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Research on Referrals - Fact or Fiction?
July 1st, 2008
Since 1986, I’ve listened to a long line of coaches and consultants preach that to get referrals, you have to ask for them. Did you believe them? Please say NO, because it’s not true. It’s wrong. It’s bad advice.
In this article I will share some of the research that clearly proves the folly of asking for a referral. Plus, I’ll share with you some guidance in developing an approach that is much more effective.
Fact Set #1
The following comes from a 2008 report titled: Investor and Industry Perspectives on Investment Advisors and Broker Dealers
FACT: 76% of Investors Found Advisors through Referrals
Regardless of the types of services received, the most common way respondents found their current advisor was by referral from a friend or family member.(45.6%) The second most common way was by a professional referral (30.5%).
FACT: Investors seek Attentive, Likeable and Credible Advisors
When asked “What do you like about the services you receive from your advisor?” the types of comments most frequently mentioned fell into 3 categories:
Accessibility or attentiveness (“she stays up to date on my issues,” “is there when I need her”)
Relationship or personality (he’s “personable” or “friendly,” “listens, asks good questions, understands my needs”)
Expertise (she is knowledgeable about …. or “knows her business”)
There are really only two sides to every client relationship – the personal and the professional. The more important side is the personal. Unless that side is addressed effectively, you could give your clients the impression that you consider them nothing more than a number. And, that number would be their contribution to your income statement.
FACT: Investors dislike advisors who fail to keep in contact
When asked why they disliked an advisor, the most common type of comment was in accessibility or attentiveness category (“lack of contact” or “doesn’t call me frequently enough”). One other notable negative comment commonly cited refers to the advisor’s focus (“I don’t think he has my interests at heart.” or “He is trying to make money for himself” or “Often tries to sell securities that the brokerage firm is pushing.”
Most clients won’t call you on it. People are loath to cause stress. They will merely nod and make you think they’re in agreement with you. Then, they will log it into their memory and move you from the “referable” category to the “un-referable” category.
FACT: Investors are looking for an advisor they can Trust
Trust of the individual financial service professional was the most cited feature of what investors look for in a financial service provider. Trust of the individual was cited as more important than trust of the firm for which that individual works.
Who you are as a person, your personal congruence, is much more valuable to your clients than the firm listed on your business card. Your credibility is the most important asset you have. And, it’s the glue that bonds all the other elements together to make you referable - or not.
CONCLUSIONS:
Based on the research provided by this research, we see that most people who are looking for an advisor end up finding the one they hire through a referral from a friend or relative. The people making the referral are feeding new business only to a certain type of advisor – one who keeps in touch with them, is accessible to them, has demonstrated trustworthiness, and one who has that client’s best interest at heart. In our world, we call that Credibility because it effectively and successfully covers both the personal side and professional side.
With that in mind, my prescription to you is to create an effective system for keeping in touch with your clients, at least with your best clients. Mix your contacts with personal visits, lunches, small gifts and greeting cards. Approach these touches personally. Think of it as individual communication or one-to-one marketing. If you can make those personal communications relevant to each person, you will have taken your first step into the realm of “Credibility Marketing.”
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 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 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 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:
Personal phone calls to discuss the market and involve the client in the most appropriate next steps.
Lunch with a small group of clients to discuss the market and appropriate positioning of assets.
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.
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. So, what will you do today to communicate with your best clients?
Your Reward.
Want a copy of our Six Step Referral Process? Just send me an email with your contact information.
As people who apply psychology to generating business in the financial industry, we’re asked on a daily basis to help advisors generate referrals. So, we developed a system. If you follow the advice in this issue of InnerCircle, you will take a giant leap forward in getting more referrals. Mind you, this is just the first step. If you want to learn the other steps, just let us know.
Imagine you’re a third base coach during the World Series. You have one runner on first, and your pitcher is at bat. You need to decide right now – yes or now, the runner should steal second to keep the pitcher from hitting into a double play. Thing is, you can’t guess. You need a guideline or formula to follow: If [fact one] plus [fact two], then make decision X.
It’s the same thing with asking for and getting referrals. You need to determine a formula for When to ask, and a strategy for How to ask. Obviously, you can’t ask when you first meet the prospect because you have not yet earned the right or built any value. So, what builds value? And, how much value is enough?
