and if the client gives you a name, you do not have a referral. You can call it a referral. You can call a dog a cat. But calling a name a referral most certainly do not make it a referral.  Because it wasn’t volunteered.  

The distinction is critically important, because if you think about it, why would a client volunteer a name anyway?  

There are two main reasons:

First, person your client referred is someone they already KNOW needs financial advice.  Otherwise, it wouldn’t have even occurred to them to provide the person’s name in the first place.

Second, by voluntarily providing a referral, the client is signaling that he/she feels comfortable and happy with their relationship with you.  They think highly enough of you to recommend you to a friend, family member, or associate.  

On the other hand, when you ask for a referral, the name you get in response is usually off the top of the client’s head, designed solely to satisfy your request with a minimal amount of effort.  

Fact #3: Asking for referrals can be harmful

When you ask a client for a referral, it often makes them feel uncomfortable.  Suddenly, they’re under pressure to do something for you, when you, as the advisor, are in the business of doing something for them.  At best, all you’ll get is a name designed to get you off the client’s back. At worst, you can actually sour your relationship with the client.  No one likes to feel pressured or uncomfortable.  

Fact #4: Client engagement is key

So how do you get clients to actually provide referrals?  The only way to get clients to want to volunteer the names of their friends and family is by turning them into engaged clients. An engaged client is one who is involved in your life and you in theirs. You are seen as more than a service provider.  You are an expert who is also caring and trustworthy.  

Staying in close contact with your client, sending holiday, anniversary and birthday letters, and inviting them to appreciation and educational events are just a few ways to create client engagement.  

Fact #5: You should always promote referrals

Unfortunately, many clients who are willing to provide referrals fail to do so, usually because they forget. That’s why the single best way to get referrals is to constantly promote referrals.

In my next blog post, I’ll talk about ways to promote referrals.  But for now, just remember this rule: don’t ask, promote!

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