Among the enduring myths in this industry is the idea: to increase referrals, all you have to do is ask.
Generations of sales managers have harangued you on it. You have felt guilty because you didn't do it. You have included it in countless business plans. And either you never did it, or if you tried, it didn't work. In any case, you felt guilty for not living up to one of the commandments of sales.
I have long tried to send this tired old notion to the elephant graveyard. Some of my writings on the subject, plus a vital new spreadsheet for a better strategy, may be downloaded at my site here. As with the other best things in life, these are free.
Referral Defined
For years I have taught that "a referral is a name volunteered." Obviously, you cannot solicit something that must, by its nature, be volunteered. If you ask, you will NOT receive a referral. You are handed a name. These names (a) are just names and (b) rarely become clients. Further, the process puts the client on the spot and makes you look unprofessional. (Imagine the dentist who says, "Who do you know with similar gingivitis I could call?")
These are conclusions I came to from experience. Now, I have hard data from the only study I know ever done of referrals.
The Facts Speak
In December 2010, Julie Littlechild, president of Advisor Impact, released a study of investors, "Anatomy of the Referral." Sponsored by Schwab Advisor Services and conducted by Advisor Impact, the study gathered data on 1,034 advisory clients. The data was gathered in May 2010. Every FA should make this study required reading. You can get a complimentary copy of the survey at www.advisorimpact.com.
One of the questions on the survey is: "What were the circumstances of providing the last referral?"
Ms. Littlechild commented: "What's striking is that in only 2 percent of the cases did clients say that they referred because their advisor asked them for the name of her friend. If motivation to help an advisor was the only driver of referrals, then asking for a referral should work. The irony is that one of the most popular tactical approaches to increasing referrals among advisors has been to ask clients for the name of a friend. Our data suggests that this tactic is unlikely to work."
Her data, and your own experience, suggest a stronger conclusion: Asking for referrals does not work.
You should feel better, starting now, knowing you don't have to engage in this fruitless, self-abasing procedure.
Who Refers?
"Anatomy of a Referral" is an in-depth study of numerous service dimensions and their impact on client referrals. Based on responses to a variety of these dimensions, Ms. Littlechild classified clients into four tiers: Disgruntled (12 percent), Complacent (39 percent), Content (25 percent) and Engaged (24 percent).
By the author's definition, the Engaged Client provides a referral. Specifically, the Engaged Client is defined as: "one who meets three key criteria — a client who is satisfied, loyal, AND actively providing referrals."
I have a serious issue with the number of "Engaged Clients" she found. No one I have spoken to reports anything close to receiving referrals from 24 percent of their clients. I emailed my concerns to the author.