We teach our clients to use two tools: 1) the Rule of 3 and 2) the Value Credit Card:
Rule of 3. This is simple. Certain things score points for you. Performance is mandatory, but it counts for only one point. The other two points come from two sources: 1) written connections, such as greeting cards, letters, post cards and gifts; and 2) personal connections, such as personal visits, lunches, sports events and other non-business activities. You cannot ask for a referral until you get three points, and if you don’t get the referral, you can’t ask again until add an additional three points.
Value Credit Card. The point is, you build value by paying attention to the client in tangible ways. Each “value event” gives you a single point, like adding cash to a prepaid credit card. The more value events you create, the larger your account grows – one point at a time. Personal visits, greeting cards, phone calls, gifts – they all build value one point at a time. Thing is, you cannot tap the account until you build up the value inside it. And, the minimum value required is three, with positive performance counting for only one point.
You want to initiate the referral talk one week after you bank the third point. That is when your value has reached its highest level and the timing is not obvious.
Prove Your Credibility - the “Circle of Relevance”
March 19th, 2008
Building your credibility is like running for a touchdown during the Super Bowl. One misstep and you could end up in the hospital. One misstep in the Credibility Process and you could end up holding an empty bag.
The process for building credibility often falls completely apart at the same point. That would be the point at which you prove your relevance. Credibility is literally impossible unless you are clearly seen as relevant to that person. See the circles below:
The inner-most circle is your product. We use variable annuities as the example here, but it could just as easily be LTC, life insurance, 401(k) or any other product. If a variable annuity is your product, chances are slim that you will find consumers proactively looking to talk with you about them. But, chances are pretty good that you can find people wanting to talk about the middle circle - income solutions. For Boomers, that’s a big topic. It is a point of relevance to them, where variable annuities probably is not.
Next, look at the outer-most circle. Virtually ever person in America has some kind of a financial problem. From having too much cash to needing a tax-effective retirement distribution plan - every financial need falls into the “Financial Solutions” category.
Where do most producers make their presentation? Right in the fat middle of the product. They go for the throat. They try to engage the prospect in a conversation about the product, rather than the next level up. Look at the difference between these questions: 1. Have you heard about the new generation of variable annuities? (That’s “hammer mentality.”) 2. Has your financial advisor talked to you about income solutions? (That’s a connection question.).
If you are an advisor, and want to show yourself as relevant, your job is to learn how to use the Circle of Relevance. For the client, it’s not about the product - it’s about the problem and the result the product brings. And, in order to make it work, you must understand which problem he has and which result he wants.
If you’re a wholesaler, your job is similar. You need to show that you understand your prospect’s situation - his business model, clients, corporate mandates. Show that you are able to offer insights - then introduce relevant solutions. Again, you need to know which problem he faces and which result he wants.
Quick Story. During a recent coaching call with a Canadian securities firm, I was helping a group of advisors demonstrate their relevance. They were role playing by interviewing each other. It was very painful. These guys meant well, but had absolutely no idea of how inept they sounded to the person on the other end of the line. As bad as they were, they were very similar to most advisors and wholesalers we’ve met. They made the same mistakes.
Here is the biggest mistake. See if you recognize anyone: Mistake #1. Diving into detail. This is without a doubt the biggest mistake that financial advisors make. It sounds like this, “Hello, might I interest you in a tech stock that has shown great promise for growth through market fluctuation?” or “Hello, how would you like to capitalize on stock market gains, while protecting against downturns?” Those approaches are very obviously based on what that person wants to sell. They have zero to do with the client.
What can you do better? Decide in advance what the goal of the call is. I know, it sounds remedial, but most people do not do that. So, they get nothing.
Pam and I have the unfortunate experience of getting called by people who do not care about building client relationships. Why they would call us is a puzzle, considering that everything we teach leads to enhancing or improving credibility, which directly affects client relationships.
After discussing it at length, we recognized that you could actually develop credibility without ever being liked by the other person – or developing relationships with them. Politicians and law enforcement officers have that kind of association with people – their constituents. Attorneys and CPAs often do, too. Some professionals can get away with it. Those people are acknowledged experts. You call them in to perform a highly specialized job because they are experts in that niche. You want them to perform brilliantly and then go away. Typically, you don’t want a relationship with them.
However, if having a relationship with someone is important to you, you will have to prove yourself at each stop along the way, proving yourself as both likeable and credible simultaneously. Who would this relate to? Coaches, consultants, leaders, motivators and sales people who also serve as consultants, such as financial advisors.
Credibility is the set of steps that you take to solidify your relationship, systematically proving your value and reinforcing it. If you do not know the specific steps, you’re kind of at a loss. Doing business without knowing the Credibility Process is like being a fan of the Texas Two-step and then entering yourself in a samba dancing contest. You’re in over your head and you’re likely to be doomed to repeat your mistakes over and over and over. As you should be, because you can’t fix anything when you don’t know what’s broken.
The University of Missouri released a study called the “2006 Survey of the Elements of Communication That Affect Trust and Commitment in the Financial Planning Process.”
It suggests that planners and advisors who best understand the core values and interests of clients are more likely to lead them toward truly rewarding investments. Nearly 83 percent of clients and 84 percent of advisors agreed that they must understand a client’s values and priorities before they can give effective financial advice. (This is the idea that underlies the trend called “Life Planning.”)
It should be obvious from that research that in order to move your client relationships to a deeper level, you need to discover what their values are. But you won’t be able to do that until you learn HOW to read your prospects and clients. Here are three ways to learn that:
Behaviors. Behaviors show you how the person acts out - how he brings his values to life. If a client claims a value but does not put it into action, then it’s not really a value, so you would not build it into the work you do for him.
Ask. This is called the “criteria-elicitation question.” There are a few variations of this question that have become popularized, but let’s look at the structure of the question: “What’s important to you about ________?” Fill in the blank with the appropriate situation. For example:
a. “What’s important to you about leaving a legacy?”
b. “What’s important to you about your children’s college education?”
c. “What’s important to you about retirement income?” * “Money” is rarely ever listed as a value.
Listen. In the course of a conversation, a person will express his values. Simply initiate a conversation about a specific topic, something of importance that the client wants to fund or save for. As he mentions values, just write them down. Why is this important to you? Values are actually subconscious power sources. They serve to provide you with energy. So, you can think of values as the things in your mind that motivate your decisions and give you energy so you can perform the activities necessary to bring your values to life. Knowing this, doesn’t it make sense that you would need to learn what your best clients’ values are?
For many years, Pam and I have been fascinated by the sales trainers of the world. Most of them approach selling as thought the buying decision is purely a function of superficial manipulation. Duh. Truth is, buying decisions are the products of a brain function, and the area of the brain that controls it is the same one that causes you to run like hell from a threat.
It’s called the Amygdala. What makes it so fascinating is that it’s part of what we call the “old brain.” That’s the most primative part of your brain. Its function was self-protection, self-preservation and procreation.
Today, we don’t worry about a T-Rex munching on us as a between-meals snack. But the Amygdala goes into action every time a sales person approaches you. Or, conversely, every time you approach a prospect. To the Amygdala, there is no difference between:
Tiger or pharmaceutical company
Snake or insurance agent
Angry dog or proctologist
If you are interested in learning how to make the Amygdala work for you, instead of against you, then visit this website: http://www.whalenlab.info/ And, keep watching this blog for tips and information on how you can use science to make your job easier.
As we research Professional Credibility and uncover the specifics of what you can do to become more Credible, we post our new findings right here. We know of no one else who uncovers these juicy nuggets of science that serve to help you increase your Credibility. Here are a couple now:
The University of Missouri published a study called the “2006 Survey of the Elements of Communication That Affect Trust and Commitment in the Financial Planning Process.” It suggests that financial planners and advisors who best understand the core values and interests of their clients are more likely to be able to guide those clients toward truly rewarding investments.
Point: you can’t do that if you don’t learn the values.
Nearly 83 percent of clients and 84 percent of advisors agreed that it is vital for an advisor to understand a client’s values and priorities – before they can give effective financial advice. It is this idea that underlies the trend called “Life Planning,” or any kind of planning that focuses on the actual desires of the client.
Point: Clients want you to understand their values - the things that are most important in their lives. If you neglect to learn them, you’re underserving your clients, and they know it. So much for Credibility.
Learning a top client’s values, then using those values to help that person will cause him/her to see you in a glowing light. That’s very different from the way most clients perceive most advisors. And, that’s because most advisors fail to elicit and/or use values in their work.
Bottom line: If you fail to learn your top clients’ values, you’re not serving them as a trusted advisor (Credibility). Instead, you’re underserving them and showing that you’re merely an order taker. There is no Credibility in that.
Back in 1991, when I first began to research Credibility, the only scientific research that I could find had been conducted in the area of witness credibility during legal procedures. So there was little to learn from. With no place else to go, I personally interviewed people I thought were credible and asked them what they did to gain their Credibility and what affect it had on their new business. Back then, only two things created Credibility - getting published and giving speeches. And, the resulting affect was consistent - 50% increase in new business. (as reported by people we interviewed)
Now, twenty-seven years later, there is a lot more research available that teaches the concepts of credibility. Unfortunately, research is conducted by academicians, thus it rarely ever includes any practical application. And, this is exactly where we have focused our attention - the practical application of professional credibility. What’s the biggest “ah ha” from the years of research we’ve conducted? I think the thing that surprised me most was discovering that Credibility is achieved incrementally, bit by bit, when you follow a set procedure. Want to know the steps in the procedure?
“The link between facial features and character may be tenuous at best, but that doesn’t stop our minds from sizing other people up at a glance. We decide very quickly whether a person possesses many of the traits we feel are important, such as likeability and competence, even though we have not exchanged a single word with them. It appears that we are hard-wired to draw these inferences in a fast, unreflective way.”
All Things Considered, June 9, 2005 · Forget political polls. Scientists usually can tell whether political candidates will win or lose by testing voters’ reactions to the contestants’ faces. A study in the journal Science shows that voters chose the face that looks more “competent.” http://www.npr.org/templates/story/story.php?storyId=4696649
Even though we don’t like to admit it, most of us employ the approach of dragging the client into submission. It’s rarely effective, but that doesn’t seem to stop us from using it. I’d like to suggest a better approach. We call it Magnetic Selling. With magnetic selling, you are guiding rather than dragging your clients and your focus is to have them self-discover your value or the value of your product or service. The key is to get the client to say what you would normally say about your product or service. Even if they don’t say it per se, you want them to at least discover it.
The difference in results is amazing. When I say “annuities have changed pretty dramatically over the years and now offer the guaranteed income you’re looking for, the client is a) suspect and b) may not even hear the words. On the other hand, if I guide them through a process where they articulate that guaranteed income is important to them, then I show them how this can be achieved, rather than stating benefits, it becomes their self-discovery and not me telling them. Big difference. When you say it, they doubt it. When they say it, it’s true. So what do you need to do to become magnetic.
Step One – Learn to shut up.
Want to know the one thing you can do to dramatically improve your communication and rapport building skills? Learn to shut up.
Try following this simple guideline. Make sure the client talks at least twice as much as you do. Think about a 15 session. That means you have the floor no more than 5 minutes and they have the floor for 10.
And make sure that when they’re talking, you’re actually listening, as opposed to planning the next thing you’re going to say.
“When I go to meet with a man,” wrote President Abraham Lincoln, “I spend one-third of my time thinking about what I am going to say, and two-thirds of my time thinking about what he is going to say.” –Abraham Lincoln
Sadly this simple strategy is easier said than implemented. Why? Perhaps because so many sales people are Expressives and Expressives like to express…..themselves. Translation – they talk a lot. Mostly about themselves. Now that’s all well and good but effective selling is about the customer and when you’re talking its about you and not about them.
Step Two – Employ Other Messengers. Tell me if you’ve experienced this? Your teenager is screwing up big time and you know exactly what they need to do, but when you try to tell them what to do, they either look at you as if you had three heads or they pay no attention to you whatsoever. Now, along comes cool Uncle Cal who says exactly the same thing and suddenly they pay attention. What just happened? It’s called the theory of “other messengers.” It’s similar to the when you say it they doubt it concept, only this time you’re getting an intermediary to carry your message. Someone who has credibility and respect with the client, or the teenager or whomever it is you’re trying to influence.
Step Three - Be Patient. Not everyone comes to a conclusion in the same way or at the same pace. Different people need different kinds of information and need to go through different kinds of mental gyrations. Your job is to make sure they have everything they need to get there mentally, then be patient and let it happen.
n order to know what they need, you need to be able to identify their personality and mental filter configuration. This will help you determine how best to help them. Analyticals, for example, will need lots of information and time to process, while Drivers want only bullet points. (See our Face Values program for details).
